FDIC Closes Netbank, One of the First Online Banks

An anonymous reader writes "NetBank, one of the first internet banks in the country was closed by the FDIC on Friday. Being a loyal customer for 8 years, I am saddened that an institution that provided me with so much great service and a cool, hi tech way to conduct my financial transactions is shutting down. Seems that mortgage defaults are to blame: 'NetBank's closure marks the first bank to close since the recent U.S. housing boom deflated. Critics have said that weak underwriting standards have led to record number of homeowners entering the foreclosure process. But NetBank's rare Internet-based business strategy made it a unique financial institution and its problems aren't expected to mirror issues facing other mortgage lenders, analysts say.'"

Comments

Goes to show that...

[Anonymous Coward]

user experience isn't the most important aspect of all things. Also, is Slashdot having hiccups?

OTS not FDIC

[eipgam]

It is the Office of Thrift Supervision that has closed NetBank, not FDIC: http://www.ots.treas.gov/docs/7/777071.html

Re:OTS not FDIC

[fm6]

To those who are wondering, "what happened to the FDIC?": The FDIC supervises regular banks. NetBank was a "thrift" a weird institution that appeared when the Reagan administration deregulated banking, allowing depositor-owned savings and loan associations to convert to a sort of commercial bank that specializes in mortgages. Thrifts have a long history of getting in over their heads, and creating real estate "booms" that price most people out of the home market. But a lot of folks got rich off them, so I guess that's OK.

Re:OTS not FDIC

[hawk]

Huh?

No, that's not right.

S&L's had shareholders prior to regulation. It's credit unions that were and are depositor owned. (The *very* early S&L's were in fact owned by the depositors--they pooled money so that one at a time could buy a house).

The change in S&L's was that the mortgage-lending limitation was dropped. In fact, substantially all of their limits were dropped, and they were for all intents and purposes banks with a different regulator. They were utterly unprepared for this, and not adequately regulated.

There is another type of entity called "mutual savings bank", but they're a regional creature.

hawk

Re:OTS not FDIC

[fm6]

Dude, check out the Britannica link I provided. They were called Savings and Loan Associations for a reason.

When I opened my first bank account (a very long time ago) it was at an S & L. I had to sign a form saying that the directors could vote for themselves on my behalf, unless I actually came to the depositor's meetings.

Re:OTS not FDIC

[hawk]

Yes, check you link, particularly the sections that say "Formerly cooperative institutions" and and "Under a ruling of the Federal Home Loan Bank Board, which regulates federally chartered savings and loan associations, associations need not rely only on individual deposits for funds. They can borrow from other financial institutions and market mortgage-backed securities, money market certificates, and stock."

hawk

Re:OTS not FDIC

[fm6]

(Sigh.) I said that S&L's used to be cooperatives, you disputed that. If you can't even keep track of your own opinions, why should I waste any more time talking to you?

Fridays are going to become interesting

[talledega500]

The US news services, the govt and the market collude to deliver bad news on fridays
when we citizens faithfully spend our evening at the pub and dont read the news.

I bet if you really wanted to find out whats really going on in the markets you
could simply aggregate all of the Friday financial news.

Will anyone be talking about netbank on Monday. Unlikely.
But here's the creep.

2.5 billion dollars is a small bank but not a community bank.
If you had money to bet on it given how scared the bond market is over this,
do you think theres a bank with oh say 100 billion thats going to fail
in say the next year or so.

You can bet your bottom dollar on it. Oh wait you already did.
You shouldve kept it under the mattress.

Re:Fridays are going to become interesting

[Planesdragon]

You can bet your bottom dollar on it. Oh wait you already did.
You shouldve kept it under the mattress. No. If my credit union or bank closed tomorrow, I could withdraw all of my funds, up to the bank's insured amount -- which is more than I or most other Americans make in a year.

Now, if I had instead invested my money and bought shares of the bank, then I'd be up shit creek without a paddle. But that's why stocks pay more -- because they're riskier, and so they have to or no one would buy them.

Re:Fridays are going to become interesting

[Anonymous Coward]

You're fooling yourself. The US government is trillions of dollars in debt - social security is funded from current receipts contrary to law or original intent - and you think that the FDIC program is fully funded and secure? The only guarantee that you have is that congress will have to go to the fed to borrow more money to pay back your failed bank, and then inflation will be so high and the dollar so devalued that whatever cash you get is only going to impoverage the rest of the country further and your effective net worth in terms of purchasing power will remain unchanged. That's the best case, because the rest of the world will not put up with those shenanigans for long, especially if the current political climate remains unchanged (PNAC, et al). If your failed bank is one within the fed system, maybe then Americans will start to clue in to the reality already enshrined in the Constitution regarding what constitutes money but until that time it's all smoke and mirrors, and where there's smoke ...

Re:Fridays are going to become interesting

[DerekLyons]

Tinfoil hat while under the influence of mind altering substances much?

Re:Fridays are going to become interesting

[Anonymous Coward]

Ehh, there is a reason why FDIC steps in on a Friday afternoon - to minimize disruption to customers.

Friday afternoon NetBank was "unplugged". Friday night account access was back in read-only mode while everything is transitioned to the new owner (ING Direct). They expect everything to be back and running on Sunday. In the meantime, there is no distruption to ATM or check access (although you can't really do much with checks on a weekend anyway).

This is Slashdot - would do you do software migrations on Monday morning or on a weekend when your business is closed?

NetBank has been dead as far as its stock is concerned for quite some time, so this isn't really news.

For the record, I have a NetBank checking account and has not moved a finger even though I knew this was coming ever since EverBank acquisition fell through weeks ago. Why do I care? My money is safe up to $100k FDIC limit. In fact, they will now do all the work for me to switch to a better account at ING.

Mattress?! Do you even know what FDIC insurance does?

Re:Fridays are going to become interesting

[Anonymous Coward]

Ad hominem rebuttals do not help your position. Maybe you should have paid more attention in high school?

Re:Fridays are going to become interesting

[DavidShor]

You gold-bugs severely overestimate the impact of printing money. If a major bank collapsed, the FDIC would only need to insure around a 30 billion, since the majority of funds are kept above $100,000.

The inflationary effects of such an injection, while they exist, would most likely be far under one percent.

Re:Fridays are going to become interesting

[vertinox]

No. If my credit union or bank closed tomorrow, I could withdraw all of my funds, up to the bank's insured amount -- which is more than I or most other Americans make in a year.

Actually you and the grandparent are wrong. If the economy collapse, inflation and devaluation of the dollar makes your savings in the mattress or in the bank less value and hence you loose your money. You should have invested in gold and stuck that under your mattress.

Even if you had money in the mattress or the government wrote you a check for what was in the bank, you can bet its not as worth as much as it was before the bank collapsed.

Re:Fridays are going to become interesting

[talledega500]

Over 100 million dollars was lost by netbank depositors in this failure.

FDIC insurance exists to stop bank runs. every time it is claimed upon,
represents a serious weakness in either individual banks or the financial system at large.

Why do you try to refute a mere opinion as to the meaning of all this by saying,
jeez we have FDIC so nothing is wrong with the state of things?

I guess the 100 million that was lost by depositors wasnt part of your 100K.
So what? The 100K you get back form the govt is nothing more than tax paid welfare for
you and the corrupt bankers that lost it.

Re:Fridays are going to become interesting

[talledega500]

OK if all of your funds are 100K.
And thats not OK because thats MY money. When the FDIC pays you it comes
out of tax dollars stolen from me by your corruption ridden bank.

100 million was lost by depositors in the netbank failure who had more than 100K in it.

So Im glad you have protected yourself you think, but the point isnt about YOU on a given day,
its about 2.5 billion lost from the economy sucked up by fraudulent loans, greedy politicians,
and lax regulation. Replaced by govt tax dollars so make that 5 billion.

So whether or not YOU lost is irrelevant. But thinking that way and not caring about the big
picture is sure what got us into this mess.

S&L crisis + DOT COM = housing bubble

[Anonymous Coward]

Yep, It's a bubble and some people are going lose their shirts.

"It's a great time to buy a house."

"You'll never lose money in real estate".

"Real Estate is a great investment".

"Sone else is bidding on the property".

Bottom line is with stagnant median income, people just can't afford a house. The real estate sector, after an unprecidented run up, is undergoing correction and it will be long and will take some people under. If you're renting or can afford your mortgage, you'll do okay. Every else might as well mail in the keys. If the debt is to netbank, send the jingle mail to ING direct instead. This is the downside of mass immigration and easy money, people. Time to buck up!

Re:S&L crisis + DOT COM = housing bubble

[CheekyBastard]

The current real estate market problems have nothing to do with stagnant median income. The prices of homes in many areas unrealistically increased; coupled with people taking out loans far above what they should due to loan products such as ARMs, which make it look like an expensive house is more affordable than it really is.

So if people can't afford a house right now, median income is not to blame. In fact, if median income had not increased then this would still be a good time to purchase a house. With the significant price corrections in many markets and reasonable interest rates, this is a perfect time to purchase a first or additional home.

Also, what the hell does 'mass immigration' have to do with this?

Wait, what?

[Anonymous Coward]

Banks are being closed in the US? Good grief. Here we are worrying about Northern Rock having a bit of a wobble and the US is closing banks!

Nice work on decimating your economy!

Re:Wait, what?

[talledega500]

What do you think mortgage lenders are? Banks.
Or "retail shops" for banks. Same diff.

Over 80 of em have gone down in the US in about a year.

But this is the US. What me worry?
We have all the economic statistics cooked to make sure
that NOONE will see it coming, until after its all over.
And it wont matter hell we have been eating shitty fast food for years,
a few more years wont matter much.

At least the Northern Rock depositors had the good sense to cut and run.
In the US it will probably be more like we dont cut and run and end up
holding our fake worthless money until the bitter end.

Wont that be fun?

Re:Wait, what?

[skeptictank]

"Nice work on decimating your economy!"

Thanks! We are trying.

Re:Wait, what?

[Kalriath]

Aw, hell. Here in NZ we've sent seven finance companies into bankruptcy.

Beat THAT!

(No banks yet, and none of them appear to be in any trouble).

In for a Penny...

[pipingguy]

weak underwriting standards have led to record number of homeowners entering the foreclosure process

I've never understood the wildly inflated home prices in some areas. Assuming that these are "market prices" and not crazy owners' wished-for buyouts, at some point no one will be able to afford to own a home.

What happens then? A house market crash?

The only people that win from high real estate prices are those that cash-in and move somewhere cheaper, the lenders (usually) and the agents.

Re:In for a Penny...

[Anonymous Coward]

Prices shoot up like that when there is to way too much credit. As long as people still qualify for insanely large loans and compete for houses, the prices will keep going up. This goes on until the lenders come to their senses, which cuts demand, and suddenly people realize they are in a house they can't afford and try to sell, which increases supply. Naturally, prices fall, and sellers start to panic when they discover that they'll be upside-down even if they can find a buyer. Suddenly everyone wants to sell before prices get any lower, and *boom* market crash.

The feedback loops magnify the problem, but the engine driving the boom/bust is easy credit.

Re:In for a Penny...

[Datasage]

Everything is driven by supply and demand. In the case of the housing market, weak lending practices created a demand much greater than the market would support under normal conditions. It's not hard to predict that the market would eventually catch up to this.

If you just bought a house, your pretty much screwed, unless you plan to stay where you are for the next 20-30 years. Prices will likely drop over the next 2 years or so depending on your market. If you have to sell, you will have a mortgage larger than the value of the house.

I think its unlikely we will see an equivalent housing boom again. Unless banks and mortgage lenders don't learn from their mistakes.

Re:In for a Penny...

[vtcodger]

***Prices shoot up like that when there is to way too much credit.***

A bit more complex than that. You also need for lenders to be making imprudent loans. It is perfectly possible -- at least in theory -- to be awash in credit, but not to be using it to fuel huge bubbles. You up margin requirements on securities, have minimum down payment requirements, forbid issuing of most types of financial derivatives, etc. Without NINJA (No Income, No Job, no Asset) loans and the like, the bubble has trouble forming. For example, at one point in the 1990s, interest rates in Japan were literally zero. You could borrow all the money you wanted if you had good credit. But the people who wanted to borrow money didn't have good credit and the people who had good credit had no interest in borrowing. Not only was there no bubble, there wasn't even a modest surge in economic activity.

Re:In for a Penny...

[drgonzo59]

This is all in the hands of the bankers. Let's face most people are not very bright. If someone will give them a credit to buy a house they can't really afford, they'll take it. They don't understand what an adjustable rate it, they don't understand percentages, exponential growth, and how banking system works. If someone is giving away loans like candy, there will be someone else willing to take the candy.

Now the question is this: Are banks stupid as well? They are the ones that actually do know what can happen, they do know what all those things are, they can reasonably predict the future (they wouldn't be able to stay in business if they didn't). I can't help but believe that they do it on purpose. All the money in this country (and thus mostly everything else in the long term) is controlled by the Fed. They can at will create crashes and booms. Not only to they control the interest rate, they control the rules under which its member banks issue loans and how much reserve each bank should have on-hand. Either way, with a boom or a crash, because it can creates, they will profit. They money we have isn't real money, it is money because the Fed says so. And who profits? Well, we don't know, because the Fed is a private bank and doesn't disclose who its investors are. Cue the conspiracy theorists. Step right up, get yer' tin foil hat!

Re:In for a Penny...

