Small and Smart
numbers and a reduction of our respect for them.
The smaller, homier community banks want everyone to know they are not aligned with those fallen-from-grace institutions. "What happened in 2008 was not a result of what Chelsea State Bank or any other community banks were doing," points out John Mann, president of Chelsea State Bank.
The financial crisis had its origins in subprime mortgages, the so-called "no-doc" or "liar" loans that were pushed on the public by loan aggregators like Countrywide. Then large financial institutions invested heavily in mortgage-backed securities, which were basically bundles of pieces of those subprime loans. When the housing bubble burst, the value of those securities collapsed, triggering a global financial crash.
The blame for those shortsighted decisions falls evenly over several sectors, but not on community banks. "Mortgage-backed securities were first presented to us in the 1990s as an investment vehicle," says Mann. "But Chelsea State Bank never bought any." He says he was never satisfied with answers to his questions about the securities and was dubious about their value. And according to Mike Kus of the Community Bankers of Michigan, (CBM), none of the 120 member banks in his association invested in mortgage-backed securities, either.