To Our Clients, Colleagues and Friends,

• When I got out of grad school in the mid-70’s, there were something like 5,000 S&L’s. In 1989 there were still over 3,500 and as recently as 1995 there were 1,650.  Last we looked, there were about 750.  Someone can now write the Requiem for an Industry as the Senate Bill abolishes the OTS entirely, & the House bill maintains the thrift charter but creates a Division of Thrift Supervision at the OCC. 
  
  Someday a kid will be watching “It’s a Wonderful Life” and ask, “Daddy, what’s a Building & Loan Society.”
• The thrift industry sure had some aspects which now seem weird:  They weren't allowed to offer checking accounts until 1972 when Consumers Savings Bank ( Worcester , Massachusetts ) pioneered a N.O.W. Account (NOW stood for Negotiable Order of Withdrawal) which mimicked a checking account. We just looked up some statistics, and as recently as 1975, Savings & Loans originated 53% of all single family mortgages.  We’d guess that it’s now less than 5%. Maybe some of you Google jockeys can look this up.
• The first S&L in America was the Philadelphia Savings Fund Society, found in December of 1820, and back in the early 80’s, PSFS was still a big force in single family lending. Do you remember Great Western, Home, American, Gibraltar , Imperial, Dime, and even State Savings? What about Bowery Savings, San Diego Fed, S.F. Fed, and all the Home Feds? The number of tombstones in the graveyard is huge.
• California Governors have the line item veto, so why the heck can’t Schwarzenegger balance the budget?  Did all those steroids shrink his cojonees down to nothing?
• Should you invest in Greek stocks?  It sounds kind of crazy, but if you’d invested in Colombia in 2001 when that narco-nation was pretty much a failed state, you’d have made more than 15 times your money.
• In Macbeth, Banquo asks the witch “If you can look into the seeds of time and say which grain will grow and which will not, speak then to me…”  Isn’t that a perfect line for people in the business of making predictions about interest rates and other economic things?  
  
  In the play, Banquo actually could see into the future, so there must be some way to use his quote as a positive statement rather than a question, and that would be one cool motto or tag line for anyone who did financial forecasting.
• And speaking of tag lines, Mike Hillman of Loan Source once cleverly came up with the phrase when speaking of his former company,  “Where service is not just a slogan, it’s also a cliché.”
• If you like things like lamb chops, you might be tempted to one day buy ground lamb at the meat market and make lamb patties for your next barbecue.  People, do not do this!  As great as a good rack of lamb is, hamburgers made with lamb are so rich that they’re flat out disgusting.
• If you’re a parent of a teenager, you know that you sometimes slip into the twilight zone of invisibility.  This is quite nifty when you’re driving teenagers around, when they talk openly in the backseat in their belief that the invisible driver isn’t listening.  Here’s what I heard from the back seat the other day: “Oh my God, so Jake didn’t do it with Sarah after all?”  “No, he told me that he got tired of waiting and just gave up. He said it’s like when you’re at the movies and you’re waiting in a really long line to get a slurpy, and that’s all you can think about.  You’re like totally obsessed with getting a slurpy and that’s all you can think about, but if the line seems like it’s not moving and it seems like you’re never going to get to the front of it and get your slurpy, you just kind of walk away and go back to the movie and try to forget about that you ever wanted one.”
  
• Look it up and you’ll see that crude oil is around $70 a barrel.  Does anyone remember that it was $145 a barrel only two years ago in the summer of 2008?
• If you’ve been reading this newsletter the last 7-8 years, as a client or just someone it’s forwarded to, you’ve heard us say repeatedly that You can’t manage it if you can’t measure it.  Y.C.M.I.I.Y.C.M.I.  Yick-me-Kimee.  So we’re going to give our first Yick-me-Kimee Award to Paramount Equity of Roseville, California.
  We wanted to know what their leakage was, and their CFO immediately pulled out a spread sheet that tracked every single loan by the expected price v. the actual, realized price, and for the first four months of the year – and this is a pretty high volume company – the leakage was a positive one half of one basis point!  It doesn’t matter that it was positive.  It just proves that the well run companies always seem to get the breaks. Anyway, a half a basis point is nothing!  When we see numbers like this, it’s real proof that a company is well run and their pipeline tightly controlled.  So a Yick-me-Kimee Award to the guys at Paramount Equity and, by extension, their hedging advisor, Capital Markets Cooperative.
• In about three months, many of you will be sending kids off to college (you’ll also be sending your paycheck), and you might want some good advice to leave them with. If you’re short on ideas, you can tell them (1) never take an English class where they have to read Beowulf, and (2) never take any class where they have to read Kierkegaard. We had no clue what Sickness Unto Death was about, and even the Cliff Notes were confusing. 
  