[dbIII]

I've never understood the wildly inflated home prices in some areas

I've never understood why it happens over and over. The current thing has nothing on New Orleans in the 1850s (or thereabouts) - but still ...

Re:In for a Penny...

[xjerky]

This is why I never understood how the Fed lowering interest rate ever helps anything when it comes to real estate. I almost bought a house in 2000, when rates were higher. Then rates lowered, and people realized they could buy a house for cheaper, which lead to an increased demand for houses, which drove up the price of said houses. In the end, people are paying more per month on a house now than they would have if they bought it in 2000. So, why do people go gaga over a lower rate in the first place?

Re:In for a Penny...

[DavidShor]

"This is all in the hands of the bankers. Let's face most people are not very bright. If someone will give them a credit to buy a house they can't really afford, they'll take it. They don't understand what an adjustable rate it, they don't understand percentages, exponential growth, and how banking system works. If someone is giving away loans like candy, there will be someone else willing to take the candy."

But not you, you are financially responsible, unlike the unwashed masses.

Elitist.

Re:In for a Penny...

[Raenex]

I think its unlikely we will see an equivalent housing boom again. Unless banks and mortgage lenders don't learn from their mistakes. This is said after every boom and bust, and during the next boom they say "this time is different because..." I remember the Savings and Loans scandal from the 1980s. This current debacle is looking awfully familiar.

ING acquires deposits

[4thAce]

Here is the link on the ING site.

The acquisition further strengthens ING DIRECT's position as the leading direct bank which aims to meet the financial needs of "Main Street, USA."

I hope their lending requirements are a little more solid (I hold an Electric Orange account there).

Re:ING acquires deposits

[tburkhol]

I hope [ING's] lending requirements are a little more solid (I hold an Electric Orange account there).

ING only bought the deposit accounts. Most of NetBank's mortgages are going to Everbank, apparently with the bad one staying with FDIC until they can find a sucker^wbuyer. In any event, deposits at NetBank are insured, so few account holders will lose money (the exceptions being about 1500 people who had more than $100,000 on deposit.

The FDIC has a whole list of failed banks. Apparently, it happens with some regularity, and it seems to be mostly a non-event for bank customers. Sucks for employees and shareholders, but that's business.

Re:ING acquires deposits

[fimbulvetr]

You're fooling yourself if you think that FDIC insured is going to be worth more than two squirts of piss when the day comes that ING fails. If a depression or stagflation take it down, that $100,000 likely won't buy you a loaf of bread based on current circumstances.

I'm not trying to chicken little here, I'm just trying to say that "If something could take ING (and similiar banks) down, that something is going to have widespread effects on many, many, more things".

Re:ING acquires deposits

[DavidShor]

I don't really see why you are so concerned. If a major bank fails, FDIC liabilities would almost surely be under 300 billion. And we finance 300 billion in bonds every year anyway, without much effect on inflation.

Re:ING acquires deposits

[Estanislao Mart�nez]

I don't really see why you are so concerned. If a major bank fails, FDIC liabilities would almost surely be under 300 billion. And we finance 300 billion in bonds every year anyway, without much effect on inflation.

The worry isn't simply about the amount of money. It's about the market panic that a major bank failure might trigger.

Re:ING acquires deposits

[krbvroc1]

I don't really see why you are so concerned. If a major bank fails, FDIC liabilities would almost surely be under 300 billion. And we finance 300 billion in bonds every year anyway, without much effect on inflation. Your right, the FDIC will be able handle a single major bank failure. Multiple bank failures and it wont be able to.

Misleading Summary

[MikeB0Lton]

"They had significant problems with respect to loan underwriting, poor documentation, and a high amount of early payment defaults..."

According to the article, it wasn't just that the bank failed due to the mortgage crisis, it was that they poorly ran their bank. I worry a little about ING as well because they are promoting their ARMs so much. I've tried to find details on a 15 or 30 year fixed mortgage from them and cannot find it.

Re:Misleading Summary

[Anonymous Coward]

ARMs per se aren't a problem. Actually they're generally a very smart choice. 30 year fixed is usually a pretty stupid thing to do (you pay too much).

Interest-only and Option ARMs are a completely different beast -- those are the exotic products with lousy underwriting standards that got so many people into so much trouble. They are useful financial products for certain people in certain situations but they should never have been offered to so many people nor should anyone with half a brain and any sense of responsibility have ever rated widespread debt based on such things as anything other than "extremely risky -- run away, run away". The twits that thought otherwise were in love with their own bullshit.

Re:Misleading Summary

[pete6677]

ARMS are almost always a bad idea when fixed rates are at 5.5% as they were in 2003. Since they have nowhere to go but up, why would you want an ARM?

Re:Misleading Summary

[MikeB0Lton]

The only reason I can think of that anyone would want an ARM is that typically they have a lower initial payment. For homeowners who move often enough (say every 5 years), the ARM doesn't have enough time to get too extreme.

Whats up with the 503s?

[Anonymous Coward]

Heh, what's up with all the 503s? /. server crash or something?

Re:Whats up with the 503s?

[Anonymous Coward]

/. is falling victim to the notorious "Digg" effect.

Net 2.0 meets Reality 0.0

[KwKSilver]

FTA:

NetBank's stock price traded around $15 a share in 2004, but it declined and then fell below $5 a share in early 2007. Shares of NetBank fell to $0.07, down $0.01, on Friday.

Damn that pesky old real world!

House prices in the USA?

[Anonymous Coward]

Just out of interest, what sort of accomodation, if any, can you pick up for EUR30K (USD42K ish says online tools) in the USA nowadays ? (that's about 1/10th the price of a 1-bed studio apartment in Dublin, Ireland)

Re:House prices in the USA?

[Planesdragon]

For about $40,000, you can get a small one or two bedroom apartment either in the midwest or in a rural town here on the eastern side.

In my city exactly, at fair market value, you could get about 1/5 of a four-bedroom house. For $400,000, you could buy two.

Or, one one-bedroom studio in Manhattan.

Re:House prices in the USA?

[Anonymous Coward]

Or, one one-bedroom studio in Manhattan.

I think he wants to buy, not rent.

Re:House prices in the USA?

[sTalking_Goat]

In California you're pretty much SOL under 200K and you're looking at 300k if you want to live in any reasonably sized city.

Re:House prices in the USA?

[Travy.b]

Or a very very rundown place in Perth, Western Australia: "Perth's median house price peaked at $564,000 in November 2006, when Sydney's median price was $515,000."

Ok - so $1AU is Currently 88.54 US cents, but even taking that into consideration it is ridiculously overpriced. Markets are slowly realising and it has since fallen to $462,000.

Figures taken from: http://www.news.com.au/adelaidenow/story/0,22606,22010311-37037,00.html

Re:House prices in the USA?

[Anonymous Coward]

You guys are lucky. In or around Ljubljana (capital of Slovenia - Europe btw :)) a used two bedroom apartment sets you back about 170 000 EUR (cca 240 000$). A few years old house would be about half a million euros (700 000$). And that's a house with 180 m2 (1300 sq ft). If you're buying 20-30 year old houses the price drops to about 300 000 EUR.

And no, the paychecks don't make up for the prices - we make less than americans.

Re:House prices in the USA?

[winkydink]

$300k won't buy you a dumpster in Santa Clara County, home to Silicon Valley. Median home price for Aug 2007 was $770k and average selling price was $944k.

Re:House prices in the USA?

[TykeClone]

In small midwestern towns (not cities), about $40K would get a decent, but not new, house. Of course, these are areas where housing valuation hasn't boomed like it has on the coasts.

If, however, you were looking at farmland, $40K will get you maybe 8 acres of good corn ground at best.

Re:House prices in the USA?

[skeptictank]

That would get a small, old house in a very rural area, say 50+ miles from any major population center or anything else of potential interest. 3 to 5 times that much would get a nice house(1200sf to 3000sf) in most suburban areas in the South and Midwest. About 10 times that $420,000 to get a 2000sf house in Florida, Arizona, Nevada. The price goes up from there for New York City or California. The appraised value of property in California urban areas is about $1,100 per square foot (the last I heard, I would expect it to decline substantially from that over the next 5 years).

Re:House prices in the USA?

[EVil Lawyer]

There's no such thing as a "one-bedroom studio." If it has a separate bedroom, it's not a studio.

Also, studios go for about $550K and up these days, with 1BR apartments going for $850K+.

Re:House prices in the USA?

[Anonymous Coward]

$300k won't buy you a dumpster in Santa Clara County Stop talking out of your ass. You can easily buy a one bedroom condo in Santa Clara County for $300k. I am looking at the MLS for the city of Santa Clara, with twelve properties for less than $300k. For San Jose, I see over fifty properties. There are very nice two and three bedroom houses for less than $600k in the county.

Re:House prices in the USA?

[mzs]

Yeah $300k plus $300 per month assorted condo fees and there are some pretty bad parts of San jose where you would want your kid growing-up.

Re:House prices in the USA?

[Anonymous Coward]

You can get a manufactured home for less than $40k in California. I see several MLS properties in Eureka, Sacramento, and Redding. In Redding, there are over fifty houses for under $200k.

Re:House prices in the USA?

[Adult film producer]

well, if you're in L.A. you should check out these homes, look pretty good and the prices are just about right.

http://www.youtube.com/watch?v=2fsR5hBS0tM

Re:House prices in the USA?

[Anonymous Coward]

And there are plenty of nice areas too. Most cities have "slums" including Palo Alto. You do not have to live in San Jose. There are plenty of condos for under 300k and houses under 600k in cities such as Mountan View, Sunnyvale, and Fremont. The median and average price for a house are meaningless numbers for home buyers because they often look at those numbers as starting points.

It would seem so

[Sycraft-fu]

ING Group is pretty major, I don't think they are going under any time soon (ING Direct is one of their divisions). However if it does, you needn't worry as mentioned this is what FIDC insurance is for. Up to $100,000 of your deposit is covered by the FDIC. So unless you've got more than that in there, you are fine. If you do have more, may I suggest you seek the services of a financial consultant, as that is too much money to just leave sit in a bank account, even one with a reasonable interest rate.

Re:It would seem so

[mosch]

NetBank offered small business banking services, where this problem is more likely to hit.

It's damned easy for a small business to be acting responsibly while having balances that are well over $100k in their checking accounts.

That's irrelevant.

[Anonymous Coward]

What does matter is that we're seeing American financial institutions start to fail, due to the poor health of the American economy.

Six years of productivity wasted on war, plus shady lending practices, plus illegal immigration, and the rise of the manufacturing sector in the third-world has put the American economy on shaky ground.

The Fed has likely resorted to hyperinflation to try to exert control over this failing economy.

The American dollar has decreased in value so quickly that it's at par with the Canadian dollar.

Now we have the oil-producing nations considering switching to the Euro for their transactions, rather than the dollar.

The American economy isn't in good shape at all. And this is probably just the beginning of more troubles.

Re:That's irrelevant.

[DavidTC]

It's not really the poor economy, it's the fact Bush has used a bubble instead of actual growth.

We should have had a minor recession in 2001 or 2002, but then it would have been really hard to convince people they needed to funnel huge amounts of money into defense contractors pockets.

Money quote:

The liberal solution would have been to try and find a new tech boom, which in the case of the Gore administration would almost certainly have either been a micro and alternative energy boom or a telecom boom.

The Bush solution was different. The decision was made to base the economy on the real estate market. Record low interest rates flooded money into the mortgage market and the housing market boomed.

A boom sucks, at the end, No matter what you do, people will come in and lose their shirts. But some booms, in the long run, have much better results. The internet boom of the 90s changed the face of the planet. And even if some people lost their shirts in the stock market, well, no one made them invest.

This housing boom, OTOH, everyone did have to play. Even renters pay more when houses prices are up, although at least they won't have to watch the value of their house plummet. And it's left us with no tangible benefits at all except millions of shoddy McMansions.

We could have put that same amount of effort and money in alternate energy, and be in the middle of a nice stock correction now, where alternate energy company stocks are dropping through the floor and being picked up by a few big players which are merging with the big energy suppliers who are just now realizing they need to change their business plan. Which wouldn't hurt John Q. Public at all. John Q. Public, in fact, came out ahead because he got 'sponsored' for solar panels and that company, with a crappy business plan, went out of business, like during the tech crash.

Re:That's irrelevant.

[khallow]

One data point doesn't make a trend. If you're right, there'll be more where that came from.

Re:That's irrelevant.

[DavidShor]

"It's not really the poor economy, it's the fact Bush has used a bubble instead of actual growth."

What exactly did the Bush administration do wrong, as far as economic management goes? No matter who was in power, after 9/11 any politician would have drastically increased homeland security and military spending. The Bush Tax cuts were very popular, and would have been implemented anyway, whether or not Bush was in power. Not only that, but while corruption is very photogenic, it's effects have been economically negligible. Our deficit is mostly the result of highly enlarged entitlement spending, which I just can't see tied to George Bush.

You seem to think that presidents are relevant to macroeconomic trends. This is a common political delusion, but in the absence of massively stupid legislation(On the level of what has been seen in Latin America), the Federal Reserve bank is the only office with any real power.

"This housing boom, OTOH, everyone did have to play. Even renters pay more when houses prices are up, although at least they won't have to watch the value of their house plummet. And it's left us with no tangible benefits at all except millions of shoddy McMansions."

Of course, all that we are left with are millions of homes. What use could they serve?

