The FDIC shut down Houson-based Franklin Bank Corp on Friday, and sold its assets to Florida-based Prosperity Bank. The fledgling bank had $8.8 billion in assets and deposits, but was unable to survive any longer under the credit crunch.
The irony is that Frankly Bank's chairman and co-founded is Lewis Ranieri, largely credited with helping to invent the mortgage-backed security. Yes, the father of MBSes, that now famous investment vehicle at the heart of today's economic crisis, was unable to save his bank from the monster he created.
While economic-Frankenstein Ranieri didn't get a bailout to help his company, the FDIC will have toe shell out around $1.5 billion to cover deposits it insures (though at least this money was raised over the past few decades by insurance payments from Franklin Bank).
Ranieri came up with the idea of securitizing mortgages with his colleagues at Salomon Brothers where he was vice chairman. He formed Franklin in 2002 and while it avoided the subprime mortgage market, "the firm was burned by loans to builders in California, Arizona, Florida and Michigan, where foreclosures are among the highest in the U.S.," according to Bloomberg News.
Security Pacific Bank in LA also was closed by the FDIC on Friday, which along with Franklin, brings the total of failures to 19 federally insured banks in 2008. Given the news cycle intensity of September and October, plus the difficult to fathom scope of the crisis, many Americans are now numb to the changes going on in our financial system. Yet, the process of handling the bailout and closure of financial institutions is an ongoing process. The Treasury Department refused a FOIA request from Bloomberg News to explain how they are loaning $2 trillion dollars to various firms in the U.S. without legislative approval nor would would the Treasury say who the loans were for. And there are still important policy decisions that have yet to be made. Nancy Pelosi and President-elect Barack Obama Chief of Staff Rahm Emmanuel are pushing for more cash for the auto industry. And President-elect Obama himself has said Congress will need to pass a huge ($150 to $200 billion or more) stimulus package to "help create jobs." We can't stop paying attention to what the government is doing.