This is why we should have let the banks fail

Steven Pearlstein writes in today’s Washington Post about how the President of one of the smaller banks used some entrepreneurial skills to put some TARP money to good use.

Kim Price, the President of Citizen’s South Bank, located across the river in Charlotte from Bank of American and Wachovia, did not need TARP money because his bank was failing.  In fact, his bank was conservative and planned for a $3 million loss this year, but ended up with a $3 million profit.  Here’s what he did:

Like many healthy banks, Citizens late last year figured it was in for a tough couple of years with the national recession and the continued turmoil in financial services, which anchors the regional economy. So it applied and won $20.5 million in bailout funds from the Treasury Department on the usual terms requiring a 5 percent annual dividend payment to the government. A few weeks ago, while reading a newspaper article, Price came up with an ingenious plan for how to use it.

The article was about the reluctance of people to buy a house in the current market, and what kinds of incentives had been used successfully by builders and bankers to get them to close a deal. Two stood out: lower rates and the waiving of closing costs. And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?

Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs. So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.

Its great to see smaller banks succeeding while the big ones are failing.  Its unfortunate that an executive like Price who makes under $500,000 is not rewarded more for his success.  I would love to see someone with his talents have the ability to rise up in the banking industry during the current upheaval.  Instead, by bailing out the big banks, the same execs who got us into this mess continue to run their companies, huge salaries and all.  It’s crazy to me.  I understand that rationale behind the bailouts, but one would think at a bare minimum, the money could have been used in more interesting and worthwhile ways.

Pearlstein ends with this:

So here’s a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?

Besides for the subtle dig at Appalachian State, which I would assume he would use for any banker who has a degree from any non-ivy, I would love to hear how these CEOs would respond.