"We could have put that same amount of effort and money in alternate energy, and be in the middle of a nice stock correction now, where alternate energy company stocks are dropping through the floor and being picked up by a few big players which are merging with the big energy suppliers who are just now realizing they need to change their business plan. Which wouldn't hurt John Q. Public at all. John Q. Public, in fact, came out ahead because he got 'sponsored' for solar panels and that company, with a crappy business plan, went out of business, like during the tech crash."

Really? How exactly could we have done that?

Re:That's irrelevant.

[DavidShor]

"What does matter is that we're seeing American financial institutions start to fail, due to the poor health of the American economy."

Really? Inflation is low, Unemployment is low, GDP growth is ok. I don't really see how you can define "poor health".

"plus illegal immigration, and the rise of the manufacturing sector in the third-world has put the American economy on shaky ground."

How has the presence of massively cheaper goods and labor made us worse off?

"The Fed has likely resorted to hyperinflation to try to exert control over this failing economy."

Hyperinflation? No, Zimbabwe has hyper-inflation. The US has lower inflation rates then most of developed world.

"The American dollar has decreased in value so quickly that it's at par with the Canadian dollar."

I hate it when people try and moralize an exchange rate. The decrease in the dollar's value will hurt some people, and be beneficial to others.

"Now we have the oil-producing nations considering switching to the Euro for their transactions, rather than the dollar."

I hear this nightmare scenario all the time, and I don't see the problem with it. The US will lose a couple billion dollars in seniorage revenue, and it will be somewhat harder to finance debt. I actually see this as a positive move.

Re:That's irrelevant.

[DavidTC]

What exactly did the Bush administration do wrong, as far as economic management goes? No matter who was in power, after 9/11 any politician would have drastically increased homeland security and military spending. The Bush Tax cuts were very popular, and would have been implemented anyway, whether or not Bush was in power. Not only that, but while corruption is very photogenic, it's effects have been economically negligible. Our deficit is mostly the result of highly enlarged entitlement spending, which I just can't see tied to George Bush.

Then you're a moron. Clinton left Bush with a balanced budget. Bush has not increased entitlements. Ergo, our deficit cannot be caused by entitlements.

However, that's completely irrelevant to what I was talking about. No one here is talking about the financial shape of the government. We're talking about the financial shape of the country.

And we didn't need to vastly increase military spending after 9/11. We could have beaten Afghanistan with one hand tied behind our back.

You seem to think that presidents are relevant to macroeconomic trends. This is a common political delusion, but in the absence of massively stupid legislation(On the level of what has been seen in Latin America), the Federal Reserve bank is the only office with any real power.

Did you read the article I linked to? The Treasury Department, which I assure you the president does control, almost single-handed caused the housing boom because of how they structured their bonds, causing anyone who wanted to invest long term have to do so in real estate. (And, of course, Republicans automatically structure things where investments get less taxes than income.)

And does the phrase 'Ownership Society' not ring a bell anymore? Maybe you should check out who coined that expression and used it repeatedly. The Treasury Department's behavior was not an accident.

Of course, all that we are left with are millions of homes. What use could they serve?

Are you being sarcastic? We've got more homes than people, we've got more going up all the time because of the lag in the market, and quite a bit of them are much too large to operate at a reasonable cost and shoddily enough constructed that the upkeep will be a bitch. Because people stopped judging houses as 'Is this a good fit for me?' and instead asked 'What's the most expensive house I can afford right now as an 'investment'?'.

Yes, in the long run, the houses aren't going to vanish and will eventually get used. OTOH, the excess houses are going to depression the construction market for some time, so look for higher prices there.

Random fads are not a useful way to build material wealth in this country. People suspend their judgment, companies slap together shoddy products that people would not normally want, and then it crashes down and products sit on shelves and houses stand abandoned for years. If people want X amount of something a year, and then suddenly want X3 for a year and then 1/2X for two years, the industry is in a lot worse shape than if they had just kept wanting X a year...half the companies have probably gone bankrupt and a lot of waste occured.

Random fads, OTOH, are a good way to get a lot of research done. Or, for example, convert a lot of homes to be more energy efficent. Or, as the last fad demonstrated, get everyone on the internet.

Really? How exactly could we have done that? Erm...tax breaks? Research grants? Higher taxes on non-alternative energy?

There's a dozen way to do it.

Re:That's irrelevant.

[iFeden]

I make no claim to any specialized knowledge of economics. I do have a question though. The following tit for tat got me thinking: "What does matter is that we're seeing American financial institutions start to fail, due to the poor health of the American economy." Really? Inflation is low, Unemployment is low, GDP growth is ok. I don't really see how you can define "poor health". Didn't the growth of the housing market, and associated industries play an enormous part in increasing employment(1) as well as raising the GDP (2) in the recent past (1). Wouldn't a crash in the real estate industry have much more far reaching consequences on at least 2 of the 3 indicators that you are pointing to as signs of underlying economic health? I will defer to any expert opinion on this question, it is merely one I couldn't resolve on my own. -iFeden (1) Industry Employment Data produced by the Bureau of Labor Statistics The jump in employment in the housing-related series over the last 13 years is a good measure of the impact of the housing bubble. While overall employment increased by less than 22 percent from the 1993 to 2006, employment in the construction of residential buildings increased by almost 70 percent. Employment in real estate agencies increased by almost 30 percent over this period. Employment in residential specialty trade contractors increased by almost 28 percent in just the years from 2001 to 2006. When the bubble deflates, employment levels in these sectors will fall back in line with their historic patterns, as construction and sales levels move to more normal levels. If employment in housing-related sectors were to fall back to levels consistent with their share of their labor force in the mid-1990s, it would lead a loss of close to 1 million jobs. If the construction sector temporarily falls below its normal level of activity as inventories of unsold homes adjust to normal levels, the job loss would be even greater. -From http://globaleconomicanalysis.blogspot.com/2006/11/housing-industry-employment.html (2) Private Goods and Private Services Sectors Accelerated in 2006 Advance Estimates of Gross Domestic Product (GDP) by Industry Newly available data on the industry distribution of real GDP growth show that the private services-producing sector accelerated to 4.1 percent in 2006, up from 3.7 percent in 2005, and that the private goods-producing sector accelerated to 2.5 percent, up from 2.1 percent in 2005. Real growth in government slowed slightly to 0.6 percent, down from 0.7 percent in 2005. The private services sector's acceleration reflected more rapid growth in "finance, insurance, real estate, rental, and leasing" that offset slower growth in retail trade, information, and "professional and business services." Private goods-sector growth accelerated due to more rapid growth in durable-goods manufacturing and "agriculture, forestry, fishing, and hunting" and smaller decreases in mining and nondurable-goods manufacturing. Real growth in manufacturing accelerated to 3.3 percent in 2006 after increasing 2.2 percent in 2005. This acceleration largely reflected stronger real growth in durable-goods manufacturing of 6.7 percent in 2006, up from 4.9 percent in the previous year. In 2006, durable-goods manufacturing accounted for 6.9 percent of the economy, but accounted for 13.6 percent of real GDP growth. -From http://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

Re:That's irrelevant.

[(negative video)]

Inflation is low, Unemployment is low, GDP growth is ok.

Inflation has been roaring during the past decade, but masked by cheap imports and temporary absorption of the money used to pay for those cheap goods.

True unemployment is sky high, around 50% by historical metrics. The government unemployment numbers were redefined to ignore people are barred by law from employment and people who are unable to find employment. The government has also ratcheted up efforts to legally ban more people from employment.

GDP growth has likely been stagnant or recessionary, but masked by the enormous churn in the financial and construction industries.

How has the presence of massively cheaper goods and labor made us worse off?

Many Americans lack the IQ needed for intellectual jobs, but have more than enough willpower, dexterity, and social skills to be useful. When their jobs are shipped to foreign countries, they are reduced to a combination helpless dependency and pointless make-work. This is dangerously corrosive to the great strengths of American culture.

Regarding commerce Euroization: I hear this nightmare scenario all the time, and I don't see the problem with it. The US will lose a couple billion dollars in seniorage revenue, and it will be somewhat harder to finance debt. I actually see this as a positive move.

You are failing to consider eurodollars: US dollars lent out by foreign organizations at extremely high reserve ratios. It would not take much market panic** to cause a liquidity crunch. The Fed could not tide over the institutions that wrote eurodollar contracts because they are foreign, and the local central banks cannot help because the contracts are denominated in non-local currency. Rock, meet hard place. The high leverage also means the Fed doesn't have to work as hard to affect the money supply, making money supply operations less painful to Americans.

**I wonder how many eurodollars were spent on purchasing low-quality US mortgage-backed securities? Human folly being what it is, I'd expect rather more than is comfortable.

To whitewash these issues, the Fed decided to stop reporting M3 in November 2005. (M3 was the only money supply measure that included eurodollars.) They read the writing on the wall two years ago.

Re:That's irrelevant.

[Anonymous Coward]

He's not being sarcastic, he's a right-wing lunatic.

One that curses big government when it's a democrat doing it, and praises it when an order of magnitude more is spent to blow up some brown people. One that blames Clinton for all things evil, but claims Bush is powerless to stop anything bad at all.

Don't bother reasoning with him. DavidShor is a far-gone, fact-free, idiotic, right-wing loser. He will only agree with you if the GOP tells him to do so. His only purpose in life is to remind others of how gullible and stupid people can be. He is incapable of intelligent debate, because he is incapable of recognizing truth.

Re:That's irrelevant.

[DavidShor]

That isn't nice, I actualy think Clinton was the best president of the last 50 years. I don't support the war in Iraq, and I support any and every decrease in military spending. As for your brown people remark, I'm actually Arab myself, maybe I hate myself?

But really, we have to be realistic. Shouting "BUSH SUCKS" at the top of our lungs does not accomplish anything. While I am incredibly disappointed with the events of the last 7 years, I want to analyze the real causes, and pinpoint blame to the right people, to ensure that the mistakes of this decade are never repeated.

Re:That's irrelevant.

[DavidShor]

"Then you're a moron. Clinton left Bush with a balanced budget. Bush has not increased entitlements. Ergo, our deficit cannot be caused by entitlements."

Actually, Bush has raised entitlement spending more than any president since Johnson. The biggest offender is the prescription drug plan, but that is just one part of his "Compassionate Conservatism".

"And we didn't need to vastly increase military spending after 9/11. We could have beaten Afghanistan with one hand tied behind our back."

I didn't say we needed to, I said that after 9/11, the public wanted to spend more on the military.

"Did you read the article I linked to? The Treasury Department, which I assure you the president does control, almost single-handed caused the housing boom because of how they structured their bonds, causing anyone who wanted to invest long term have to do so in real estate. And does the phrase 'Ownership Society' not ring a bell anymore? Maybe you should check out who coined that expression and used it repeatedly. The Treasury Department's behavior was not an accident."

Which explains why real estate prices spiked in a bunch of other countries too?

All the article says the treasury department did was eliminate the 30-year treasury note, claiming that this made long-term investment impossible without real-estate. This is absurd, anyone investing in real-estate is expecting far larger returns than a 30 year would give. Not only that, but CD's and Municipality bonds are close substitutes for the 30 year note.

The 30 year note was taken down in anticipation that we would enjoy a permanent surplus, shame that didn't work out. But don't apply any conspiracy theories.

"And, of course, Republicans automatically structure things where investments get less taxes than income."

We have to, to keep all of Wall Street from moving to London. They also have a giant financial industry, and a capital gains tax of 10%. Is this distorting? Of course, but we generate more tax revenue than if we equalized rates(And no, I don't support Laffer curve bullshit, so don't set up a straw man).

The best solution is to move to a consumption tax. Instead of taxing income that people make, you tax what people spend. The effects are a bit regressive, but you can overcome that with a tax rebate.

"Erm...tax breaks? Research grants? Higher taxes on non-alternative energy? There's a dozen way to do it."

So far, government attempts to do all of that have been subverted into bipartisan pork competitions. I don't really believe that our government is capable of doing such a complicated and nuanced thing, at least not with our current constitutional system.

Re:That's irrelevant.

[Arterion]

I've been reading a lot about the FairTax and the idea of a sales tax to replace income tax. But I'm not sure why a lot of people think a well-written sales tax is better than a well-written income tax. I look for the pros and cons of the two systems without people pointing at specific implementations.

Re:That's irrelevant.

[DavidTC]

Actually, Bush has raised entitlement spending more than any president since Johnson. The biggest offender is the prescription drug plan, but that is just one part of his "Compassionate Conservatism".

The prescription drug program didn't give anyone entitlements except the drug companies.

If you meant he raised spending, yes, I know. Pretending it's caused by 'entitlements' when it's actually an expansion of the military and corporate welfare is just deceitful.

Which explains why real estate prices spiked in a bunch of other countries too?

Yes, they spiked and went down in some places, and went up in some places, went down in some places. Pretending the housing bubble is a global problem is idiotic. Nowhere else on the planet saw home prices double in the last eight years.

All the article says the treasury department did was eliminate the 30-year treasury note, claiming that this made long-term investment impossible without real-estate. This is absurd, anyone investing in real-estate is expecting far larger returns than a 30 year would give. Not only that, but CD's and Municipality bonds are close substitutes for the 30 year note. *sigh* The government influences the market in many ways. One of those ways was to remove certain bonds for investment purposes.

