No regular readers or regular listeners can forget what the failure of New Frontier Bank did to our community.  I’ve said repeatedly how much I hate bailouts because government picks winners and losers, and Northern Colorado was slapped with the “loser” label.

A Fox Business report reminds NoCO residents of our “loser” status. Unlike NFB,  ShoreBank, a Chicago area community lender with ties to the Obama administration, will get a bailout rather than a notice of closure. According to Fox, some of the nation’s largest banks, along with the federal government, will pony up hundreds of millions of dollars to rescue ShoreBank. The bailout leaves some wondering if ties to the Obama administration helped secure rescue rather than closure:

The bailout has been controversial. Senior Obama adviser Valerie Jarrett served on a Chicago civic organization with a director of the bank, and President Obama himself has singled out the bank for praise in lending to low-income communities.

Another hundred million reasons why the federal government disgusts Americans.

While asking for his party’s nomination for  candidate  for Sheriff at the Weld County GOP caucus on Saturday, Sheriff John Cooke received three standing ovations.  It’s understandable why. Crime rates and response times are down in the nearly 4000 square miles that make up one of Colorado’s largest counties.

During his speech Cooke held up a copy of the Denver Post and told the delegates that he serves them and not those in Denver or at the state capitol. He referenced a an editorial that took him to task for saying he will encourage his deputies to use their discretion when enforcing the new enhanced emissions area, which requires nearly all Weld County residents to pay $25 to get an emission test when getting license plate tags renewed.

Cooke told the Post:

I’ll tell them [deputies] to use their best judgment and not necessarily write that ticket….It’s already affecting the poorest people in this community, and I would rather have the person going to work rather than trying to run around and come up with $800 to fix his car.

Older vehicles are most likely to fail, thus hurting those who can’t afford late model cars.  The new law will cost Weld County residents millions of dollars at a time when the County can least afford it.  Weld County still is grappling with the collapse of New Frontier Bank and the second highest unemployment rate in Colorado.

Cooke and others including Weld County Commissioner Sean Conway do not support the new law and argue it will hurt the least among us and that Weld County’s air already is clean.  Working with the oil and gas industry, which spent some $30 million, Weld County is in compliance — within the allowable limits for ozone pollution.  Denver merely wants our clean air so it can comply with new EPA standards. From the perspective of Weld County residents, Denver needs our clean air and we have to pay for it.

Memo to the Post editorial board: if you drive even one mile-per-hour over the speed limit and law enforcement sees you and doesn’t ticket you, that officer is using his “best judgment.”

As much as the delegates applauded Cooke for all of the above, his staunch support for the Second Amendment brought down the house. He believes it is the right of every individual to protect himself, his family and his property.  The loudest and longest standing ovation came when he said, “I haven’t and won’t put the name of any concealed weapons permit holder into a statewide data base.  It’s none of the state’s business…”

As a conservative, I was proud to be on the stage with him along with State Senator Scott Renfroe, Greeley Police Chief Jerry Garner, Firestone Police Chief David Montgomery all of whom spoke on the Sheriff’s behalf.

As John’s wife, I understand why they cheer him. I love him too.

Delegates gave him what he asked for — their support and the nomination.

It’s been a while since I’ve written about  the economic “fiasco” we’ve come to know as New Frontier Bank.  The Denver Post published a lengthy, two-part investigative piece on the billion dollar failed bank.  (Part 1 and Part 2)

The Post investigation found:

• With government inspections looming, the bank’s loan officers rewrote terms of delinquent loans, disguising steady asset deterioration, according to a former board member and records.

• New Frontier Bank executives staved off an effort by the bank’s federal regulator, the Federal Deposit Insurance Corp., to ban one of its high-performing loan officers accused of fraud at a previous bank. Later, that officer was convicted of theft for stealing deposits at New Frontier.

• The bank’s board authorized a $400,000 payment to one of its members whose used-car business was in financial trouble, sources said, despite a state law barring preferential treatment for bank insiders.

• After regulators told New Frontier in 2008 it needed to raise cash, bankers issued loans to at least a dozen borrowers who in turn agreed to buy stock in the bank. Such transactions can be illegal if coercion is proved.

Perhaps most important is this line:  “A federal probe into potential fraud at New Frontier is underway by the Justice Department.”  This is good news.  Taxpayers, northern Colorado residents and small businesses would like to know if we are the only ones who will have to pay the price for Colorado’s largest bank failure.

During testimony in front of the Long Term Fiscal Stability Commission on which I sit, one gentleman predicted that July 2009 may mark the end of the “Great Recession“.  A headline in the Denver Post Sunday Business section (print edition) screams: “Optimism taking hold”…

…unless you are in Northern Colorado and have even as much as a dozen degrees of separation between you and New Frontier Bank.   According to the Greeley Tribune:

Iron Mountain is now the second domino to fall after the closure of New Frontier Bank in April, which many say artificially propped up Greeley’s economy with its liberal lending practices.

