To Our Clients, Colleagues and Friends,

• I was on a flight back from Austin that stopped in Las Vegas , and the two guys who got on and next to me were from a hard money fund that had made a construction loan on a Las Vegas condo project. The units had been listed at $160,000 and were now priced at $44,000. They had to get squatters out of the project and were just generally trying to figure out what to do. Anyway, with all the press about bank loans going bad, have you noticed that there’s been almost no coverage of these private money funds (appropriately called “Hard Money’”) that have taken such a beating? My guess is that they’ve done much, much worse than the banks. The banks may have had loose lending standards, but at least they had some standards.
• A generation or two of readers knew that a Catch-22 is no-win situation, a rule of the military bureaucracy with a circular logic that is internally illogical. From now on, though, it should represent regulatory illogic. What better example of a Catch-22 is there than a healthy bank which wants to repay its TARP money but whose regulator won’t let them do so?
• Here’s a trick question: Which player holds the rookie record for most base hits in his first season: (a) Ty Cobb, (b) Stan Musial, (c) Ted William s, (d) Joe Jackson, or (e) Honus Wagner? The answer is none of the above: Ichiro Suzuki got 242 base hits (and batted .350) during his rookie season with the Seattle Mariners in 2001.
• Hannah Garrett used to say she’d never, ever join a sorority, probably as a result of seeing life in the Delta Nu house in Legally Blond. As she gets ready to go off to college in a few months, she’s how expressing an interest in maybe joining one. This, apparently, is after watching the TV show Greek. Is there a teenage girl alive who doesn’t watch this show?
• Every so often we like to give people an example of how bad inflation can really get. A good one is what happened in Yugoslavia . Remember that country? From 1971-1991 inflation averaged 76% an year. The Serbian-controlled government started really cranking up the printing presses in late 1990, and the worsening inflation caused Croatia and Slovenia to secede and form their own nations. Without Slovenians and Croats to rob, Serbia ’s Slobodan Milosevic turned viscously on his own people. From 1992 and lasting 24 months, inflation got completely out of hand, and in January 1994, inflation increased by 313,000,000% in that one month alone. There were 14 devaluations, with each of the final three exceeding 99.9%. If you have $250,000 in a 401(K) you can see what this Yugoslavian type inflation would have done to your account by moving the decimal point 22 places to the left.
• $250,000 then becomes worth $.000000000000000000000025. The original $250,000 is now worth a whole lot less than a penny. In fact, it becomes worthless. Inflation not only ruined the economy in Yugoslavia , it also ended Yugoslavia itself.
• Can you name the countries that used to make up Yugoslavia ? Today that country has been broken up into Serbia , Croatia , Slovenia , Macedonia , Bosnia (and don’t forget Herzegovina ), and Kosovo, sort of. Croatia is a beautiful country, but skip Dubrovnik . It’s really weird, but the city looks so perfectly, totally medieval that it seems unreal, a sort of Dubrovnik-land vision of how Walt Disney thought a medieval town should look.
• If you’ve gone to high school graduations over the years, you’ve noticed how the farewell songs have changed. Joni Mitchell’s Circle Game is still played, but Time of Your Life by Greenday is now part of the canon. “Another turning point, a fork stuck in the road, Time grabs you by the wrist, directs you where to go. So make the best of this, and don’t ask why. It’s not a question but a lesson learned in time. It’s something unpredictable, but in the end it’s right. I hope you had the time of your life.” All songs at graduation are touching.
• More Bank of America History: When A.P. Giannini bought his first bank after starting Bank of Italy, it was the Commercial and Savings Bank of San Jose . When the Bank of Italy closed on the acquisition in 1909, they immediately unloaded all loans categorized as doubtful, selling them to a San Francisco speculator for 50 cents on the dollar. This became Bank of Italy’s first branch, and the world has never been the same.
• One of the interesting things about Giannini was that after 50 years of running the bank, he died well-off, but not rich. He’d go for long periods without a salary (just expense reimbursement), and in 1927 when the Board insisted he take some salary, he gave almost all of it to the University of California , Berkeley .
• In 1927, Bank of America stock was wildly popular. It traded as high as $688 a share, and even after a four-for-one split brought it down it $172, it went back up to $263, the equivalent of $1,052 pre-split.
• Almost as if he predicted the 1929 crash, Giannini sent out a letter to all his shareholders, many of whom were buying the stock on margin: “I would like to see our stockholders clean up their margin loans and place themselves in the strongest possible market position. It might be necessary to sell some holdings in order to do this, but we want them to own their stock outright. We want our shareholders so firmly entrenched that they cannot be forced to sell at some unfavorable time.”
• Giannini eventually bought a New York institution named Bank of America, and for a number of years his holding company, Transamerica Corporation, owned the stock of both Bank of Italy and Bank of America. In September, 1930, they decided to consolidate everything as Bank of America. For 26 years, though, Bank of Italy was America ’s bank, the people’s bank, the pioneer of branch banking and of banking for the common people. By any standard, Amadeo Pietro Giannini was the Banker of the Century!
• Robin Roberts, who gave up more home runs (505) than any other pitcher in history, was a man of deep religious conviction. “In the long history of organized baseball,” he said, “I stand unparalleled for putting Christianity into practice. And to prove I’m not prejudiced, I served up home run balls to Negroes, Italians, Jews and Catholics alike. Race, creed, nationality made no difference to me.”

That’s Phillies great Roberts in the middle.

