Banking Law

Readers have asked me if I had seen the now infamous video put out last week by a couple of a snark-meisters with a video camera and a ton of attitude, who hammered the FDIC's loss-sharing agreement with OneWest that covered the "owned" residential loan portfolio that OneWest purchased from the FDIC as part of the resolution of failed savings bank IndyMac. I'd seen it, and so had the FDIC, which issued a press release last Friday, along with a "supplemental fact sheet," that dealt with the viral video by basically calling the video's producers a bunch of nitwits and dung-eating liars. For a number of reasons, including the fact that I'm representing folks who have bid and will continue to bid on failed bank deals with the FDIC that involve loss sharing agreements, I don't intend to get into the substance of the erroneous conclusions made by the video's authors with respect to loss sharing agreements.What I don't say can't be held against me.

However, I do I wish that the FDIC had either ignored the video entirely or done a more thorough job of rebutting it. Listing bullet points and expecting folks who don't deal with these issues regularly to connect the dots is unrealistic. While the Calculated Risks of the world immediately "get it," they are vastly outnumbered. You need to take the rest of the world by the hand and lead it through the error of its ways step-by-agonizing-step. I realize that the FDIC folks were as exasperated as they are when I make Sheila Bair my personal piñata, and I'm certain that they wanted to treat them like they treat me: as a pimple on the backside of humanity that ought to be lanced, cauterized, and banished from view. Nevertheless, as I frequently tell my friends in the regulatory agencies, you've got to be better than I am. 

Also, focusing on relatively unimportant errors (as far as the central theme of the video was concerned), such as the incorrect allegation that the FDIC was getting ready to borrow from the US Treasury, and making a big deal out of such a side issue, makes it appear that the FDIC can't deal with the main point of the video and is trying to distract its critics by picking low hanging fruit and dangling it in front of our eyes. Not only did the dismissive tone of the FDIC's press release sound like it was uttered by a pissed off seventh grader ("and, like, these guys were just acting, like, you know, so STOOOOOPID!"), but it merely cranked up the video's hosts' adrenaline levels the point that they added another three minutes of rebuttal to their video and posted various supportive blogger links (including a link to one guy who appears to claim that OneWest may not actually exist because he couldn't find it listed in the SEC's database. Dude: OneWest is a federal savings bank. Try the FDIC's database). They were just as sarcastic and in-your-face today as they were last week, and now they've got all that additional site traffic and reams of comments from enraged realtors and borrowers who can't get loan modifications or short sales approved. Most of them are pointing their fingers at the FDIC. If a smackdown was intended to be administered by the FDIC, it didn't work, because the opponent bounced back up with renewed vigor and his fans are bellowing their renewed support.

The video appears to have been based upon a blog post from last September by Robert Hertzog of Arizona, who related the tale of a short sale from hell that was repeated by the video's hosts. The example used in the video is identical to the one set forth in the Hertzog's post, and Hetzog utters the line "Wait, it gets better...The FDIC just announced that they are 'considering' borrowing money from the U.S. Treasury in order to replenish it's deposit insurance fund (the same fund being used to pay all of these banks in the Loss Share Agreements)." That's very similar to a line used in the video that enraged the FDIC. What was true in September 2009 (that the FDIC was considering tapping a Treasury line) was not true when the video was made last week. A little research by the video's makers, instead of simply parroting Hertzog's outdated  statement, would have eliminated that false statement. Of course, a little research by the FDIC would have uncovered the source for this misunderstanding and made for a more measured response than "liar, liar, pants on fire." I mean, if a quarter-wit like the author of this blog can track down this evidence, the giant brains at the FDIC would certainly be expected to do the same.

Hertzog isn't backing down in the face of the FDIC's latest blast, either. He came out swinging today by reciting the entire history of the incident, restating "the math" and his analysis of the loss sharing agreement, and alleging that not only his client, but three more realtors in Arizona, got OneWest to back off a deficiency note on a short sale by writing to both US Senators from Arizona and OneWest's CEO with "the math" on their individual cases. He concludes with the equivalent of asking the FDIC when it's going to stop beating its wife: "So, my question to the FDIC and OneWest is, if this story is so 'blatantly false' as you claim it to be, why does OneWest change its tune when they are reminded of their greed?"

The FDIC doesn't want my advice and certainly assumes I'm not worthy to give it any (and I can't argue with it on that point). Nevertheless, they're going to get it. My advice would be to tackle "the math" head on. Take people through it like you were dealing with a "challenged" class, and not condescending to them, but trying to make them understand your point because you honestly want them to comprehend it. Connect all the dots for us. Bury us in analysis, at least enough that the only people left to carry on the fight will be the wing nuts and the tin foil hat wearers, who shall always be among us and for whom we shall always have to make allowances, and then ignore.

While you're at it, explain again why loss sharing makes sense, and what the alternatives to loss sharing are, and why none of them are preferable to the FDIC. Assume we're idiots, but well intentioned idiots. Because it's not just two guys and a video camera who are waging war against loss sharing. It's one of those aspects of the resolution process that more informed critics are starting to pick apart.

If you're not up to all this work, then the next time a half-baked video gets fired up, ignore it. Because some times, you need to swat a fly with a sledgehammer or it will never stop buzzing.