For the record, we are one of those companies that acts like a rate service. And I am one of those that don't believe the deposit itself is the problem, but what is done with it. Yes, a large number of banks that have failed had brokered deposits, but also a large number of them had less then 10%. Also interestingly, many of them basically stopped taking brokered deposits, but then they slid downhill even faster.

From the banks perspective, brokered and rate service deposits are often in larger denominations, less costly, from Patriot Act exempt depositors, and much more efficient. Of course because of their nature, you don't want a large percentage of them, that could cause some serious liquidity problems.

From the investors perspective, using a rate service or broker is very efficient. They can make a few phone calls, a few wires and have all of their funds placed and insured. When a client has millions of dollars to place, they often don't have the time, nor the resources to do it all locally. The assault on brokered deposits, bank bailouts, and attempts at regulations have actually cost them large sums of money. Ask an institutional investor what kind of rate they are getting for a 1-year CD. It will probably make you cry.

I don't think making all deposits insured is the answer, that would certainly cause growth problems. I do believe a banks growth should be tied to their long-term success and what they are doing on the other side of the balance sheet. New banks would have to grow slowly. Older, successful banks would be rewarded. A bank making extremely risky loans, wouldn't be allowed to grow that beyond certain limits. In reality you would think banks would want smart regulations, because it is their premiums that are being increased to cover for the other banks' greed.

I also believe if brokered deposits are going to be assessed, then all non-core deposits should be assessed. A shadow system of "hiding" them isn't helpful either. One group shouldn't be favored over another just because of their lobbying efforts.

Chris Duncan
Jumbo CD Investments, Inc.

Without a Federal back stop S&Ls would have to buy insurance against their loans going sour on the open market. With AIG around I cannot be positive the price charged would have reflected the risk, but I suspect it would have been closer. I also believe the shutters would have come down much sooner on the sub-prime market.

Cheap money is the Fed's responsibility and the existence of it can be blamed on political imperatives. The Bank Rate (as the equivalent of the Feds rate is called here) was the same at 5% for 200 years! Arguably the most successful 200 years in Britain's history. That is a good clue as to the normal rate for central bank's loans and no country will be back on the right track until it has that rate again.

Because cheap money does not help sound businesses grow, it just helps them make more profits. Cheap money makes bad businesses grow and helps postpone their deserved failure.

Thanks

I had always wondered how these newer banks were able to run so many advertisements on television.

It was quite obvious that something was up. After all, how could the smaller banks offer bigger deposit returns than larger banks?

Only by taking more risk.

Thanks for this report!

Mr. Brink, thank you for your comment. You are correct that the 1980 act was passed during the Carter administration. However, Don Regan did help push through the act, as it was in Merrill's interest as well as in the interests of all the S&Ls and thrifts. When Regan became Treasury Secretary in 1981 he also became Chairman of the Depository Institutions Deregulation Committee, and helped push through the 1982 Garn-St. Germain Act, which furthered the 1980 act. As Ronald Reagan's champion of deregulation, Regan pushed the envelope wherever he could. Almost all legislation results in "unintended consequences". When it became obvious that brokered deposits were fueling a banking crisis, one would think it incumbent upon the Treasury Secretary to listen to the regulators who were charged with regulating institutions that were threatening the insurance funds they were responsible for. Instead, he crushed all attempts to rein in brokered deposits which resulted in the collapse of the over 1000 institutions and cost taxpayers over $124 billion. I do not point blame at Republicans or Democrats, both parties pass legislation as a result of special interest groups pressing and paying for their narrow agendas. I am a free market advocate. However, when unintended consequences threaten the safety of the banking system, capital markets, the economy and the interests of the American public, I think the greater good of the public should always take precedence over the interests of profiteers. It's not about more or less regulation. It's about effective regulators doing there jobs. If the powers that be want effective regulation, they get it; if they are against effective regulation, they determine the effectiveness of those who answer to them. There are fingers to be pointed at both Democrats and Republicans for poor legislation and not addressing the unintended consequences of what results from their laws.

As for Mr. Battey's comments, I thank both he and Mr. Jacobsen for the extensive and enlightening interviews they granted me, and for their allowing me to record those conversations. I stand by the quotes attributed to Mr. Jacobsen. However, the quote regarding seeing who is swimming naked when the tide goes out was not attributed to Mr. Jacobsen. It was a comment that Warren Buffet made when he was asked about who might be in trouble as a result of the credit crisis.

Shah Gilani

So we need *more* regulations to manage the side effects. Those regulations, of course, are guaranteed to be free of their own side effects

If you want the end of bank corporatism, you have to get rid of the regulations which were lobbied for those whom benefit from the market distortions. And get rid of the moral hazards and unintended consequences. Oh, that and, when a business screws up, they need to go out of business, and not be rewarded for their errors by a government bailout paid for by the rest of us.

And the fact that the democrats set up the republicans in another scam by repealing The Glass steagall act Act in 1999. There is a coalition here and or a pattern which the American people need to intellectualize. The two party system is a fascist state designed to usurp the American peoples liberties. Isn't it phenomenal how money can be traded for honesty and integrity even at the expense of "The Great Experiment". The banksters have certainly let the air out of Americas bag.

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However, Reagan become president in 1981. Democrats controlled congress and the presidency in the years prior (in the case of congress, for decades).

It is difficult to read the remainder of an article such as this. I was interested, but I cannot check all facts. Something as blatant as this, along with the innuendo, suggests you have an objective where truth is not a critical portion.