A Happy Banking Tale, and Faint Praise We Can Live With

Interesting piece here by Washington Post columnist Steven Pearlstein about a relatively small North Carolina bank called Citizens South, which avoided bad loans, has remained profitable, and then applied for and won $20.5 million in TARP bailout funds.

Writing on the eve of the testimony by eight gigantic bankers before the House Financial Services Committee, Pearlstein lauds Citizens South and its president, Kim Price, for the sanity and creativity with which they put that $20.5 million to use:

A few weeks ago, while reading a newspaper article, Price came up with an ingenious plan for how to use it.

The article was about the reluctance of people to buy a house in the current market, and what kinds of incentives had been used successfully by builders and bankers to get them to close a deal. Two stood out: lower rates and the waiving of closing costs. And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?

Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs. So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.

“As we see it, it’s a win-win-win situation all round,” Price explained to me.

Pearlstein is particularly impressed that Price’s total pay package last year was just $456,146, a rounding error for most of the eight banking kings who came to talk to Congress. This leads Pearlstein to deliver a zesty kicker to his column:

So here’s a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff, and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?

Some graduates of Appalachian State University (ahem, ahem) might take offense at Pearlstein’s insinuation. But this strikes me as a case of faint praise that such people should happily accept.

(Hat tip: Craig Popelars.)


I did not go to Appalachian State, nor do I even know where it is, but I don't think where this woman went to school is even relevant. However, I get the point you were trying to make.

What is very relevant is something that many of us have been saying all along... listen to the people!!! When we get back to trusting the people of our republic more than our "leaders" and if we allow market forces to do what they do, we will get good results.

Obviously this idea alone will not fix all of the countries problems, but it is a step. Many of these steps over time will solve our problems. I believe that when "We" take ownership of our problems and solve them on our own, the results may be slower to come, but they will ultimately be much more effective, efficient, and sustainable. Well done Miss Price.


Inspiration strikes rather randomly (or at least unpredictably), so I think it's unfair to criticize the more well-paid, high-profile executives for not coming up with such a good idea. The key is that they recognize the idea's merits and implement it or build on it.

The business world could learn a thing or two from the open source software world. This is no time for pride and silos; it's a time for humility and cooperation.


I guess the difference is in being an actual bank versus a financial services firm that includes a bank...


Of course the buzz is all about executive compensation. How can any executive be compensated when their company is in the red? It's not logical.

But this leads to corporate husking (or fleecing) of consumers using taxpayers' dollars. Let's not just get lost in all of these corporate executive idiosyncracies, when we should also examine corporations that have figured out ways to shake down consumers using taxpayers dollars with seals of approval from the stock market.

Case in point, why isn't Obama's team going after "education" institutes like University of Phoenix? How many millions of dollars each year does this institute take from consumers in terms of U.S. Government Student Loans without providing an equally compensatory educational service?

Is this the only well-lubricated, NASDAQ endorsed, Corporate America/U.S. Government setup out there that seems to consistently fleece taxpayers, both directly and indirectly? We should examine corporate practices like these, as well.

Isn't the American society and the U.S. Government losing terribly in these setups. Isn't anybody concerned?

Maybe we should shift some of our focus away from corporate executive compensation and "terrorists and attacks from within," as is all over the media, and examine questionable education practices which come from within our own society and are enacted on itself.

Fleecing U.S. consumers and U.S. taxpayers through our education system is truly an attack from within, with short, medium, and long-term effects. And all the while foreign students are sent by their governments to our real, nationally accredited, U.S. universities just to take their knowledge back to their countries of origin. If the aforementioned educational practices represent healthy capitalism, then I don't see how such a system can support itself.

Stop the madness!!!


Howard Tayler

I think this economic crisis is going to be fixed not by bailouts or stimuli from the government, but by people like Price who take existing problems and view them as opportunities.


This is a joke, right? You expect them to follow the lead of a loser, someone working for less than a half million a year? Why would they do anything that did not provide a substantial personal return? The whole point of their careers, their lives, is to accumulate wealth. If you gave them the choice of watching their businesses fail or giving up even a crumb, they would not even understand the question. Have you been asleep while these guys walked away from failure with fortunes?

