Never Blame on Hyperoptimism what can be attributed to malfeisance

Dr. Black starts digging into the question why so many Georgia-based banks fail. The picture painted isn’t pretty:

The review also contains a photo of a planned 238 townhouse project that the bank financed for $5.6 million in 2007 even as the real estate market was softening. By September 2008 about three quarters of the loan had been disbursed. The photo taken in 2009 shows an empty lot with no construction on it. The FDIC now appraises the property’s value at $1 million.

By my current count, 25 of the 129 bank failures of 2008—seven more than Illinois and ten more than California. (Only Florida is also in double-digits, with 11 failures, three of which came yesterday.)

AB Commenter Nancy Ortiz was all over this possibility back at the end of June:

I wonder if the GA phenomenon isn’t some sort of scam. If I have some money to invest, why can’t I open a bank, solicit customers, provide basic services with high fees, sell stock, etc. Then I can use the resulting cash to give loans to people, getting high interest on various real estate or commercial ventures. Or, in GA, I might want to bribe state politicians by means of loans on overvalued assets. I could make loans like that to the governor, for example, in exchange for tax advantages, specific favorable legislative measures (income tax exemptions on other enterprises I own, for example) water rights, state contracts, you name it. I could make a lot of money that way, and the FDIC would pick up the individual depositers losses, or not, if I have sold them uninsured CD’s. Another small bank bites the dust, and I go on an extended cruise to….um, Argentina. It’s cold down there at this time of year, but later, I hear the weather’s quite nice.

while Guest followed with a possible point of salience:

Georgia has too many banks — one bank for every 28,000 residents. Georgia also had a big surge of commercial lending for risky real estate deals. This seems more like the savings and loan crisis of the 1980s than the sub-prime crisis.

I admire the optimism of Guest (and the Atlanta Journal-Constitution).

Also noted for the record, in the interest of full disclosure: the Business Week piece cited by Dr. Black was written by my neighbor and former editor, Peter Carbonara.

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