Federal Gov't Shuts down NetBank

Here's the story (pops). 

I'm curious as to your reaction to this? I am almost certain that this move will be applauded by most outlets as the government stepping in to do what is "right." Besides the obvious BS linked to any and all government interference, the fact that the Feds step in and shut down one bank while bailing out dozens of others is more than a little hypocritical and completely anti-capitalistic. 

What would Murray say?

 

Yet another failure of supposed government regulation causing people to avoid the responsibility for their actions, with bad results.  The Federal Government must realize that regulating and propping up a market is counterproductive.

csullivan:

Besides the obvious BS linked to any and all government interference, the fact that the Feds step in and shut down one bank while bailing out dozens of others is more than a little hypocritical and completely anti-capitalistic.

 

They can't let any banks 'fail', people would lose faith in the system and it would destroy the base of fractional reserve banking. So they have to step in and bail out some here and there and 'shut down' a couple to show the people they have teeth and aren't afraid to use them.

It's all a sham, chances are this bank would have been 'shut down' without their help but probably made a deal to ease the process since their previous deal fell through. 

The question we should be asking is who gets to keep the $14 million? -- ING will pay $14 million for the deposits and receive 104,000 new customers.

 Back in the 90's when I was a broke teenager, I used internet only banks because they would give you $50 free just for signing up... Ahhhhh those were the days. Easy money.

As an investor, I was actually looking at NetBanks because there was hidden value in the wreckage. I ran in depth analysis's of the company, what would be the reproduction cost of their assets, etc. In fact, I wasn't the only investor. I found many investors posturing themselves to buy large chunks of net banks and re-organize the asset. The or sell the valuable parts (that was plan B of course) for a profit.

 My point is: The market was going to take care of it! We were ready for this collapse with fists full of dollars and hours of research. We knew EXACTLY where to reallocate the capital to create a powerful business. And we got screwed!

 The goverment stepped in and basically burned more than a billion dollars in asset value. Now they are going to use our tax dollars to pay for whatever they think should be done. Even further, it is a CRIME that ING was able to buy that portfolio for 14 million dollars!

 Here is a link for a brief analysis if anyone is interested:

http://www.valueinvestorsclub.com/value2/guests/view-thread.asp?delay=90&id=2784&more=dtrue

 So we were going to make about a 50% gain once this crisis began to unfold and we could build a position, but instead we get nothing. I didn't lose any money on this situation but I did lose a hell of a short term arbitrage opporunity for my fund holders.

 What a waste! 

He would say that just like any fractional reserve bank, it is bankrupt by definition.

 

My point is: The market was going to take care of it! We were ready for this collapse with fists full of dollars and hours of research. We knew EXACTLY where to reallocate the capital to create a powerful business. And we got screwed!

I have a question for you since you're knowledgeable in this field.

A discussion about the sub-prime 'crisis' was going on over at technocrat.net (no link to the story, sorry) the other day. The general consensus is the banks just take the losses from the bad mortgages and sell the foreclosed properties at auction at a loss but someone believed it would be better to take the properties and turn them into rentals, turning a short term loss into a long term gain. 

My question is was anyone looking into this or does it just basically just go 'they have $1.4 billion in assets and $1.3 billion in debt so after restructuring there is a potential $100 million or so "excess" capital'?

I personally think that home prices are way too inflated to pull this off but it's just a feeling I have with nothing to back it up... 

@ AC Exactly. But also, the FED through the FDIC absorbed a full chunk of the operation, which in reality means, it became nationalized. The GOV now owns the bank and at the same time eliminated their competition. As far as ING goes...

