For the younger guys that may not have heard it, the Wayne Cryts story is one worth reading.

This is another deal from long ago showing that big banks have all the cards in the deck stacked in their favor. Oh, they will tell you it is only to protect their interests, but if you look at the details, it gets more interesting.

Hypothetical situation for you guys that store in commercial storage to think about:

Big elevator or coop is starting to get into trouble but most patrons don't know it. Bank knows it. Here is the situation. Bank already figures out the place is going to go teats up. It is a month before harvest. Do they give the entity a short term loan, even though they know the place is insolvent, or do the close it down now?

They give it the loan. Why?

Because if they shut the place down now, they might get back only a portion of their loan money. They loose money. So they give it a bridge loan to get it by till harvest, with maybe some indication they will do something after harvest if the place is in good shape. Harvest comes. The place fills up with grain. Customers grain. Bank forecloses. Guess what? Elevator has pledged all grain as collateral for the bridge loan they got.

Bank gets paid back in full. Customers get screwed and stand in line for the crumbs left over as unsecured creditors. Bank was secured creditor. If you don't believe this happens, I got a bridge to sell you in New York.

CoBank makes lots of loans to Coop's. I know there have been times they have taken a loan loss they would have not had to because there would have been such an uproar from their Farm Credit customers that got screwed, so they did not force the issue of having first claim on the grain. Also it might have cause defaults with FCS customers affected so cause a ripple effect of loan defaults. (CoBank is the funding bank for Farm Credit System banks). Think non-FCS funded banks are going to be so generous?

Another story. Business is in bad shape but has a reasonable workout plan. This is a very big business so no single creditor wants to take the risk of the loan wholly all on itself (multi-million dollar loan). Banks do what are called participation loans, where a lead lender does the paperwork and maybe 5, 10 or even more other banks "buy in" to the loan. Back to story. Workout looks workable. Lead lender has good working relationship with long term borrower and wants to make it work for them. Nine participating banks sign off. The last one's collection department says "close em down, end of story, we want it off our books". Workout gets rejected, banks have to foreclose (or take up the other participant banks portion and add to their already shaky position). In this case it was not an elevator, but if it was, farmers with grain in storage or checks yet to be issued would go to the end of the line for payment. Banks get the meat, everybody else get the scraps.

Screwy deal? Damn right. But it is just one more way that the little guy gets to bend over and the big money gets protected.............. by law.

There are bankers that visit this forum. Straighten me out if you think I am wrong.

Banks make the argument "But we wouldn't make the loans without the collateral". Damn right they wouldn't. And they shouldn't have. That is the point. They should be responsible for their own decisions. Not ordinary small time customers bailing them out of their bad loan decisions.

John