And I notice you didn't respond to my 'Ownership Society' mention. Bush went up there in 2004, boasting how home ownership was high and talking about the 'ownership society', etc, etc, at a time that anyone with the slightest bit of knowledge could see we were in a bubble and encouraging people to buy a house at that moment was stupid. He did that because his economy was based on housing prices.

It might be possible that the government helping the bubble was an accident only if we didn't have them standing up in front of everyone and promoting 'investing' in that bubble.

The best solution is to move to a consumption tax. Instead of taxing income that people make, you tax what people spend. The effects are a bit regressive, but you can overcome that with a tax rebate.

The best solution for what? What fictional problem are you looking at? How on earth could taking consumption help the housing market? (Unless you're including taxing houses, which are not normally included in 'sales tax' proposals.)

So far, government attempts to do all of that have been subverted into bipartisan pork competitions. I don't really believe that our government is capable of doing such a complicated and nuanced thing, at least not with our current constitutional system.

Our government, OTOH, is perfectly capable of slowly raising the taxes on heavy-gas-using cars, and providing rebates to help defray the cost of hybrid cars, for example. I'd suggest higher gas taxes, putting gas in the range somewhere of 2-3 dollars a gallon, except the current government has managed to do that fairly accidentally. Higher taxes on high MPG cars is fairer to consumers, anyway...they'll know what they're getting into when they buy it.

Or putting solar on top of their buildings. And, yes, we'd have idiots argue it wouldn't save money, when the point isn't to save money, or even energy. It's to help cover research and production-startup costs. We spend 80 dollars a panel so they can build big factories and then sell them to people at 25 dollars a customer, because people won't buy them at 80 and the first million are going to cost that much.

The government shouldn't run around funding research. The government should set up taxes and rebates to encourage companies to do research themselves, because it's less expensive than not doing it. It should be buying the results, even if it costs more than it saves right now, to encourage development.

Re:That's irrelevant.

[DavidShor]

"The prescription drug program didn't give anyone entitlements except the drug companies. If you meant he rose spending, yes, I know. Pretending it's caused by 'entitlements' when it's actually an expansion of the military and corporate welfare is just deceitful."

Yes, it was a rather disgusting corporate welfare program. Regardless, senior citizens received drugs they would have had to pay for, so I count it as an entitlement. Semantics aside, the deficit is due mostly to growth in these programs.

"Yes, they spiked and went down in some places, and went up in some places, went down in some places. Pretending the housing bubble is a global problem is idiotic. Nowhere else on the planet saw home prices double in the last eight years."

Really?

http://en.wikipedia.org/wiki/Russian_property_bubble http://en.wikipedia.org/wiki/Romanian_property_bubble http://en.wikipedia.org/wiki/Indian_property_bubble http://en.wikipedia.org/wiki/Chinese_property_bubble http://en.wikipedia.org/wiki/Spanish_property_bubble http://en.wikipedia.org/wiki/Spanish_property_bubble http://en.wikipedia.org/wiki/Irish_property_bubble http://en.wikipedia.org/wiki/British_property_bubble http://en.wikipedia.org/wiki/Danish_property_bubble

Those are just the ones with Wikipedia articles. In each of those countries, median home prices have doubled in the last 8 years, in most of them, the increase was far larger. Real estate prices have spiked by enormous amounts in nearly every country in the world (Japan is a notable exception; prices are still level from their boom in the 90's).

"The government influences the market in many ways. One of those ways was to remove certain bonds for investment purposes."

You vastly over-estimate the effect of the removal of the 30-year note. As I said earlier, the 30-year note had many close substitutes with essentially identical risk and return (FDIC insured CD's and state bonds for example).

Even without substitutes, the 30-year note was for very conservative investors. The idea that by removing one ultra-safe investment option, investors will suddenly pour funds into risky real estate is absurd.

"And I notice you didn't respond to my 'Ownership Society' mention. Bush went up there in 2004, boasting how home ownership was high and talking about the 'ownership society', etc, etc, at a time that anyone with the slightest bit of knowledge could see we were in a bubble and encouraging people to buy a house at that moment was stupid. He did that because his economy was based on housing prices."

The "Ownership Society" was a political buzzword used by George Bush to capitalize on a trend. You have failed to provide convincing evidence that this was anything more than an empty slogan. Anyone with enough cash or credit to buy a home should know better than taking financial advice from a politician.

"The best solution for what? What fictional problem are you looking at? How on earth could taking consumption help the housing market? (Unless you're including taxing houses, which are not normally included in 'sales tax' proposals.)"

The best solution for attracting foreign investment without distorting the economy. I would support taxing houses though, along with all other economic transactions. As for its effect on the housing market? I do not think it would have one, I was responding to your complaint that dividends are taxed differently than incom

Re:That's irrelevant.

[pete6677]

If you think Gore would have managed the economy any better after 9/11, I've got a bridge to sell you (or should I say a Miami condo).

For those who actually followed financial news, the recession really began in the summer of 2000. Its effects just became noticeable after 9/11 when companies completely stopped hiring and in many cases began massive layoffs. For the tech industry, 2002 was a great depression.

Alternative energy bubbles have come and gone over the years, and will never be enough to save the entire national economy.

Re:That's irrelevant.

[DavidShor]

"But I'm not sure why a lot of people think a well-written sales tax is better than a well-written income tax. "

One motivation behind it is that foreign investors have essentially zero tax obligations under a sales tax. The theory is that nearly every corporation in the world would relocate here.

Another thing to keep in mind is that the two tax systems cause deadweight loss(economic damage caused by taxes that does not go to the government) in different ways.

Sales taxes cause deadweight loss by raising the price of a good, prompting consumers to buy less of the good. This new level of purchase is less than optimal, and a certain amount of utility is lost by both the consumer and the seller(there are nice graphical explanations of this in any microeconomics book). The precise level of deadweight loss is related to how much the tax changes purchasing behavior, and is determined by the price elasticity of a product.

Income taxes leave people with less money, causing them to buy less goods. Not only that, but it causes them to buy goods in smaller amounts(The classic example is that as people get richer, they buy more meat). This causes decreased utility for sellers and buyers. The precise amount of loss depends on the income elasticity of a good, along with a couple of population variables.

Keep in mind, deadweight loss is completely different that government revenue. The money does not go to the government, but simply disappears, lowering the countries possibility curve.

Many Economists suggest that income taxes cause a larger deadweight loss per unit of revenue than sales taxes.

Re:That's irrelevant.

[DavidShor]

"Our government, OTOH, is perfectly capable of slowly raising the taxes on heavy-gas-using cars"

That's just a show-measure, designed to make people feel good. Besides, the definition of "heavy-gas-using cars" is very sketchy, expect it to be distorted beyond belief in a congressional hearing.

"providing rebates to help defray the cost of hybrid cars"

Batteries require a tremendous amount of energy to create, unless the car is driven very often, this is often more energy than is saved. And hybrids are not nessiarily better for the envirement, they simply boost performance per gallon. Many hybrid cars just boost performance, keeping poor mialege(see the lexus models.)

"I'd suggest higher gas taxes"

Gasoline is highly price-inelastic. Prices would have to be raised to tremendous levels in order to signifigantly effect consumption(far more than the $2-$3 per gallon you are talking about). Not only that, but it would harm poor people rather severely, along with increasing inflation.

Before you mention Europe, keep in mind that they do not have a gasoline tax out of "energy independance" concerns. They have their tax purely for revenue, Gasoline is very price inelastic, just like cigarettes and Booze. Basic economic theory shows that such commodities are the best to tax(if you must tax at all), as they produce the most revenue and cause the least deadweight loss.

Europe is every bit as Dependant on the rest of the world for oil and natural gas as we are. In fact, because of their particular infrastructure, they are more so. So if energy security is your concern, don't look to them as a shining beacon.

"Or putting solar on top of their buildings. And, yes, we'd have idiots argue it wouldn't save money, when the point isn't to save money, or even energy. It's to help cover research and production-startup costs. We spend 80 dollars a panel so they can build big factories and then sell them to people at 25 dollars a customer, because people won't buy them at 80 and the first million are going to cost that much."

Any step forward in solar cell technology is going to be done by grad students working for a VC. How exactly are the profits of giant corporations funneled to them? I'm concerned that such subsidies distort funding away from original technologies that have not been considered.

Before we decide what are our goals. Is your goal achieving energy independence, or mitigating global warming? I am personally unsympathetic to the first goal, and very enthusiastic about the second. But they have nothing to do with each other, and I would like you to clarify your goals before I move on.

Re:That's irrelevant.

[Daemonic]

Now we have the oil-producing nations considering switching to the Euro for their transactions, rather than the dollar.

Interesting. I hadn't heard that.

I believe the last oil producing country to consider pricing in Euros rather than dollars was Iraq, who appear to have been thoroughly dissuaded now.

I'd always cynically assumed the real reason for the Iraq war was to avoid a run of oil suppliers switching to the Euro, and a subsequent dumping of dollars previously held onto the market, resulting in a fall in the value of the dollar.

Way to go on that one guys.

Re:That's irrelevant.

[Anonymous Coward]

Here's a nice article on Bubbles, and actually you were getting ahead of yourself mentioning the alt energy bubble. It's probably coming in the next few years.
http://www.tcsdaily.com/article.aspx?id=092507C

Re:That's irrelevant.

[DavidTC]

Yes, everyone knows that. We would have had a recession in 2002-2003 without something to stop.

Bush decided to fix it with a goddamn housing bubble. This was less than useful, as it is leading the way to a full-scale economic collapse.

The point isn't to 'save' the economy, the economy could have got through the tech crash eventually, the point would have been to cushion it while it happened. Look at the 80s crash.

Encouraging people to purchase overpriced houses they can't afford is pretty much the opposite of 'cushioning'. In fact, it's a good way for a lot of people to end up homeless, and cause another actual depression.

Re:That's irrelevant.

[DavidTC]

Yes, it was a rather disgusting corporate welfare program. Regardless, senior citizens received drugs they would have had to pay for, so I count it as an entitlement. Semantics aside, the deficit is due mostly to growth in these programs.

Medicare drugs now cost more. If you want to include that as an entitlement increase, go ahead and live in your own crazy universe.

Those are just the ones with Wikipedia articles. In each of those countries, median home prices have doubled in the last 8 years, in most of them, the increase was far larger. Real estate prices have spiked by enormous amounts in nearly every country in the world (Japan is a notable exception; prices are still level from their boom in the 90's).

First off, there is no Russian or Romania or Indian or China housing bubble, despite the fact there's a Wikipedia article with that name. Russia might have a Moscow bubble, but, OTOH, their property is way out of sync of the reast of Europe. Romania just invented home loans, before that, no one could actually afford to own a house.

India and China, OTOH, are in the middle of a huge income increase, prices are not increasing alone, income is increasing. The fact that people can now afford to live in real houses instead of hovels is not a 'bubble'.

Europe, OTOH, actually is in a bubble. Why? Because our investment greatly influences theirs, and our government influence theirs.

More to the point, you'll notice that most of their bubbles and slowed in 2006 or 2005, and started a year or so after ours. (Ours actually started in 2000 or even 1999, although no one really noticed.) Why? Because those countries figured out how dangerous it was and stopped it!

You vastly over-estimate the effect of the removal of the 30-year note. As I said earlier, the 30-year note had many close substitutes with essentially identical risk and return (FDIC insured CD's and state bonds for example).

Even without substitutes, the 30-year note was for very conservative investors. The idea that by removing one ultra-safe investment option, investors will suddenly pour funds into risky real estate is absurd.

Except they did.

And you're overempashising the example I gave. There were a lot of tiny things that the government did to encourage it, and there were quite a lot of things the government could have done to stop it. (I, unlike you , don't think the government should let the free market drive itself off the cliff, even if it chooses to do so of its own free will. And it certainly shouldn't do anything to encourage it.)

The "Ownership Society" was a political buzzword used by George Bush to capitalize on a trend. You have failed to provide convincing evidence that this was anything more than an empty slogan. Anyone with enough cash or credit to buy a home should know better than taking financial advice from a politician.

And, once again, the right is forced to fall back on 'It's not malice, it's incompetence'.

Bzzzt, wrong. If oil prices had remained steady, the housing boom would still be happening, and it would happen all the way to the next president, who would get hit with the collapse, which at that point would be even worse. That was what was supposed to happen.

It's incompetence it's happing now, but it was with malice Bush encouraged it. Did you know that, of the jobs created under Bush, about a third of them are related to the real estate market, mostly as a realtor or construction worker? It sure looked nice as a statistic in job creation, and hey, the next guy was going to have to deal with all those unemployed workers when the bubble crashed.

Re:That's irrelevant.

[DavidTC]

That's just a show-measure, designed to make people feel good. Besides, the definition of "heavy-gas-using cars" is very sketchy, expect it to be distorted beyond belief in a congressional hearing.

Um, no, it's already been distorted. What needs to be done is to undistort it.

Batteries require a tremendous amount of energy to create, unless the car is driven very often, this is often more energy than is saved.

Jesus Christ. Here's me: 'And, yes, we'd have idiots argue it wouldn't save money, when the point isn't to save money, or even energy. It's to help cover research and production-startup costs.'

I can't argue with this sort of bone-deep stupidity. Granted, I was talking about solar panels, but anyone could figure out the same applies to hybrid cars. We can wait 20 years for this industry to grow enough to be economically feasible, relying on early adopters to pay the cost, or we, in the form of the government, can pay the early-adopter cost and get it reasonable now. (Which also would cause a economic boom, and make a lot more sense than damn overbuilt houses, or a stupid-ass war.)