Iron Mountain, for example, owed about $6.75 million to New Frontier, now being liquidated by the Federal Deposit Insurance Corp.

‘What I’m hearing is that we’re not through the full ramifications of the New Frontier closure yet,’ said Larry Burkhardt, president of Upstate Colorado Economic Development. ‘I don’t know what else to anticipate, but I keep hearing that we’re going to see more consequences of that bank failure down the road.’

We are all hearing the same thing.  Last May I posted the following on my blog:

A land developer told me that the impending implosion of the commercial real estate market will make the recent devaluation in the residential market look like a “day at Disneyland.”

What I didn’t report (but maybe should have), is that the same land developer followed up that statement with a prediction that Iron Mountain Autoplex and John Chamberlain would be the first to go.  Even if it is someone else’s opinion, I admit to being a bit leery of naming specific businesses that may be in serious financial trouble without substantial financial data to back up the claim. Maybe it was wishful thinking — hoping it would not happen.

Not a week goes by that I don’t hear from a business owner worried about losing his or her livelihood.  That’s one of the things I hate about the bailouts.  Washington D.C. decides winners and losers, and No CO has been tagged with loser while having to pay for the bailouts of the winners.  No bailouts for small business nor community banks.  Note holders await the sale of their loans and hope the new buyers will work with them.   Some, formerly strung along by the FDIC, are now being strung along by the SBA (Small Business Administration).

Add the ugliness of NFB to Weld County’s unemployment rate of 8.6%, third highest in Colorado and a full percentage point above the state average, and optimism may be a little harder to find around here.

Funny note: In an earlier post, I predicted that the collapse of NFB would be the biggest issue of the 2010 election cycle.  I may be wrong.  I underestimated the passion of opposition to Obama Care.

New Frontier Bank made the front page of yesterday’s Wall Street Journal with an article titled “Town’s Friendly Bank Left Nasty Mess.” 

What is left out of the article is just how bad the economic impact will be.  Good and bad loans will be packaged and sold for pennies on the dollar to large investment firms or hedge funds.  According to the FDIC, the terms of the original loan remain in place unless borrowers are as little as one day late on one payment. That note may get called in.  Can’t pay? Tough.  You aren’t negotiating with your local banker anymore.   Loan managers may begin foreclosure and sell off the assets.  From what I understand sale of bundled loans will begin later this summer.  We will begin to see the fallout by the end of 2009.  So much for our late year recovery.

Denver gets our water. We get  property devaluations, dried up farm land, double digit unemployment and a depressed tax base.  Despite how bleak that picture looks, we will recover.  It may take 3 to 5 years but we will recover.

Something to keep in mind, bank regulators audited NFB loans every six months and never found a problem with them until the end of 2007 when the economy was headed south.   NFB complied with new regulations but the economy continued to tank. 

According to bank insiders, at the end of 2008 NFB applied for $42 million in TARP funds but Governor Bill Ritter would not sign a letter of recommendation so FDIC Chair Shelia Bair wouldn’t approve the request.  A request to Ken Salazar to intervene got little response during last fall’s busy campaign season. 

Also according to those involved in negotiations, the FDIC nixed a plan that would have brought in much needed capital from an investment group out of Boulder.  News reports say that the deal “fell through” but some of parties involved insist that is not the case claiming the FDIC targeted NFB for closure.

Question number one: If NFB had been approved for the TARP funds, would that have improved the bank’s balance sheet enough to weather the current recession?  In other words, would $42 million in taxpayer dollars have saved the $670 million that it now is costing to fix the mess? 

Question number two: If the FDIC hadn’t stopped the sale of NFB to the Boulder group, would NFB have been able to survive — saving taxpayers millions and Northern Colorado from the pending economic devastation.

I do not support bailouts.   The worst thing about them, is that the government gets to pick winners and losers.  Clearly, Northern Colorado has been tagged a loser.   It’s also clear that those in charge underestimated the pain of closing NFB versus keeping it afloat with TARP money.  We are in uncharted waters.  In my opinion, neither the FDIC, Governor Ritter (he signed the closure order), nor our congressional delegation (Congresswoman Markey and Senators Benett and Udall) ever grasped the magnitude of the situation.  The economic multiplier effect will be in the billions of dollars.  This is our economic tsunami.  

The collapse of NFB will be the biggest issue in Northern Colorado (especially the 4th CD) of the 2010 election.

For those who want to skewer NFB management, I understand your anger but I don’t want to use them as a poster child for why the FDIC should shutter all community banks.  NFB isn’t the only one (and there will be more).  Community banks are imperative to economic growth in small communities that don’t have connections to national financial institutions.  I think this quote from Windsor Mayor John Vazquez sums it up perfectly, ”At community banks it’s not all about performance and projections…It’s about belief in the individual, the guy you sit next to in church.”

Unemployment is nearly 9 percent; the economy continues to contract; GM is bankrupt; New Frontier Bank’s collapse continues to plague all of Northern Colorado; and the Greeley teachers’ union (GEA) wants more than a 10 percent increase in teachers’ overall compensation including pay raises, retirement contributions and additional funding for health care premiums.