• We just read that O.J. Simpson is a gymnasium janitor in the State prison in Lovelock, Nevada . Somehow, the tragedy of his life seems to reflect the other side of the American Dream that we read out in Dreiser’s An American Tragedy, The Great Gatsby and What Makes Sammy Run. By the way, What Make Sammy Run is a great read and a relatively short one at that. Let me know what you think.
• Part of the San Francisco Bay Bridge collapsed during the 1989 earthquake, and 21 years later, the replacement span is almost finished. Twenty one years? Anyway, what’s not surprising, but should be, is that this icon of American engineering prowess is being manufactured in Shanghai . Of course.
• The two greatest base-stealers I watched growing up were Willie Mays and Rickey Henderson, both of whom also hit for average. I was bored the other day so I decided to look for an anti-Willie or Anti-Rickey. What I came up with was Donn Mattingly, with 1986 being a perfect example of great average and less than great base-running. The Yankees first baseman had 677 at bats that year without a single stolen base. He had a .352 average with 238 hits, so he was on base a lot. He just didn’t try to steal any of them. In his 14 year career, he stole only 14 bases.
• A favorite Willie Mays story had to do with 1958, the summer when Russian leader Nikita Khrushchev came to the United States and made a point of visiting San Francisco. Willie was in a rare slump and was starting to get booed when he came to bat, while Khrushchev was cheered wherever he went. Columnist Herb Caen wrote, “ San Francisco is a strange city. We cheer Khrushchev and boo Willie Mays.” By the way, the new Willie Mays biography is supposed to be pretty good. Bill Clinton wrote a testimonial for it, saying how much he liked it.
• If you read the history of the Bank of America, the banks’ headquarters was #1 Powell Street , the corner in downtown San Francisco where the cable cars turn around. What is #1 Powell today? Today, it’s a very bustling Forever 21.
• The Bank of America has always been an active lender, even in our nation’s darkest days. In 1936, the national loans-to-deposit ratio was 33%, but at BofA it was 48%.
• When did Bank of America become the nation’s biggest bank? It was October 1945 when BofA first pulled ahead of Chase National Bank, $5.03 billion in assets v. $4.96 billion.
• Time Magazine let its readers ask the Dalai Lama ten questions, and one of them was whether he ever wore pants. If you got to ask someone like him only ten questions, wouldn’t you ask him something a bit more important? By the way, he answered, ”Yes, I wear pants when it’s very, very cold.”

• By the way, whatever happened to Trump Mortgage? Or Trump Airlines for that matter? How does he keep his reputation after these failures and 2-3 highly publicized casino bankruptcies?
• Movie critic Pauline Kael once wrote of Cary Grant: “We smile when we see him, and we laugh before he does anything. It makes us happy just to look at him.” And I’d update that for Russell Brand: “We laugh when we see him, and we laugh before he does anything; it makes us smile just to look at him.” Brand was never funnier than in Get Him to the Greek. It’s one of those chaotic, crazy movies with hilarious cameos (can you imagine Russell Brand talking to economist Paul Krugman?), and 90 minutes of non-stop laughter. It’s kind of vulgar, but it’s the sort of vulgarity the entire family can enjoy.
• Oakland A’s first baseman Daric Barton’s first two years were somewhere between mediocre and pathetic, but he’s batting about .280 with good power this year, and the Chronicle had an article that explored his turnaround. Barton’s own explanation was that he discovered Christ while playing golf and that this has improved his hitting.
• We once saw a funny bumper sticker that said: “I found Jesus…. he was in the trunk of my car when I returned from Mexico .
• For our Washington friends who wonder why their team has gotten so bad: I looked up some stats on the Nationals, and they’ve lost 18 of their last 22 games on the road, due almost entirely to a horrific 27 unearned runs in those games. Through May 13, the team had an ERA of 5.24, with a road record of 9-7. Since May 13, they’re 4-18 on the road, despite their ERA improving to 4.24. Why? They gave up 3 unearned runs in the first group of games in which they were 9-7. In the second group where they’re 4-18, they’ve given up 27 unearned runs. And it shows in the close ones.  In games won by 1 run, they’re 0-7. Nuff said.
• This is the Lee Farkas mug shot from when he was arrested the other day. As mug shots go, this one was actually pretty good. Clean-shaven, not drunk, and because they busted him as he was leaving his health club, he had a bit of a glow. If convicted of all charges, the former Taylor, Bean owner faces something like 400 years in jail. Remember taking the bus to summer camp and everyone singing that horrible song “99 bottles of beer on the wall, 99 bottles of beer….” First of all, who keeps bottles of beer on the wall, and second, this guy would have to sing 146,000 bottles of beer on the wall, this being 400 years x 365 days. And you know how beer is sort of something you don’t really think about? If you had to serve 400 years in jail, wouldn’t you just crave a good cold one? What else would you have to do without during a 400 year sentence? No more sushi, no glass of wine with dinner, no oysters on the half shell. You won’t ever lie by the pool or sit in a hot tub, go skiing, have a cocktail, go to a new restaurant, shop for clothes, or stay in a five star hotel again. You’ll never fly first class, eat Chinese food, take a sauna, order room service, or decide to sleep late again. And you will never again be able to yell at someone without serious consequences. * *

Our own Mike McAuley led the team that shut down Platinum Community Bank, the little bank owned by Taylor, Bean and Lee Farkas, so Mike probably knows as much as anyone what went on there. Without implying anything or making insinuations about Farkas, the one lesson might be to always do the right thing. If he did, in fact, commit financial crimes, wouldn’t it have been the right thing to simply let his company fail rather than break the law and face a lifetime in prison? Always do the right thing. Garrett, Watts & Co. “Helping lenders increase revenues, control costs, and better manage risk.

• Mike McAuley (280-250-2536)
• Corky Watts (408-497-3135)
• Joe Garrett (510-469-8633)