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What a Difference Four Months Make

by Mark Singleton


 Just 120 days ago the economic storm was clouding all decisions.  Few predicted at the beginning of 2009 that by mid-year our country would be stabilizing after a free fall that many thought had no parachute. 

We can’t congratulate Congress without condemning them for helping get us in this mess in the first place.  We can’t blame Bush or find Obama outrageous, when it was the greed of many big banks, brokers and businesses that choked America. 

However, what was once bleak is certainly getting brighter.  The price has been high for the marketplace to readjust.  When a 1,200 square foot home in an average California subdivision costs a half-a-million dollars, it is time for a market correction.  When gas prices in parts of the U.S. reached more than $5.00 per gallon, it is time for an uprising for lower costs at the pump.  Every sector of the economy had to take a beating before the scars of greed had a chance to begin the healing process.

In January of this year, there were no indicators that by May there would be a light at the end of the tunnel.  Those that tracked the economy predicted that things would get much worse before they ever got better.  In response, the Congress voted to provide millions of dollars in stimulus money to financial institutions as a countermeasure through the Troubled Asset Relief Program, or TARP.

Even with the great majority of analysts forecasting a declining marketplace some banks ranted from the rooftops that they were not going to take government bailout funds.  In 2008, either they had some sort of crystal ball that the top economists in the world did not possess, or they were the types that boast that they are going to take the high road which often leads followers right off the cliff.

I’d like to take you through the decision making process we went through at CNB of Texas when having to decide whether to accept or reject the government stimulus funds. 

We didn’t immediately reject the TARP funds because the depth of the worldwide chaos in 2008 and a soaring household debt crisis and mounting unemployment indicated that things could get much worse before they got better.  We had a lame duck president with a Congress that would say it was midnight if George Bush said it was noon.  We had an incoming president with an agenda to pump trillions of dollars into stimulating the economy that may very well cripple our children and grandchildren with a huge tax burden.  It was not a pretty sight, nor could anyone see any quick solutions.           

Although CNB of Texas is in the top echelon of the banking industry in regard to financial stability, we knew that even the strongest of banks may not be able to survive if the United States fell into another Great Depression.  We understood that the TARP funds could be a strong buffer if times got worse before they got better.  

CNB of Texas could have received $12 million in TARP funds, for an estimated cost of $5 million, or a total $17 million payback over a 5 year period.  That is a heck of a high price to pay, however, if you look at the package as simply an insurance policy to buffer the worst of times, taking the money may have been a viable hedge against an unpredictable economy.

Adults have to make this sort of risk versus reward decision in their everyday life.  If you have a mortgage on your home, you must take out insurance.  You don’t want to spend thousands of dollars each year to guard against a catastrophe, but you do.  And, most of us follow that same logic of hedging against unforeseeable consequences with auto, health and life insurance.  TARP was an insurance policy that would be worth the millions it would cost if the uphill climb to economic stability took a nosedive into a depression.

One of the primary points in our do-we-or-don’t-we debate was you.  The general public’s perception was that if a bank took TARP funds, then it must be in trouble.  In fact, for an independent bank to qualify for a TARP stimulus package they must be in great financial shape.  However, perception is reality and the public equated getting funds from the government as a weakness.   The truth of being financially secure is hollow if the backlash of public opinion caused a run on the bank.

A bank’s Number One priority is running a financially sound and ethical bank.  Customers MUST believe that their funds are safe and that bankers are ALWAYS morally accountable.  No matter how much we gained with TARP funds, losing customer confidence was not worth the risk. 

Although many of the mega-banks are stone broke, we are rock solid, as well as many other banks in small communities.   Fortunately, positive factors that show a stabilizing marketplace are beginning to emerge. 

It’s too early to be overly optimistic, however, we can be realistic.  We have seen some green sprouts springing up, but not enough to cover up the roots of a recession that has lasted almost two years.  It’s time to take a step forward and yet be cautious of existing problems that could cause a backslide.  It may be a two-step-forward, but one-step-back time for awhile, but even that approach eventually moves you in the right direction.


Mark Singleton is the President and CEO of Citizens National Bank of Texas.  This column is the fifth in a series that examines what banks, businesses and the general public in Ellis County can do to combat the current tough economic times.