Whether or not we should do it to reduce energy consumption is a valid question, but I wasn't postulating it for that. I was saying that if we're going to have a government sponsored bubble, we should do it in something that's actually useful in the long run, even after the bubble goes away.

Gasoline is highly price-inelastic. Prices would have to be raised to tremendous levels in order to signifigantly effect consumption(far more than the $2-$3 per gallon you are talking about). Not only that, but it would harm poor people rather severely, along with increasing inflation.

I was talking about raising them to 2-3 a gallon, which, obviously, makes no sense anymore, but doesn't appear to hurt poor people that much. But that's exactly why I proposed a tax on new cars instead of on gas.

Europe is every bit as Dependant on the rest of the world for oil and natural gas as we are. In fact, because of their particular infrastructure, they are more so. So if energy security is your concern, don't look to them as a shining beacon.

I'm pretty certain I didn't mention Europe at all, and actually, you're wrong. Europe uses a lot less gas per-person. They have tiny little cars exactly because gas costs so much, and they use mass transit a lot more because they actually build mass transit and thus can get everywhere using it.

But, hey, there's yet another thing we could have done. Instead of building houses, we could have build mass transit.

Any step forward in solar cell technology is going to be done by grad students working for a VC. How exactly are the profits of giant corporations funneled to them? I'm concerned that such subsidies distort funding away from original technologies that have not been considered.

As opposed to now, where big oil is in charge of funneling research?

Before we decide what are our goals. Is your goal achieving energy independence, or mitigating global warming? I am personally unsympathetic to the first goal, and very enthusiastic about the second. But they have nothing to do with each other, and I would like you to clarify your goals before I move on.

Ah, I see. You like big oil.

Well, no point in trying to convince you of anything.

Re:That's irrelevant.

[DavidShor]

"Except they did."

No, they did not. The same risk taking investors who placed their money into the dot-com bubble, invested their money into housing after the bubble burt. After the housing market cooled down, they invested in commodities, creating a boom there.

Institutional investors who previously invested very conservatively, continued to.

"And you're overempashising the example I gave. There were a lot of tiny things that the government did to encourage it, and there were quite a lot of things the government could have done to stop it."

Your article did not mention them, so please elaborate on these other "tiny" things. And also, elaborate how you would have stopped the housing boom.

"Bzzzt, wrong. If oil prices had remained steady, the housing boom would still be happening, and it would happen all the way to the next president, who would get hit with the collapse, which at that point would be even worse. That was what was supposed to happen."

No, housing prices really couldn't have gotten higher than they did. Investors realized that it was a bubble, and pulled out.

Don't you think that it's a little absurd that one of the most incompetent presidencies in history successfuly orchestrated the movement of trillions of dollars by ingenious and unnoticeable micro-prods, and yet fail to realize that invading a oil rich country will increase the price of oil?

"More to the point, you'll notice that most of their bubbles and slowed in 2006 or 2005, and started a year or so after ours. (Ours actually started in 2000 or even 1999, although no one really noticed.) Why? Because those countries figured out how dangerous it was and stopped it!"

I don't really see what measures their governments have taken to "stop it". The ECB has a stronger anti-inflation mandate than the Feds, and raised rates faster than we did.

Re:That's irrelevant.

[DavidShor]

"Um, no, it's already been distorted. What needs to be done is to undistort it."

If you are talking about oil company subsidies, isn't eliminating them a better solution? Further distortion to cancel out distortion seems inefficient. And I realize that these subsidies include asset protection in the middle east, I am willing to stop that too.

"Granted, I was talking about solar panels, but anyone could figure out the same applies to hybrid cars. We can wait 20 years for this industry to grow enough to be economically feasible, relying on early adopters to pay the cost, or we, in the form of the government, can pay the early-adopter cost and get it reasonable now."

Hybrid cars are not going to get any more efficient without a major breakthrough in battery technology, something that billions of dollars in research already goes toward from other industries.

I find it doubtful that much of the extra revenue this would generate for battery and solar cell manufacturers will go to research. I don't see why they would have an incentive, in fact, it is rather possible that they would divert money from research to production, to meet artificially inflated demand.

This will increase experience and possibly decrease production costs for solar cells, but not by much(if the effects were large enough, they would have gotten a private loan). Besides, current conventional solar and battery technologies are fundamentally unworkable, and cannot possibly scale to take oil's place.

The entirely new type of solar cell or battery that can replace oil, that would have been funded by research, which was most likely diverted to meet production.

"I was talking about raising them to 2-3 a gallon, which, obviously, makes no sense anymore, but doesn't appear to hurt poor people that much. But that's exactly why I proposed a tax on new cars instead of on gas."

Cars are durable goods, and can last much longer than consumers usually own them. A tax on new cars would simply prompt people to keep their old cars for a longer period of time. Luxury cars are different of course, but they are rather price-inelastic, so I don't think a tax would be anything more than a revenue grab.

"I'm pretty certain I didn't mention Europe at all, and actually, you're wrong. Europe uses a lot less gas per-person. They have tiny little cars exactly because gas costs so much, and they use mass transit a lot more because they actually build mass transit and thus can get everywhere using it."

Just because they use less gas per person does not mean they are less dependent on foreign oil and natural gas imports. They consume nearly five times as much oil as they produce. In fact, they would be hurt more by an oil shock than us, because they have already taken up every measure to conserve oil, there is nothing else they can do to cut down usage. Because of this, Europe is just as sensitive to political threats from oil producing countries as we are, despite all of these anti-consumption measures.

"As opposed to now, where big oil is in charge of funneling research?"

The current system sucks tremendously, but it is rather possible that your system could suck even more.

My solution would be to set of a carbon cap and trade scheme. Every year the government would auction off carbon credits, the total number auctioned would be determined by climate scientists. These credits would be transferable, and would ensure that the carbon that we do produce goes to the most profitable use possible.

Most importantly, companies would have a direct incentive to research in cleaner technologies. Since gasoline is rather polluting, I imagine this would prompt some movement away from fossil fuels as well.

"Ah, I see. You like big oil."

No, I couldn't care less about them. I just don't see reducing oil importation as a valid goal. We import lots of things from the rest of the world, Cars, Chocolate, and Sugar. I don't see how oil is any different. What exactly are the costs to society of burning oil?(other than pollution, as I previously stated I want that to be accounted for).

Re:That's irrelevant.

[DavidTC]

No, they did not. The same risk taking investors who placed their money into the dot-com bubble, invested their money into housing after the bubble burt. After the housing market cooled down, they invested in commodities, creating a boom there. Institutional investors who previously invested very conservatively, continued to.

And people who needed to purchase houses had to purchase marked up ones, and bought even bigger than they needed as 'investments'.

I don't give a fuck about people who invest professionally. They can take care of themselves. It's people who see the bank giving an interest rate of 3% and property values raising 15% a year who got hit, and were repeatedly told 'home values never go down' and 'homes are an investment' that went out and bought a home that was already overpriced by 50%.

Why were the banks giving such low interest rates? Because of the government's monetary policy. Why were property values rising so quickly? Because of the government's complete non-interference.

And even people who didn't fall for the idiocy were still effected, because they have to have a place to live. It's all well and good to say people can opt out of the stock market, even though that's not true because of pension plans and whatnot. No one can opt out of the housing market. (And, yes, the increase in home prices also raised rents and leases. Although renters, at least, won't be hurt by the drop.)

Your article did not mention them, so please elaborate on these other "tiny" things. And also, elaborate how you would have stopped the housing boom.

I would stopped promoting home ownership, for the most obvious one!

Other than that, let's see: Tightened controls on the mortgage industry so there wasn't so much money being thrown around. Changed tax code to penalize flipping.

And I'd have encouraged local government to de-emphasize more residential zoning, and have impact fees for new hours, and to increase property taxes for higher-priced houses.

The tiny things? Well, Bush did almost exactly the opposite of all those. (Although he didn't really have to work locally, he knew local Republicans would automatically fight impact fees and increased property taxes and zoning.)

No, housing prices really couldn't have gotten higher than they did. Investors realized that it was a bubble, and pulled out.

Sure they could have gotten higher...if oil prices had been lower. That's what made the wheels fall off this little ride...people couldn't pay for their gas and their mortgage. (And their food, but food prices follow right behind gas prices.)

Don't you think that it's a little absurd that one of the most incompetent presidencies in history successfuly orchestrated the movement of trillions of dollars by ingenious and unnoticeable micro-prods, and yet fail to realize that invading a oil rich country will increase the price of oil?

The theory is that by now, in fact, by 2004, we'd have control of their oil wells. No, not that we'd take over and run them ourselves, but that they'd be selling cheap to us. Remember how the oil was supposed to pay for the war?

If the Iraq war had worked, we'd be rolling in 75c gas right now, and people would be driving 60 miles a day in their Hummer earning $40,000 a year to pay off their $260,000 house, and that would actually work. At least for another 18 months.

And even if you think it wouldn't work another 18 months even with cheap oil, that was still the plan. It's possible that even without oil going up, the plan would have failed, but arguing that a Bush plan would have failed for multiple reasons or was insanely optimistic about the behavior of others is not a very useful objection to the idea that such a plan exists.

Re:That's irrelevant.

[DavidTC]

If you are talking about oil company subsidies, isn't eliminating them a better solution? Further distortion to cancel out distortion seems inefficient. And I realize that these subsidies include asset protection in the middle east, I am willing to stop that too.

No, I was talking about the distortion of the MPG controls by including SUVs as 'light trucks' instead of passenger cars.

We already have perfectly functional ways of reducing low-mileage vehicles on the road, it's called CAFE. It and things like it upped gas mileage from 20 mpg to almost 35 over the last three of decades. We just stopped using them.

I find it doubtful that much of the extra revenue this would generate for battery and solar cell manufacturers will go to research. I don't see why they would have an incentive, in fact, it is rather possible that they would divert money from research to production, to meet artificially inflated demand.

Solar panels don't actually need a lot of research at the moment. They just need a price drop. Get them out in the public, installed on buildings, and the research to make them better will happen by itself.

And the government using hybrid cars would, indeed, cause battery research as the government tends to lease cars from manufacturers. They don't want to end up with a bunch of five-year old cars with non-working batteries they have to replace. However, I'm not as attached to this idea as the solar panels...but I do think it would be helpful for the government to use only cars that exceed CAFE by, say, 15 mpg (And only then get the lowest bid.) to help drive the market.

Just because they use less gas per person does not mean they are less dependent on foreign oil and natural gas imports. They consume nearly five times as much oil as they produce. In fact, they would be hurt more by an oil shock than us, because they have already taken up every measure to conserve oil, there is nothing else they can do to cut down usage. Because of this, Europe is just as sensitive to political threats from oil producing countries as we are, despite all of these anti-consumption measures.

Um, no. I don't know in what universe Europe is more unable to cut back on oil than us, but it isn't the one I live in. Europe tends to have rail service to almost every small city, or at least within 20 miles of every small city. They may do a lot of shipping over roads, but they could certainly switch that to rail in an emergency.

Read a Sherlock Holmes story. 100 years ago, England was crisscrossed with enough rail service that you could get anywhere in a day, and Europe was the same. Those rail lines are still there, and still used for commuter services, although obviously they run a good deal less trains over them.

We, OTOH, can't ship food using rail outside of major cities, because we don't have any rail lines at all except between ports and major cities. (And we don't get food from ports, we get it from 100,000 square miles of farmland.)

FDIC insurance

[ortholattice]

It looks like 1500 people had $109 million over the 100K FDIC insurance limit - an average of about $73K - so they'll probably lose it. Many of these will probably be small amounts, say accumulated interest on $100K deposits; at other extreme, there a likely an unfortunate few who will be in very bad shape, essentially having lost most of their life savings, if they put all their eggs in this one basket.

Most banks do not try to discourage deposits more than $100K. I recall seeing offers of jumbo CDs starting at $100K, for a slightly higher rate. The very first interest payment, therefore, is uninsured.

An E*TRADE salesman once tried to convince me that a deposit of over $100K was quite safe and that the FDIC insurance is for a worst-case scenario that was essentially impossible to happen. He said lots of people have over $100K and implied I was paranoid even to bring it up, in an attempt to get me to consolidate all of my accounts with E*TRADE (which, at the time, offered a higher interest rate).

Re:FDIC insurance

[Rich0]

Yup - why anybody would deposit more than $100k in a bank account is beyond me. Banks pay horrible interest - they're only useful for day-to-day liquid activities without large balance requirements, and due to the fact that in the US they're insured up to $100k.

If you have more than that you're much better-off investing in a mutual fund of some sort. Even if it is just a money-market fund. Most of those at least have private insurance - it won't protect you if the stock market completely crashes, but it will protect you if your investment company goes out of business and somebody walks off with the funds.

The FDIC was designed to keep average Americans from losing their shirt in the event of a bank failure, and to promote general confidence in the banking system by average people. It wasn't designed to cover people with hundreds of thousands of dollars - these are not people who should require government bailouts. If you can earn that kind of cash you should have enough sense to read up on what to do with it. Sure, lots of middle-class Americans have that kind of cash in their retirement accounts, but somebody with a decent-paying job that likely required a college education should know not to just take bank ads at face value...