Furthermore, at 66 percent, Greeley Evans District 6 graduation rates are below state average and those of most neighboring districts.    And based on what I saw at Greeley Central’s graduation that percentage won’t go up next year.  District 6 also suffers from below average CSAP scores.  However teacher pay is above those of neighboring disticts.  In December 2007  the Greeley Tribune reported: “District 6 teacher pay had ranked in line with Fort Collins, Loveland and Longmont, but under the new agreement Greeley-Evans’ beginning and maximum salaries…will top neighboring districts…Additionally, with teacher pay in 2006-07 at an average of $47,866, District 6 exceeded the state average of $46,973 that year. ”

In fall 2008 a top tier teacher in District 6 could make over $80,000 per year.  With a 185 day contract, that’s nearly $433 per day.  Not bad pay!  That doesn’t even count the most generous, albeit insolvent, retirement program in the state PERA Colorado.   All of this is on the taxpayers’ dime.

A 10 percent increase in teachers’ compensation is unrealistic in today’s economy.  But it isn’t just teachers.  The administration is bloated.  We have a six figure mouthpiece because our Superintendent making nearly $210,000 doesn’t have time to talk with the press.  No wonder the district wants a mill levy override (pipe dream).

Much of this might not matter if we were graduating well-educated kids.  As it stands right now, we are barely graduating mediocre students.

Here’s a lesson that District 6 should take to heart.  In tough economic times, don’t ask people who are either making less than you are to shell out more of their hard earned money for marginal results.  It’s not a successful business model.  Too bad the delivery of public education isn’t more like a business.

A warning about this post: I use anonymous sources so take it through that filter.   However, everything posted was told to me independently by more than one source, or I was able to verify another way. 

Bill Jackson, Ag reporter for the Greeley Tribune, said it best when he wrapped up his article about Ag producers who face economic ruin following the collapse of New Frontier Bank.  Jackson wrote, “it could get real ugly.” 

Most businesses that had a loan with NFB have been told to find a new lender or face their loan being packaged and sold to an out of state bank for pennies on the dollar.  According to a phone conversation between one business owner and the FDIC,  loans are “going to be sold to an outside lender.  It’s not going to be anything here in town or maybe even in the state.   You’re never going to be able to actually talk to anybody to get anything done in person.  It will always be over the phone.”

And even one day late on a payment could constitute a violation of the terms of the loan, which allows the out-of-state bank to call in the loan.  The FDIC representative warned, “it’s in your best interest to get the loan refinanced before it’s sold.”

There are a several problems with this suggestion. First, there is no capital.  Second, the FDIC has made it harder for banks to loan by raising the required capitalization levels. Three, many of these loans are underwater as it is so they don’t qualify even if the capital is available.   And four, banks have no incentive to loan when they know that in a few short weeks they can buy the notes at auction for pennies on the dollar. I’ve heard from some former NFB customers that have been to dozens of lenders with no success.

Couple the financial mess with low commodity prices and hundreds of wells shut down two years ago, and we face a grave future. Agriculture is a $1.5 billion business in Weld County, making it 8th in the nation in agricultural product sales and the only county in the top ten outside of California.  This important industry is in trouble.  According to Jackson,

Many veteran agribusiness people are predicting the fallout from New Frontier’s closure will be worse than when the Greeley packing plant of Monfort was shut down for two years in the early 1980s, and the financial woes farmers faced in the mid-1980s with double-digit interest rates and commodity prices at the bottom of the barrel.

On my show last week, Carrie Linker, executive director of the Morgan County Executive Development Corporation, voiced another frightening possibility about what could happen if farmers, ranchers and dairies go bankrupt.  Banks foreclose and sell to anyone who will buy.  Buyers may include municipalities that only want the land for the water rights that go with it.  Front range cities could buy the water and allow the once fertile farm land to dry up in order to satisfy thirsty populations.

Ag isn’t the only troubled industry since the closure of NFB.  According to reliable sources, commercial real estate is about to see the bottom drop.  Source predictions include:

• double digit unemployment
• up to $1 billion of commercial real estate flooding an already saturated market as owners try to avoid foreclosure and banks try to get what they can for properties that are upside down.
• additional bank closures possible

A land developer told me that the impending implosion of the commercial real estate market will make the recent devaluation in the residential market look like a “day at Disneyland.”

It’s clear that the FDIC doesn’t know how to handle the situation.  They don’t have enough people on the ground in Greeley to make decisions.  I called the FDIC last week and have yet to receive a call back.  According to former NFB customers, that seems to be the pattern with federal agency.

To paraphrase Jackson, the picture isn’t pretty.  A longtime resident who is close to the situation described No CO’s economic future: “Think of the New Frontier closure as an earthquake that caused a tsunami that is currently out at sea.  The forecast is we are about to get slammed and all we can do is prepare.  Sadly some people are still walking on the beach oblivious to the danger.”

Jackson is right, it could get ugly, real ugly.