  The great thing about Kierkegaard is the lesson he taught society about not outliving your retirement savings.  When he was about 18, his father left him enough money that he didn’t have to work, and he never actually did.  He wrote books that he knew would torment college students a hundred years later, but he didn’t manage his money for the long-term.  His money was all gone by time he turned 40, and he promptly died with a week of exhausting it.  This is a true story, people.
• The Washington Post had a 2,000 word article on the things one could discern by studying how Supreme Court nominee Elena Kagan never crosses her legs.  The news “reporter” drew all sorts of inferences from this, along with the shortness of her hair and the types of clothes she wore.
  
  Granted, it was in the Fashion section, but still, isn’t the Post supposed to be a serious paper? A least American Banker never studied the color of Angelo Mozilo ’s ties or the kinds of socks Hugh McColl wore.
• With baseball in full swing, we’ll repeat one of our favorite baseball stories of all time, one we tell in here at least 8-9 times a year.  It has to do with Pittsburgh Pirates first baseman Dick Stuart, a hitter with good power but possibly the worst fielding first baseman in history. 
  
  In a hometown game in the early 60’s, a hotdog wrapper blew onto the field and drifted towards first base.  As it came his way, Stuart reached up and grabbed the wrapper in his glove, causing 30,000 Pirates fans to jump to their feet and give him a standing ovation.
• Lehman Brothers may be a thing of the past, but the law firms doing the unwinding have now billed $769 million.  The Alvarez & Marsal firm has been paid $377 million already.
• In good evidence that lending standards have tightened, 90% of the loans purchased by FNMA in the first quarter had FICO scores over 700.  Only 1% were under 620.  That really brings it home, doesn’t it?
• So what’s going to happen in Europe ? With the European Union collapse, or will they just kick Greece , Spain and Portugal out?  What if the Euro ceases to exist?  
• Don’t always trust the conventional wisdom.  Remember just a few months ago when everyone said that mortgage rates would shoot up as soon as the Fed stopped buying mortgage securities?  This seems like a variation on the statement that “That which everyone knows, isn’t worth knowing.”
• Courtesy of the WSJ and Nielsen, here’s the readership for the final shows of really popular series.

I was walking down Columbus Avenue in New York in 1983 when M*A*S*H had its final show. New York streets have a fair amount of people on them even in the cold of winter, but this night there was no one on the streets.  I only learned later from the doorman at the Carlyle that everyone was home watching the final show of M*A*S*H.

We gets calls all the time from mortgage bankers wanting to buy a bank, and many of them express their frustration at not being able to buy failed banks for practically nothing from the FDIC.  One solution might be to team up with a smaller community bank and make a joint bid of some sort.  Your attorneys will help you structure it so you can play a major role, or even have a control position, in the new entity, and we think this could be a good way to go.  If you want to simply go out and buy a whole bank or buy a major interest in it, pricing hasn’t been this favorable for buyers since the S&L crisis 20 years ago.

Cheers,

Garrett, Watts & Co.

“Helping lenders increase revenues, control costs, and better manage risk.

Bonus: The Seven Deadly Sins of Mortgage Bankers

Mike McAuley   (MMcAuley@GarrettWatts.com )

• Corky Watts      (CWatts@GarrettWatts.com)
• Joe Garrett      (JGarrett@GarrettWatts.com)