Re:FDIC insurance

[gunnk]

It may be worse than that: the FDIC insurance applies to checking and savings accounts, but not money market accounts. Money market account holders can get in line with other creditors during the bankruptcy proceedings. Moral of the story: if you have a money market account, make sure you know the financial health of your bank.

(Note that credit unions are insured separately by a different organization, so money market accounts there may be covered.)

Re:FDIC insurance

[coyote-san]

One small nit -- they're only GUARANTEED to 100k. In practice I believe they've always covered accounts fully. That makes sense, if your goal is to promote public confidence, while leaving yourself an exit if a major bank fails.

Re:FDIC insurance

[Rich0]

It largely depends. Many banks have "money market" accounts that are classified as savings accounts as far as the FDIC is concerned and are insured. Many money market accounts are in fact uninsured as well.

Netbank had a "money market" account which was FDIC insured - at least as far as I'm aware (and I did take the time to find out).

I'm guessing it comes down to whether the bank wanted to follow FDIC rules regarding investments/limits/reserves/etc. Most money market mutual funds don't - but they're still very safe due to their investment profile. Also - most non-FDIC-insured money market funds tend to be privately insured against anything but investment risk.

Bottom line is - anybody with any kind of account no matter what it is called or where it is held should be aware of its FDIC-insurance status. Many banks have both insured and non-insured investment products.

Re:FDIC insurance

[Anonymous Coward]

the FDIC insurance applies to checking and savings accounts, but not money market accounts

FDIC insures money market accounts, but not money market mutual funds. This is one of those subtle distinctions of legal language that can be really tricky for investors, especially since language laziness results in both of them being colloquially "money markets." A MM account is essentially a savings account, where the bank directly holds and invests the funds, very often to finance its own mortgage business. A MM mutual essentially invests those deposits in the MM accounts of other banks, in short term loans, and other non-insurable instruments. The money in an MM account is held in trust by the bank; the money in an MM mutual is invested on behalf of the depositor.

Re:FDIC insurance

[un1xl0ser]

VIII. Dividend Information
Due to the projected sale of assets of the former bank, the FDIC is in the position to provide each uninsured depositor with an dividend equal to 50% of your uninsured amount. These funds will be deposited directly into your account net of your uninsured portion.
Dividend Information on Failed Financial Institutions contains general information about the dividend process. http://www.fdic.gov/bank/individual/failed/netbank.html

Re:FDIC insurance

[tburkhol]

Yup - why anybody would deposit more than $100k in a bank account is beyond me.

I suspect few of these $100k accounts are somebody's checking account. I suspect these are people who have several staggered, long-term certificates of deposit. eg: 5x$25,000 10 year CDs = $125k. This could be a conservative retirement investment, and someone not paying attention might think that "FDIC insured to $100,000" would apply to individual accounts and not the aggregate. Netbank's CDs probably paid around 5-6%, which is almost as good as a bond, and carries that magical FDIC insurance.

Re:FDIC insurance

[everphilski]

OK so keep 2 of those CD's as your 'safety net' and aggressively invest the rest of it. If you are under 40 you don't have much to lose.

I have most of my money in an agressive allocation fund with my investment company, and the historical return rate is 11%. Last year was over 16%. I've broke double digits this year despite the doom&gloom you hear everyone talking about. There's no reason to keep all your money in CD's.

And if you are older, go for a less agressive investment scheme, and net 8-9%. Compounded, you will notice the difference in a few years. 100k in anything the FDIC can insure is crazy talk ...

Re:FDIC insurance

[Shawn Parr]

Netbank had a "money market" account which was FDIC insured

Parent is correct. I have a Netbank (now ING) 'Money Market' account that I started about a month ago. I was very concerned so I called the FDIC via the number they have published on the Netbank information sites and was assured that it was insured and all my funds would still be available.

The Netbank site is now back online, and you can get back in and see your accounts again. The big question for me, especially with the first of the Month on Monday, is what is happening with all my Bill Pay transactions. I'm pretty sure that any involving electronic transfer will be cancelled, however the ones that Netbank traditionally mailed out may have already happened, or may not have, and the FDIC people were unable to tell me anything about that with any confidence.

Re:FDIC insurance

[dhollist]

Yup - why anybody would deposit more than $100k in a bank account is beyond me.
This may be obvious, but the FDIC insured limit of $100,000 is applied to the entire financial institution, not each account, and it applies to the assets of your whole family, not each individual family member. An elderly friend of the family has her money spread out over dozens of different banks, and when there is a merger she is very diligent about rebalancing her accounts to stay below $100,000 per institution.

"The FDIC protects you against the loss of your insured deposits in the unlikely event that an FDIC-Insured Institution fails. If you or your family's deposit accounts at one FDIC-Insured Institution total $100,000 or less, your deposits are fully insured."

Re:FDIC insurance

[Anonymous Coward]

It really depends on your situation. The 8-9% you cite is an average over decades: some years it may be 20%, some years it may be -10%, and it's almost impossible to tell which kind of year next year will be. If you're a retiree trying to make his savings last the next 10 years, it can be very expensive to suddenly have 10% of the principal disappear. Someone in that situation may be happy to trade the extra 2-3% annual return for the security of never having a losing year.

Re:FDIC insurance

[nhaines]

I checked into this, too (although I was quite relieved that I tend to pay my credit cards a couple days after I receive the statements, and not just before the due dates, so I'm covered for another month).

Any electronic bill transactions will be held until Sunday, but all direct deposits will be automatically transferred and electronic transactions will resume Sunday evening. As far as I can tell, there should be no interruption--we'll even continue using the NetBank website for the next couple of months.

I keep my longterm savings in an Orange Savings account at Ing Direct (I'm just starting again, you see), and I have been rather pleased with them, so I was relieved to see that they had assumed NetBank's consumer bank accounts.

Re:FDIC insurance

[Anonymous Coward]

it applies to the assets of your whole family, not each individual family member. There are several categories of accounts that FDIC insures. Your blanket statement may give people the impression that if each family member has their own account in the same institution, they are all treated as a joint account. The rules are different depending on the type of account. Insurance is per depositor. Various retirement accounts have the higher limit of $250k and they treated separately than other accounts at the same institution.

http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html

Re:FDIC insurance

[hawk]

Nope. For a while there was the "too big to fail" doctrine, in which the economic effects (particularly secondary failures) were considered in bailing out past the limits (Bail out this one for an extra $10M instead of coughing up $50M as later ones failed).

Then the "racial" effects were noted--small black banks with excess deposits (Bank of Harlem?) for payroll weren't covered. And then there was the moral hazard and competitive problems with people realizing that big enough banks couldn't fail and that they didn't need to worry about the big bank's risky behavior . . . I believe the doctrine is entirely dead now.

All in all, I'd only provide 100% coverage for the first $5k or so, and only 90% after that--this would protect people from being wiped out, but leave an incentive to monitor the behavior of management.

hawk

Re:FDIC insurance

[Slashdot Parent]

Yup - why anybody would deposit more than $100k in a bank account is beyond me. Well, I can think of many reasons why one would deposit more than $100k in a bank. For the most obvious, google "1031".

Re:FDIC insurance

[ckaminski]

Netbank customer since at least 2000. As of 18:45 EST, I still cannot access the Netbank website. Well at 18:50 I can, but read-only. Suckage. Complete surprise to me.

Re:FDIC insurance

[Shawn Parr]

It was interesting to watch as 5PM access became 7PM, then 11PM. I do have full access again now though. One of my eleven pending bill pay transactions does not appear, but luckily that bill isn't actually due until the end of October. The other ten are still listed, and appear to be fine. In all honesty I'm not surprised about the missing one since I set it up probably within two hours of the shutdown.

Netbank? Which Netbank?

[pavium]

If it wasn't for the fact that I know (slashdot) articles tend to be US-centric, I would have been worried.

The Commonwealth Bank of Australia uses the name 'Netbank' for its on-line banking -- it's a pretty generic name.

By coincidence, just before surfing to slashdot.org I used the "Commonwealth's" Netbank.

It's still working fine.

Talk about timing...

[ActusReus]

A couple of weeks ago I ordered a new Prius from the Toyota dealership, and moved $10,000 from my brokerage account to my NetBank account in preparation for the down payment. I scheduled to pick up my car on 9/28. Right before heading up to the dealership, I went online to double-check my account balance one more time... and nearly crapped a Toyota Prius in my pants!

I do 90% of my shopping online, but online banking has been a touchy subject. I became a NetBank customer 6 or 7 years ago only because they bought my account from CompuBank... my PREVIOUS online bank that went belly up also. I know these failures were due to bad management and not anything inherantly wrong with an online model, but after the run I've had I just don't think I could trust an online-only bank again. Come Monday morning, I'll be switching my payroll direct deposit over to a credit union account... and saying farewell for good to banking through that series of tubes they call the Internets.

Re:Talk about timing...

[King_TJ]

Yeah.... I, too, was a long-time Netbank customer. Back when I first signed up with them, they were one of the ONLY ways to do free, unlimited online billpay.
Over the years, that turned into a "non issue" as practically all the other respectable banks and credit unions offered the same thing .... but I stuck with Netbank anyway, because frankly, I was screwed over and bumped around from bank to bank with my locally held checking account. (It seemed like every month or two, for a while there, whatever bank I was with was part of a merger with another bank. For a while, my book of checks had the name of a bank that was 4 or 5 institutions ago!) Given that history, Netbank was rock-solid stable by comparison.

I started to worry about Netbank's status when it started becoming tougher to make a convenient deposit. My electronic deposit of my payroll check was fine, but anything else I had to physically deposit was starting to become a pain. They had a list of "partner ATMs" supposedly in their network that you could make deposits at -- but I found the list started getting outdated, and Netbank made no effort to update it. (For a long time, it told me they had "Netbank branded ATMs" at all the Huck's gas stations in my city that I could use. Well, I found a grand total of *1* Huck's station that actually had one of those inside it. The other locations listed on their site were long since closed up. Then, the remaining Huck's in my town got purchased by Amoco/BP and the last remaining Netbank ATM went away with it.)

They experimented with the overnight deposits through any UPS Store location for a while, and that was great for me. But they discontinued that too, claiming it was costing them too much and wasn't used by enough Netbank customers.

And you could always request postage-paid envelopes to mail in a deposit directly, but half the time I'd fill out a request for more of those and would never receive them! When I did use one, Netbank seemed like they'd sit on the thing for over a WEEK before getting around to even opening it!

I've still got my account with them, mainly because I've been too lazy to open another account ... but now, I have the necessary motivation. This whole situation sounds like it's going to be a "bumpy ride" if I leave it alone. Nothing against IMG Direct or anything, but I just don't have great luck with these bank mergers and changes.... I'd rather duck out now, instead of hassle with a direct deposit getting mis-routed, or my first few deposits getting lost in a black hole someplace when I put them in some partner's ATM, or ??

Re:Talk about timing...

[Anonymous Coward]

Your check to the dealership should still be good, up until ING completes the aquisition.

See section 4 of:
http://www.fdic.gov/bank/individual/failed/netbank.html

Re:Talk about timing...

[arb phd slp]

I switched to Netbank after x.com abruptly closed my checking account because they were getting out of banking for this newfangled "Paypal" thing they were trying. I remember thinking at the time that it was a stupid, faddish idea that was just waiting to collapse in the next dot-com bubble. That's about the wrongest I've ever been in predicting winners in the market.

Mortgage defaults

[DerekLyons]

The defaults aren't something that 'just happened' to them - they chose to get involved in what anyone should have seen as being an extremely risky market. (Buying mortgage paper on the secondary market.) But the ultimate culprits are the (all but unregulated) mortgage companies, who loan the money then promptly sell the paper - they've taken their money and profit and are walking away virtually scott free from this developing crisis.

Re:Mortgage defaults

[Rich0]

But the ultimate culprits are the (all but unregulated) mortgage companies, who loan the money then promptly sell the paper - they've taken their money and profit and are walking away virtually scott free from this developing crisis.

I dunno - they wouldn't do it if people didn't buy the paper.

Suppose I find ten homeless people and loan them $100 each, and then sell those loans to somebody for $1100 - netting $100 in the process? As long as I was honest about what I was selling, have I done anything wrong? Sure, whoever bought the loans will lose just about everything they bought, but as long as I was honest about what I was selling isn't that on them?

The real culprits are people who buy loans without any care for whether the debtors can make the payments. And we needn't be too upset about them - they'll just lose their shirts when the market corrects themselves.

Re:Mortgage defaults

[(negative video)]

The real culprits are people who buy loans without any care for whether the debtors can make the payments.

Not exactly. A lot of the MBSes were rated as investment grade by the ratings agencies, who share a lot of the blame. The MBS purchasers' mistake was to buy something that was too good to be true. When you're playing poker and you cannot figure out who the mark is, you're the mark.

Re:Mortgage defaults

[Adult film producer]

I dont' have the link right now but I think it was Russ Winters that explained why the ratings agencies failed so miserably for the last few years. One would assume they investigated what were in these complex securities being sold and make their judgement based on that. What happened was the rating agencies never looked and rated securities based on who was selling them.

Alternatives

[supertall]

I've enjoyed using Netbank for several years now, and as someone who moves around a lot having a branchless bank equally accessible from anywhere in the country has been nice. They even have (had) ATMs here in B.F. Mississippi. I'm sad to see them go.

Are there similar alternatives to Netbank that anyone would recommend?

