To Our Clients, Colleagues and Friends,

• We were reading the latest issue of Smart Money, and there was an article on forming a new bank or thrift. The article says that the application rivals the U.S. tax code for complexity. We know, we know. An OTS spokesman was quoted as saying that a large application “might weigh” 25 pounds, but the article then quotes a banking attorney who says he regularly compiles 125-pound applications.

• Ever wonder what the first stand-up comedy album was?  It was in 1955 by Mort Sahl.  It was mostly political, with Sahl simply coming on stage with a newspaper and randomly commenting on various articles.  We saw him come out of retirement at a live performance maybe 15 years ago. He was actually pretty funny.

• Remember Herb and Marion Sandler, founders and operators of World Savings?  A serious and interesting discussion can be had on whether they were the brilliant people they were thought to be for decades – or whether they were just two more people who rode a bull market in real estate and mortgage loans.  We’d love to hear your thoughts.

• We’d like to know the sensitivity to the loan amount in reduction in re-defaults. For every 1% reduction in the loan amount, what percentage improvement is there in staying current? The evidence indicates that this is a bigger variable than lowering the rate or payment
• The Stanford women’s basketball team just defeated the University of Washington team by 77 points!  Final score, Stanford wins 112-35.  And we thought only guys piled it on.
• Famous last words by Dee Dee Ramone, all-time great rock ‘n roller: “Okay, I gotta go now.”

• Tomato Bank just got hit with a massive Cease Desist Order with the Office of the Comptroller of the Currency, and we can just the headline:  Tomato Bank Turns to Catsup or Tomato Bank Now Tomato Paste.

• Here are some retailers’ same-store sales figures for the 5-weeks ended January 5.

Scary – but it could have been worse.

• As of September the FDIC Fund stood at 0.76% of insured deposits.  This is clearly not enough, and legislation requires that it get up to 1.15% within five years. In our view, an insurance company can never have too much in the way of reserves and capital.

• There is only one person enshrined in the Pro Football Hall of Fame as well as the Canadian Football Hall of Fame.  Can you name him?  It’s Warren Moon, All-American at the University of Washington and then with the Houston Oilers, Seattle Seahawks and the Edmonton Eskimos.

• Indymac was sold for about $1.4 billion of new capital, for which the buyers got 33 branches.  When the deal closes, the FDIC will break out all the metrics of the purchase price.  We can’t wait.  But before trying to think through too deeply the purchase price for IMB, don’t forget that the FDIC retained an 80% stake on about $13 billion of single-family loans and another 80% of $2 billion in really toxic construction loans.
• According to American Banker, the two leading candidates for Comptroller of the Currency are Chuck Muckenfuss and Greg Baer.  We’re 100% for Muckenfuss, about whom we know absolutely nothing, simply because his name is right out of Mad Magazine.  Or it could have been a name that W.C. Fields used in one of his movies.  Either way, it will be fun seeing it on the front pages many days of the week as the banking crisis continues to unfold.  A good way to start the week.

• FNMA is trying to get Indymac Bank to buy back $1.0 billion in loans.  Isn’t that like kicking a dead horse?
• We read the Bank Investment Daily last week that was brilliant, (as always) and well-articulated.  Their point was essentially that regulators should stop attacking brokered deposits.  It’s not the deposits that are the problem, they argue, it’s what some banks do with the money, which is too often to make bad loans in pursuit of loan volume.  This is not nearly as well put as B.I.D.  stated it, but you get the point.
• Before Bill Mazeroski finally got admitted to the Baseball Hall of Fame, George Will gave two reasons, “both sufficient,” why he should be admitted.  “One reason is that as he was leaving church on his wedding day, with his bride on his arm, he put a plug of tobacco in his cheek.  The other sufficient reason is his pretty good defensive play.”  A chaw of tobacco on his wedding day?  What a guy!
• After Alan Greenspan expressed his “shocked disbelief.” at what happened to the economy, can’t you see him as Rick from Casablanca ?  Can’t you see him saying, “Shocked.  I’m shocked!!” If you’re having  difficulty with this image, imagine him in a tux with a cigarette in one hand and a martini in the other.

The Washington Post has also published the winning submissions to its yearly contest, in which readers are asked to supply alternate meanings for common words.  Some of the winners are:  (1)  flabbergasted, adjective, appalled by discovering how much weight one has gained. (2)  abdicate, verb, to give up all hope of ever having a flat stomach, (3) rectitude, noun, the formal, dignified bearing adopted by proctologists, (4) Frisbeetarianism, noun, the belief that, after death, the soul flies up onto the roof and gets stuck there.   You’ve probably seen them before, but they’re still funny.

We’ve fallen behind and have barely done one Garrett, Watts Report a week.  We hope to be back soon to our more normal twice-a-week schedule.  Thanks for your patience.

Garrett, Watts & Co.  -  Joe Garrett and Corky Watts

510-469-8633 or 408-497-3135