History
The company was created from the 1990 merger of Nationale-Nederlanden and NMB Postbank Groep.
1995: ING acquired investment bank and investment management firm Barings.
1997: ING acquired insurer Equitable of Iowa Companies.
1997: ING opened ING Direct Canada.
1998: ING acquired Banque Bruxelles Lambert (BBL) of Belgium.
1999: ING acquired BHF-Bank of Germany.
2000: ING acquired US insurers ReliaStar, Aetna Financial Services and Aetna International.
2000: ING opened ING Direct USA.
2001: ING acquired Bank Śląski of Poland, and insurer Seguros Comercial America of Mexico.
2002: ING acquired DiBa bank of Germany
2004: ING Insurance Company of Canada acquired Allianz Canada
2004: ING sold BHF-Bank of Germany to Sal. Oppenheim
2006: ING opened ING Life Bulgaria, a branch of ING Life Hungary.
2007: ING acquired Oyak bank of Turkey
2007: ING launched its first variable annuities product for the European market in Spain
[edit]Investigations into investment and business practices
Over the past several years, the ING Group has come under considerable scrutiny over the ethics of some of their business practices. In October of 2005, the National Association of Securities Dealers (NASD), the leading private-sector provider of financial regulatory services, ordered ING Funds Distributor (IFD) to pay fines of $1.5 million for permitting improper market timing in ING funds and related violations, $1.4 million in restitution to affected mutual funds, and $25,000 fine and 30-day supervisory suspension on an IFD supervisor.[1] On 2002-09-07 ING increased its stake in the equity from 20% to 43.99% in the erstwhile The Vysya Bank Ltd as a result of which The Vysya Bank Ltd changed its name to ING Vysya Bank Ltd.

...most likely a shell for a Central Bank. I've used ING. Very limiting on it's customers as to what they can do with their money. If owned by a CB, it would make sense.

Anonymous Coward:

 

My point is: The market was going to take care of it! We were ready for this collapse with fists full of dollars and hours of research. We knew EXACTLY where to reallocate the capital to create a powerful business. And we got screwed!

I have a question for you since you're knowledgeable in this field.

A discussion about the sub-prime 'crisis' was going on over at technocrat.net (no link to the story, sorry) the other day. The general consensus is the banks just take the losses from the bad mortgages and sell the foreclosed properties at auction at a loss but someone believed it would be better to take the properties and turn them into rentals, turning a short term loss into a long term gain. 

My question is was anyone looking into this or does it just basically just go 'they have $1.4 billion in assets and $1.3 billion in debt so after restructuring there is a potential $100 million or so "excess" capital'?

I personally think that home prices are way too inflated to pull this off but it's just a feeling I have with nothing to back it up... 

 I made a really long post then it got deleted lol. So here are the highlights:

 The foreclosed properties, whether they are turned into rentals or sold, 99% of the time, never make up for the losses incurred in the process of foreclosing a property. And that 1% definitely does not make up for the other 99%. The best financial institutions have underwriting guidelines that avoid any unnecessary measures against the customer like they were the plague. So in reply to the rental question, it wouldn't produce a long term gain (99%) of the time. It would just create an overhead expenditure for an asset who's value is overblown anyways. What I mean by overblown is that the average price of a piece of real estate in this country is going to go down significantly during this credit crunch.

 To your question about the assets - debt = capital, yes that was part of the equation but surprisingly a small part. More important was the analysis of the actual business structure. Before I considered liquidating the company I was contemplating restructuring. It is very very expensive to start a financial institution from the ground up with no normal retail chains. And I didn't even consider the time cost!

 If anyone has any questions that have to do with investing, I'll do my best and give it a shot.

 Ron Paul 2008!!!

To your question about the assets - debt = capital, yes that was part of the equation but surprisingly a small part. More important was the analysis of the actual business structure. Before I considered liquidating the company I was contemplating restructuring. It is very very expensive to start a financial institution from the ground up with no normal retail chains. And I didn't even consider the time cost!

OK, I get it. So basically just get them on a sane course and capitalize on the investment already made in getting the bank up and running.

I was reading an article a while ago about how net banks are the wave of the future because of the lower operating costs. It would appear the Fed just destroyed a few hundred thousand man hours of invested capital along with people's trust in an online only bank.

Unintended consequences and all that...  

Or perhaps semi-intended.

 Traditional banks with retail space have a much higher overhead cost than a full online bank. It is conceivable, and netbank showed it for some time, that a internet bank could beat the snot out of a traditional bank based on their payouts to clients. I cannot remember the name right now, but there is still a functional online bank that pays 3 times the national average APY for their savings accounts! There is also an online bank down here in Florida that pays a 6% CD for 10 months. It also has no cost to "purchase" the CD agreement as long as you do it online with your account. Pretty incredible considering that the best I have seen from a traditional bank has been a 12 month 5.75% with a significant fee to enter the program.

 

I am sure, like all other innovations, that the special interests of the banks have something to do with their little war on internet banks. This is not the first time they have made life more difficult for an online bank. At the end of the day, the mafia has to take care of its own.

 BTW, using the criteria that the government used for shutting down netbank, they should have shut down MANY traditional lenders. But they haven't... instead most of them have been allowed to go into a bankruptcy restructuring. Just a coincidence?