Re:Alternatives

[davidfromoz]

I've been using Virtualbank for 6 years (roughly). I am extremely happy with their service. http://virtualbank.com/

Good.

[chroma]

I signed up for an account with them a couple years back and they socked me with several hundred dollars in fees within the first month. Good riddance.

Re:Good.

[Rich0]

You neglect to mention why. Netbank doesn't have minimum balance fees or anyting onerous in general, although if you open an account with $100 and proceed to write 75 checks for $1000 each you would easily run into the scenario you describe at any bank.

Netbank grew so big by being one of the few banks that DIDN'T charge fees for anything and everything. Generally the only thing they charged fees for was stuff that you'd expect - frequent withdrawls on a money market account, overdrafts, etc. This stuff incurs cost and isn't normal business and have been subject to fees by just about every bank since the dawn of time.

Re:Good.

[Anonymous Coward]

NetBank charged me $3 a month for years to receive the monthly statement in paper form that every other bank provides for free. About a year or so ago they suddenly stopped charging for it. I suspect that they were breaking a banking law all this time and decided to come into compliance without properly reimbursing their customers for the faulty charge. At any rate, they did other things I did not like. But I kept a little money in an account with them just for convenience in certain situations. I concluded a long time ago it is not worth my time or hassle to get certain businesses to treat their customers appropriately -- the market will take care of the businesses' bad practices eventually. In this case, I was right. Since I had been thinking of opening an ING account, this works out for me two-fold.

Re:Good.

[Rich0]

Does ING actually provide paper statements? It seems like charging for paper statements is becoming standard practice in many arenas. In some cases it is standard but there is a monthly charge just for having an account...

Re:Good.

[Anonymous Coward]

Most banks do not charge monthly fees for basic accounts and do provide paper statements. The reason I suspect they were violating banking laws all those years is they did not tout the new arrival of paper statements you did not have to pay for. Seems like they did not want to draw attention to the fact they used to charge for them. If this was a voluntary decision by them, even a significantly inept marketing department would have ben trumpeting it as a major new benefit to its customers.

Re:Good.

[Rich0]

Well, they do cost money - they probably didn't advertise it because they wanted their customers not to request them.

Just about every company I do business is constantly offering to switch me to "free" electronic statements. :) I prefer paper and stick with it, although electronic would probably be more reliable if anything.

Re:Good.

[chroma]

At this point, it's a dead horse. E-mail if you want details.

Depends on the Market

[SRA8]

Depends on the market and whether local salaries can support local housing prices. Take NYC -- housing prices continue to rise significantly despire all the market troubles? Why? - Because the average banker (there are thousands of them) can make $350k these days, at that point, an $850k studio makes perfect sense. - Because when two bankers, each making even a modest $120k get married, their combined buying power easily affords them a $1M 1B apartment - Because the worthless dollar allows Brits and Europeans to easily purchase real estate as vacation homes But overall, yes, I agree, home purchasers will have to whether the storm depending on when they purchased their home and for how much. Otherwise they risk being underwater.

And I care why?

[Valar]

I mean, mostly I care because its a bank failure in general. I don't care any more or less because it's 'OMG ONLINE BANK WOW'. And of course, you would expect some banks to fail here and there right now: a lot of them made poor lending decisions and deserve the consequences. The good news is we've learned from previous bank failures and now at least most customers won't be out anything.

If you really want an online bank every major bank offers online banking. Some have more features than others, but there are a few where you can get an almost full service banking experience without ever visiting a branch. Until I started working at my bank, I didn't step foot in a branch for over a year. So I would suggest to find a major player, scope out their online banking, and pick someone who has branches in your area anyway, just in case you happen to have to conduct a rare in person transaction. If you don't think you need any branch banking ever, eTrade is in the bank business and they appear to be very financially stable.

Re:And I care why?

[Cro Magnon]

If you really want an online bank every major bank offers online banking. Some have more features than others, but there are a few where you can get an almost full service banking experience without ever visiting a branch

My brick-and-mortar bank gives me 0.90% interest rate. ING Direct is about 5.00%. I don't recall what Netbank's rate was, but it was surely much more than the brick-and-mortar place.

$50Million FDIC Insurance?

[SRA8]

Shameless plug, as I built most of their tech architecture :-) -- check out Promontory Interfinancial Group's CDARS program. These guys take a regular bank's CD program and extend the FDIC coverage to $50M or more. The rates are basically the same and often higher.

Re:$50Million FDIC Insurance?

[TykeClone]

I don't know if they actually take the CDs, but many banks also participate in the CDARs program. There's a good chance that the bank that you are using participates and can get you a fully insured CD greater than $100K.

If I remember right, the head guy for the Promontory outfit is a former head of the FDIC, and the program will do what it says that it does.

Re:$50Million FDIC Insurance?

[SRA8]

Yes, Promontory is run by a bunch of ex Administration heads (OCC, FDIC, Fed, etc.) There are about a thousand banks that participate. The place I was working at was the back-end, they do all the logistics for the participant banks.

Re:$50Million FDIC Insurance?

[TykeClone]

We participate. I think it's a great idea for skirting the FDIC limits for those who need to do so and it is good for the banks to keep the customer's full relationship - a win-win situation.

Lucky me

[acm]

Wow, guess I got out just in time. I pulled my money out of there a couple months ago, closed the account, and moved it into EverBank. When I signed up for NetBank in 2004, they had one of the most competitive interest rates for checking accounts available (according to Bankrate.com). However, as time went on I noticed there were more and more online banks that had better deals. I suppose it wouldn't have been too bad, it looks like all of NetBank's customers automatically are getting transferred to ING Direct.

Re:Lucky me

[DavidTC]

Even if they weren't moving them, saving and checking accounts are insured up to $100,000 in the US.

Although treat that as per-bank, not per-account.

You don't think the value of money changes?

[Colin Smith]

But that's why stocks pay more -- because they're riskier, and so they have to or no one would buy them.

Really. You don't think money is as risky or riskier than say FTSE all-share fund or whatever the US equivalent is.
 

NetBank did not have the best interest rates.

[Futurepower(R)]

Not only is the Slashdot story wrong in that way, it is misleading in another way: "I am saddened that an institution that provided me with so much great service..." NetBank did not, however, have the best interest rates.

GMAC Bank and HSBC Direct had higher rates than NetBank.

BankRate.com is the site I used to find those two. BankRate.com is a poor quality resource for finding banks, in my opinion, but it is better than nothing. Does anyone know of a better site for shopping banks?

Re:NetBank did not have the best interest rates.

[Nimey]

Do you mean lower rates? I used to work at a "loan servicer" (and collections agency) and NetBank was one of our clients, at least for their car loans.

Their target market, at the time (2005), was for people with good credit, say FICO 760 and better (don't remember the exact numbers). I seem to recall their interest rates were fairly low, at least compared to the other companies we serviced loans for.

Re:NetBank did not have the best interest rates.

[Valafar]

A FICO score of 760 isn't "good" it's great. 650-700 is B to B+ credit (generally one can qualify for a loan but your rates will not be optimum). The scale looks something like this:

475 bottom of the barrel. If you want a loan, you're going to get eaten alive. (30% interest rates, etc.)
525 - 475 your credit really sucks. Like above, though you risk is considered somewhat less. 20-25% interest rates.
600 - 525 Credit isn't in good shape, but you can qualify. Interest rates will be high, (20% on average).
700 - 600 Average credit for a consumer. You qualify for most things, but your rates will still be ugly (15% - 20%).
800 - 700 Good credit. Good rates. People who pay their bills on time and don't have any unpaid debt (collections) fall into this range.
800 + These are the people that qualify for 0% interest for the life of the loan, etc.

FICO is just a small part of the underwriting process and there are many other factors that are taken into consideration by lenders. Mostly these include:

PTI (payment to income ratio)
DTI (debt to income ratio)
High Credit
Deliquincies (number of, severity).

Most lending institutions have their own criteria for lending (called lending guidelines) and they vary widely.

Generally the underwriting process looks something like this:

Get your FICO. If it doesn't immediately disqualify you, then look at the other factors (DTI, PTI, etc.).
If your profile passes those, they'll give you money, otherwise they don't.

Where you fall within those limits will effect the interest rate that the lender will apply to you.

Other factors to consider:

Time of year. --> Generally buying happens seasonally and you can get better deals during the down periods (August, February)
Time of month. --> Lending institutions have monthly lending goals. Underwriters will pass you through the system if you're border line to meet their quotas.

Sorry about the adhoc tutorial on credit.

NetBank customer blog

[Anonymous Coward]

http://netbankcustomer.blogspot.com/

Dollar falling fast.

[Anonymous Coward]

MOD PARENT UP. Dollar falling fast, as the oil-producing companies switch to selling oil in Euros. The U.S. government and U.S. companies like AT&T adopting the aspects of dictatorship rather than those of democracy.

Soon everything you buy will go up in price very fast, as old inventories are exhausted. That's because almost everything sold in the U.S. is made in China, and because the dollar is hyper-inflating (losing value rapidly against other currencies).

Impeach the Decider. He and Darth Cheney engineered this destruction. They are oil and weapons investors who want to invade Iran because Iran is selling its oil for euros, and because more war will benefit the investments of their families and friends.

Republicans were never "conservative". They just picked that word because it tested well in studies of U.S. voters. The Decider is just a fake leader who is in fact controlled by others. He certainly isn't religious, he pretends to be religious only because that tested well with the voters.

Bank Run in England

[geoff_smith82]

The Northern rock bank run caused the government of england to guarantee the entire country's banking system. This was a BIG mistake because now they have socialized the losses and kept the profits privatized. This will make the banks even more risk taking, knowing that they will be bailed out if anything goes wrong. And the taxpayers could be up for HUGE amounts of money to bail the banks out.

Re:Bank Run in England

[TykeClone]

The banks won't be bailed out nor will the owners or shareholders of the banks. The banks' customers will be.

Re:Bank Run in England

[DamonHD]

Simply not true. The Treasury/BoE agreed to underwrite the NR deposits in place at the time of the 'run'. Nothing else and for no other bank.

I'm pleased that NR has suffered for its poor business practices, and I'm pleased that by-and-large its customers will not.

Rgds

Damon

I went with USAA.

[Kadin2048]

For reasons that had nothing to do with any intuition of an impending collapse (I was actually most annoyed that they didn't play nicely with Mac Quicken), I moved all my deposits from NetBank to USAA a few months ago. I've been very happy with USAA; they offer more online features and a better website UI than NetBank did, excellent customer service, and ATM-fee reimbursement (up to $10/mo or so). Their interest rates on checking aren't quite as high, but that's a small price to pay, particularly since it serves as encouragement to not build up a big balance in checking, but instead keep savings in a savings account and investments in investment accounts. USAA also doesn't gouge you if you want paper statements, although they give you the option to disable them and get everything online if you want.

In retrospect, now I know why the people at NetBank didn't seem too surprised when I closed my account down and moved everything out. At the time I was a little surprised that they didn't try to keep me as a customer at all, particularly since I'd been with them since the very beginning.

When NetBank first started, they were really a joy to work with. Their website was first-rate, their customer service was awesome (I recall calling them up in the middle of the night once and getting an actual human operator, not a "push x for foo" prompt tree), and they had a lot of nice little extras. Initially, they even sent out paper account statements on color, 3-hole-punched letterhead.

The nice paper for the statements went away in the first round of cost cutting, as did the human operator on the phone. The second round was charging $3/mo. for paper statements at all, and charging for checks. Then the website stopped getting any updates. And the last straw for me was when they did something funny to the backend system, and I started having to click "download transactions" twice in Mac Quicken in order to get it to download (the first try would *always* fail). After a few years of that, I got fed up and decided to leave.

In hindsight, I guess my timing was pretty good.

Learning your bank closed on Slashdot

[singularity]

I have been a happy NetBank customer for over five years now. Really good customer support, no fees on basically anything. I only did checking and savings account, and it is a shame that a bad housing market brought all of it down, but that is the way it goes.

I move around a lot, and with direct deposit I never felt the need for a brick-and-morter bank to ever go to. It never made sense for me to pay for the buildings that I was never using. NetBank also had some innovative features to make things easier like free overnight check deposits through any UPS store. I will definitely miss it.

It was really strange logging onto Slashdot this morning and learning that my bank had closed. I supposed I get to spend today researching online banks. I might end up sticking with my new ING account.

Re:Learning your bank closed on Slashdot

[i)ave]

I've been using SalemFive http://salemfive.com/ for four months now and have been wildly impressed. My "eONE checking account" had no setup fees, has no minimum acccount balance, they pay me 5.00% interest compounded daily and credited monthly, they REIMBURSE ATM FEES up to $20/mo. (I believe this is the figure, I've never exceeded the amount)and they even gave me my first 25 checks free. I keep thinking this is too good to be true and soon something will change, but I'll be damned if it hasn't been simply the best online banking solution. Oh, and their customer support is fantastic. Honestly, with options like this out there, I can't imagine you'll be too disappointed for long.

--Dave

Re:Learning your bank closed on Slashdot

[spitzig]

Yeah, I'm in pretty much the same situation. Also, concerned about the billpay stuff I've got set up. I don't know if I know all the addresses, and hope I don't have anything scheduled to be paid.

Re:Learning your bank closed on Slashdot

[mosch]

For what it's worth most of NetBank's features are available elsewhere. My USAA account also includes the "deposit via UPS" envelopes, and some niceties like the ability to deposit a check by scanning it.

