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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.'"
It is the Office of Thrift Supervision that has closed NetBank, not FDIC: http://www.ots.treas.gov/docs/7/777071.html
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!
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!
Inventor of the LOLbalrog meme.
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.
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.
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.)
Life is short: void the warranty.
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.
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.
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?
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.
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?
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.
If corporations are people, aren't stockholders guilty of slavery?
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.
If corporations are people, aren't stockholders guilty of slavery?
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.
"Ladies and gentlemen, my killbot features Lotus Notes and a machine gun. It is the finest available."
The banks won't be bailed out nor will the owners or shareholders of the banks. The banks' customers will be.
A fine is a tax you pay for doing wrong and a tax is a fine you pay for doing all right.
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
http://m.earth.org.uk/
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?
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.
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.
If corporations are people, aren't stockholders guilty of slavery?
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.
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.
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.
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.
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.
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