This is how America works. From the athlete who needs $15 million instead of $14 million because he has to feed his family, to the titans of Wall Street who explain the private jets and island parties as necessary to inspire the staff, from the Madoffs to the guy with the knife who wants your wallet, it is all the same. If they can get the money, why shouldn't they have it? They are entitled to it. What else is there?

They must not teach it at Appalachian State. That's why the bankers don't send their sons there.



The important part isn't that Price is smarter, its that he didn't already mess things up so bad that the only possible use of the money is to prevent or delay the bank's failure. There aren't any "better" solutions for these banks. They are sinking like rocks and the only reasonable thing is to recognize bankruptcy, nationalize the ones that are insolvent and publicly spank the villains.


John, just to mention, Price is a girl.


The resolution of the banking crisis may end up being a case study in the value of small businesses. In the technology arena small businesses are often praised as high-frequency innovators. On Feb 3, the NPR radio magazine Day to Day highlighted another small bank making good use of the the bailout money. Saigon National Bank received $9M, which it is using to provide small business loans in Los Angeles.

Kevin H

Creativity doesn't come with a degree. This is a large part of the 'invisible hand' of the market. Give Citizen's South a billion more please! Let them buy a distressed bank or two and turn it around.


@Bill - Are you saying that practical schools, like University of Phoenix, are not providing quality education? If so, I disagree.


When the word "entitlement" enters any discussion it always connotes welfare, senior citizens, etc. However, in reality it also applies to the so-called "masters of the universe" who believe that they are entitled to bonuses, private jets and chauffered limos. No wonder their sense of self-worth is warped and could hardly be counted on to come up with creative ideas.

When rewards are de-coupled from performance it gets even worse. As far as pay cap is concerned, the new rules should emphasize the sky high differential from ordinary workers. Why should a CEO make 400 times more than the average worker in the industry? Are they 400 times more productive? I bet not even close.

The small community bankers have a better feel about what is going on economically. They feel it, sense it and live it as they do their work unlike the quants who live in another world consisting mainly of numbers, equations and models which is in a different world altogether.


Dave Truslow

Silly me. I was under the impression that TARP funds were to be used exclusively for Troubled Assets Relief and would ultimately benefit taxpayers via future sale of toxic assets.

I'm happy that Citizen's South is well run, but Mr. Perlstein & Freakonomics seem to have missed a key point:
What Citizen's South toxic assets do we taxpayers now own for $20.5MM and how and when will we realize the promised TARP profit?


Rick, just to mention, Price is not a girl. Try to read closely before you post a correction.


@Rick (#8) and Brad (#1): If you'd bothered to read the article, you'd know that Mr. Price is a man.


To Brad:

Stephen Dubner went to Appalachian State, I believe. That was the only point he was trying to make, that HE, ahem, might take offense at Pearlstein's insinuation.


I agree with Dave at #13. It may not be a "win" situation for the taxpayers.


I wouldn't have believed a "girl" could be running a bank, anyway. That the person was a "woman" I might have bought... though it turns out Price is male, and therefore a "man" (would anyone have suggested he was a "boy", I wonder?)

And I don't see this as political correctness... just common courtesy and respect toward fellow human beings. There's no reason to be called a "girl" or a "boy" once you reach adulthood, unless disrespect is the intent.


Well, I would hope a small bank close to their lending pool could recognize poor lending risks. "Shucks, that plot ah land ain't wuth nuthin', I drive by it every day." "I happen to know that Mr Jones don't have a pot, so this deal don't seem right to me."

Or, maybe they did make lots of poor loans and they were just really lucky or successful in being able to foist them off on other people? Isn't that the thing that burns most people about this, that somebody may have gotten really rich selling crap on cardboard?



The taxpayers get a 5% dividend on their investment. It seems to me we're more likely to get our dividend with a solvent bank than an insolvent one. In fact, this seems like basic economics - let the good money drive out the bad.

I would like nothing better than for numerous small regional banks take over the bank industry from the megabanks. If they are too big to fail, they are too big to exist.