I feel very fortunate that my experience with NetBank's customer service was extremely unpleasant. So unpleasant, in fact, that I never funded the small business account I opened with them.

They had some serious bugs in their software that prevented me from initiating an ACH to fund my account. When I asked about those bugs, they stated:

Furthermore, please be advised that it is not possible for us to make any modifications in our existing systems at this time because we are in acquisition phase. NetBank is being acquired by EverBank at this time and therefore all of our systems will switch to their systems by end of September.

Fortunately I took that as a bad sign, and walked away.

Re:Learning your bank closed on Slashdot

[richmaine]

I guess experiences and viewpoints differ.

I got an account with them a few years ago. They had the worst service I've ever seen in a bank... and I've seen pretty bad. The attitude was also clearly that they didn't care. I closed my account after just a few months.

Re:Learning your bank closed on Slashdot

[Cro Magnon]

I got the same impression from them. I still have, er had, an account there, but it was strictly chump change. Most of my money is in ING.

Here's the proper link

[i)ave]

Sorry, the link I gave you is to their main banking page, in order to sign up for an eONE account, you need to use this link http://www.salemfivedirect.com/

--Dave

Etrade Bank CD?

[drake2]

Has anyone dealt with E*Trade Bank. Specifically the E*Trade Bank 1 Year CDs paying 5.1% APY. I have been using HSBC Online Savings, which is great, but they lowered interest from 5.05% APY to 4.5% APY with the half point drop by the Fed. I assume most other variable rate online savings will shortly follow suit making it pointless to move money around. Any fees for opening account, penalties for early withdrawal/minimum balance, or other problems with Etrade Bank. We have a local credit union which is currently paying 5.25% on an 11 month Share Certificate, but they charge a refundable on closing $10 to open an account so that the effective interest for amounts under 10,000 is lower than online savings if the account is never closed.

Dang

[snizzitch]

Yeah, it is a shame that they went under. I was with them for almost 100% of my almost 11 year military career which just ended, and needless to say, I appreciated the worldwide accessibility of their system, as well as the nice online bill payment options. I was very happy with their service right up until the FDIC notice was posted on their website. The customer service was good and the lack of fees was nice, and they even had a few ATMs in my local area. No, I didn't lose anything in this process and I am still able to log in to the same website pretty much seamlessly, but of course I'll be looking for some other banking option here in the near future.

My Wife Was an Analyst for Netbank

[Ray Radlein]

My wife used to work for Netbank, at their HQ here in Atlanta.

After her previous company downsized, she talked to Netbank about a job; her first in-person interview was scheduled for September 11, 2001. Oooops. We saw the second tower hit live on the Today show right before she left; once she got there, the nation's entire financial industry went into lockdown, and she spent the whole day sitting in the lobby of their offices. Heh. Was that some kind of omen?

Anyway, she got the job, and went to work doing business analysis -- which promotions actually drew in new customers, what percentage of new customers retained their accounts, et cetera; she also maintained the list of ATMs that were in service and in their network; and was responsible for generating the customer lists for both the various e-mail contacts and the annual privacy policy mailings ( <geek_meat> SAS and SQL, mostly </geek_meat> ).

She really liked her job, and she liked her co-workers.

The turning point for Netbank, IMHO, came after the retirement of one of its founders and a merger with another online bank called RBMG which was located in Columbia, SC (which is, ironically, where we lived before we moved to Atlanta years ago). There were the usual issues of corporate culture which arise during mergers; there were issues regarding differing customer expectations (she ran studies on customer surveys which showed dramatically different attitudes, expectations, and opinions between customers from RBMG and customers from Netbank); there were issues arising from the fact that, although the company retained its Netbank name and identity (and the deal was structured as a Netbank acquisition of RBMG), the center of gravity for the new company was in Columbia, with the former RBMG; and, frankly (again, IMHO), there were issues with RBMG's upper management and corporate strategy.

Netbank "Classic" had been focussed on, and content with, being, well, a bank. Checking and savings, CDs and Money Markets; you know the drill. RBMG, though, had aspirations both grander and farther afield, starting with mortgages (in fact, the "MG" in "RBMG" stood for "Mortgage Group").

That didn't work out too terribly well.

By last year, there were some signs of strain. While the overwhelming majority of folks working in Atlanta and Columbia (and Jacksonville) were really great, and on the ball, there was a bit of a corporate malaise; RBMG ran what seemed to me to be a less employee-friendly operation (one of the first things they did, for instance, was move Netbank's Atlanta HQ from its basic "A" or "B" office space into a semi-crappy converted former retail space which was, at best, a high "C" quality office space). The bad vibe was subtle at first, but it was certainly there; and as the mortgage business began sucking more and more, money got tighter and tighter, and things got less and less functional.

Finally, as last year began to wind down, more and more employees started to jump ship from my wife's group. Eventually, it got to the point where she was more or less forced to jump ship, simply because everyone else already had, and she would be left in department that couldn't possibly do all of the things it was expected to.

By the time she left, right at the end of the year, there was a really grim air about the place; and we got to look on in horror this year as her company stock shares rapidly declined in value to the point where it wasn't even worth bothering to sell them.

We still have a Netbank account with a small amount of money in it, and a lingering bittersweet fondness for the brand and the people who worked for it; but we're certainly not regretting her decision to leave, that's for sure.

credit unions and secondary insurance

[JimBobJoe]

Note that credit unions are insured separately by a different organization, so money market accounts there may be covered.

The federal insurance program which insures credit unions is essentially the same as the FDIC insurance program.

However, for some reason, only credit unions seek out secondary private insurance (at least, I know of no bank that has the secondary insurance.) My credit union has secondary insurance (from these people) that adds $250k to the $100k to make $350k, and it will work for money market accounts.

Moreover, while the federal $100k limit is, as I understand, per person at a bank, the $250k secondary insurance is per account at a bank . So essentially my first account is good for $350k and all my other ones are good for $250k.

If you keep around that much cash (I wouldn't even if I had it...the dollar's taking a whipping now :-) it's worth looking into a credit union.

Good riddance

[csnydermvpsoft]

I've been a NetBank customer for the past few years, and have had decent service from them (though the interest rates on their checking and money market accounts really tanked in the last couple of years). My dad's company had a business account there, however, that turned out to be a nightmare.

When my dad passed away unexpectedly in February, I had to get access to the company's bank accounts. Unfortunately, he was the only signer on the account. It took six months for them to give me access to the money (by closing the account and sending a check), and they still wouldn't give me access to the statements for the account, which I needed to reconcile with our records for tax purposes. I asked them how they were going to send me a 1099-INT (report of interest earned) at the end of the year, and their response was that they would send it to the business address on file. They "couldn't," however, send statements to the address on file. They never could explain the inconsistency. Mind you, this communication happened after I had already proved to them that I was the Personal Representative of the estate, which had 100% ownership of the business. They would take weeks to return phone calls, and never responded to lawyers' inquiries sent via certified mail.

Good riddance, NetBank.

Not the First Mortgage Failure

[Doc Ruby]

NetBank's closure marks the first bank to close since the recent U.S. housing boom deflated.

Other banks have already closed because the owned too many rotten mortgages, including (for example) Greenpoint Mortgage. Greenpoint was owned by a larger, full-service bank, but that distinction wasn't made in this article. As usual, journalists like to portray Internet business as unusual, fly-by-night, and inherently risky in a way that non-Internet businesses of the same kind somehow are not.

MOD PARENT UP!

[Futurepower(R)]

"Sorry about the adhoc tutorial on credit."

Don't be sorry. It's excellent.

MOD PARENT UP!

credit score also misses a lot

[hawk]

I've usually had a through-the-roof credit score--when we bought the van, it was the second highest that the internet sales manager had *ever* seen (and the other wasn't when involved in cars). Until we bought that van, I had zero debt other than student loans, and a credit score way past 800. As an assistant professor.

I don't quite make three times as much now, but I have a rather substantial amount of revolving credit and another car loan (the van paid off 2 years ago). That debt, though, is at rates ranging from 0% to 3.99%. I could write a check and pay it all off--but it's the reason that my credit score is almost 200 points lower today. When I'm getting better than 5% on my Vanguard money market account, that makes no sense, though. (And much more in my other funds).

I'm a much better risk now, but the score doesn't cover that. It is almost (entirely?)oblivious to income and assets, but does look at the absolute amount of debt.

hawk

Why to ING, anyhow?

[Slashdot Parent]

Why did all of the NetBank deposits go to ING?

They won't lose all uninsured funds.

[sirwired]

They will not automatically lose all uninsured funds. You will see that the FDIC has already authorized payment for 50% of the uninsured funds out of the expected proceeds from the sale of the loan assets. (The deposits were purchased by ING, but not the loans.) The FDIC also states that they expect further dividends beyond the 50% will be made available as things wind down.

While the folks with uninsured assets will lose a bit, it won't be the end of the world.

SirWired

competitive response?

[Anonymous Coward]

I sure hope this wasn't some complicated way for
the powers that be to stomp on a upstart threatening
their business model!

Re:[AC]FDIC insurance

[everphilski]

OK that late in life you have a point. But I wouldn't have all my eggs in one basket ... diversify your products!

here's hoping online bill pay is re-enabled

[Hohlraum]

tomorrow night like the site states. my freakin mortgage payment is supposed to be transferred to on monday :/ i'm just gunna move everything to my local bank for the time being. thank goodness i moved most of my money to Countrywide Financial earlier this year.

Re:here's hoping online bill pay is re-enabled

[nido]

The same countrywide that had a sorta-run on the bank in August?

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank.

At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

In a statement, the bank said: "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion."

The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

-L.A. Times, courtesy Mad Dash for Cash

Countrywide has had lots of coverage on both Mish's blog and at Housing Panic.

I hear Euros are the best bet to preserve one's wealth in the developing dollar collapse. Everbank.com is probably a good option.

Re:here's hoping online bill pay is re-enabled

[Hohlraum]

Yeah I found out about that afterward. I'm not really concerned about it. All my accounts are FDIC insured and I'll just move things into my ING Direct if there are issues with Countrywide. In the meantime I'm going to keep it there for the 5.5% apy.

Welcome to J.I.

[blackapple666]

"The FDIC will retain the remaining $1.1 billion in assets for later disposition, including NetBank's leasing division, NetBank Business Finance, which will continue operations," the FDIC said. "Loan customers should continue to make payments as usual."

~WELCOME TO JEKYLL ISLAND~

Ok you moronic fuck

[Anonymous Coward]

I warned you, now it's 7 elections worth of Republicans.

Let's make it ten, go ahead and keep posting.

I love knowing that your own ignorance and ego have directly resulted in your vote being mooted by mine.

Re:Ok you moronic fuck

[Doc Ruby]

When you get to 8, let me know, because you'll be eligible for upgrading to suicide bomber.

Try E*Trade Bank

[vistic]

I was getting nostalgic recently since I used to work for NextCard, and was wondering how the other online banks were doing like NetBank and VirtualBank... and was surprised they were both still in business. I was also checking on other online banks.

Anyway, I think E*Trade is probably the best one out there. If you have direct deposit, you can set up a Max-Rate Checking account and won't have to worry about paying any fee if your balance is too low. They give you 0.5% APY for balances under $5000, and I think 4% for above that.

The best thing though is you get unlimited ATM fee refunds from other banks' ATMs, and E*Trade doesn't charge any ATM fee... so you're basically free to use any ATM you want.

Re: how to get caught by a bank failure

[mjmaurer]

It's damned easy for a small business to be acting responsibly while having balances that are well over $100k in their checking accounts. I'm one of the people who had some uninsured deposits at NetBank. I had a small business money market account that I used just for cash reserves. (Example: when you write a check for a retirement fund contribution, you need an account to write it against.) Getting caught with over $100k was just bad timing for me, as I usually don't need that much cash and up until two weeks ago I had always been under the limit. I knew that NetBank was in trouble when EverBank pulled out of the deal, so I had decided to move my account to another bank. About 10 days before the NetBank failure, I wrote a large check against the account and sent it to a new bank along with an application to open an account there.

Meanwhile, I received a fairly large payment from a customer... What I should have done is just held on to this check until the new account was ready. But I thought that the big check I had written to fund the new account would post soon, keeping me under the limit even with the new deposit. So I deposited the customer's check to the doomed NetBank account.

Well, NetBank received the deposit and it posted to my account, while in the meantime the new bank was slow to process my application and didn't cash the check. Ironically, the new bank phoned me on Sep 27 to ask a question or two and then said they would be opening the account right away. As you can guess, they didn't post the check in time and at the end of the day my account was still over the $100k limit. Oops, lesson learned.

Thinking back, there are other occasions in my life where I have briefly had more than $100k in a single account. For example, when you sell a house it is common practice to have the proceeds wired to your bank account. Then you might keep them there until the next house you are buying closes escrow (usually in a few weeks) or maybe move them to a longer term investment account (say within a few days). During this window you are vulnerable to a bank failure. Let's say that on average you buy or sell a house once every ten years and keep the money in a bank account for just 7 days. That means that about 0.2% of the time you will have A LOT of money in your account. Looking at it from the bank's perspective, about 0.2% of their customers will be going through a life event like this on any given day. I read in the news accounts that ING Direct acquired 110,000 new customers and that 1,500 customers had accounts with some uninsured funds... that's more than 0.2% but still doesn't surprise me.