I NSI DE: 4t h Annual Busi ness Meet i ng, Event & Banquet Gui de
The Los Angeles South Bay B2B Magazine • Third Issue 2008 • Volume 4, Issue 1 • • Complimentary Copy
Banking on the South Bay
7 South Bay Financial Institutions
Provide a Ray of Hope in Dark Market
Read in-depth perspectives from
C. G. Kum, President & CEO of
First California Bank and 6 other
South Bay Financial leaders
on the impact of the banking crisis in
your South Bay business community.
The South Bay Los Angeles
Business-to-Business Magazine
Publisher & Editor
David Whitehead
Contributing Writers
Dennis Branconier, Ed Burzminski, Ken
Roberts, Brian Simon, David Whitehead
Graphic Design & Production
David Whitehead
Copy Editing & Proofing
Brian Simon
Advertising Sales Manager
David Whitehead
Assistant to the Publisher
Alexandra C. Hart
Welcomes Input From The Community:
All Letters to the Editor should be concise
and include the writer’s name, address and
phone number. BIM will publish select
letters addressing relevant issues and topics
discussed in the magazine. We will not
publish street address, email address or
phone number. If the editor comments about
a letter, the reader may respond with at least
as many words as were used by the editor. We
would like to stimulate a sincere dialogue.
All letters become property of BUSINESS
insiderMagazine and are subject to editing for
length, content, grammar, punctuation, etc.
Letters may be submitted by email to:
Or mailed to:
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BUSINESS insider MAGAZINE makes every
attempt to provide business decision-makers
with current and accurate information.
However, BUSINESS insider MAGAZINE
disclaims any implied warranty about the
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Opinions and/or claims of BIM contributing
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reflect the opinions of BIM’s publisher.
© 2008 BIM Publications
All Rights Reserved
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Cover Story:
Banking on the South Bay 2008
7 South Bay Financial Institutions
Provide a Ray of Hope in Dark Market ... 25
Financial Insider
Your Large Life Insurance Premium Need Not
Come Out of Your Own Pocket ... 9
A Real Estate Pro’s Perspective
Where There is Smoke ... A Financial Blaze is Soon to Follow ... 12
Publisher’s Perspective
The Good News: The “Bailout” Passed”
The Bad News: The “Borrowout” Passed” ... 15
Marketing and Advertising Insider:
Advertising in a Down Economy ... 10
Technology Insider:
Mobility Problems in the High-Tech Workplace ... 6
4th Annual Business Meeting Event & Banquet Guide ... 17-24
South Bay Calendar of Business Events:
Save the Date! ... 27
I n Thi s I ssue. . .
Banking on the South Bay
Get’s Interesting This Year!
I feel bad for good banks that have
had their industry’s reputation tar-
nished by loose lending practices
during the real estate boom. Unfor-
tunately, we find the topics of bank-
ing and real estate forged together in
infamy under the heading of “sub-
prime loans.” But the good news is,
business banks generally don’t get
involved in dodgy sub-prime loans
and the financial institutions profiled
in this year’s “Banking on the South
Bay “ issue are generally a pretty
conservative lot. They simply don’t
dabble in risky lending and never
have. However, given the unprec-
edented events of the past year, Busi-
ness Insider Magazine feels an obliga-
tion to be circumspect in our analy-
sis of the banking crisis. For at least
the next generation, September 2008
will be viewed as one of the bleak-
est months in the history of American
banking. The first event to grab head-
lines was the government’s decision
to take control of the nation’s largest
holders of mortgages, Freddie Mac
and Fannie Mae, as more than 117
banks remained on the FDIC’s watch
list of troubled institutions. Then the
great Lehman Brothers stunned the
financial community by declaring
bankruptcy, and no bailout seems
possible. Bank of America stepped
in to purchase Merrill Lynch as AIG,
Wall Street’s premier insurer, is seek-
ing a multi-billion dollar bailout.
In addition to our profiles of local
bankers discussing how the credit
crunch has impacted local bank-
ing and in some cases even created
new opportunities, we also examine
monetary issues key to the folly that
will affect our nation’s economy for
years to come. Your publisher makes
no claims to psychic powers. How-
ever, we did plan to release the an-
nual banking issue in this time frame
a year ago, so our timing turned out
to be impeccable.
David Whitehead
; : G D ;; :: GG DD
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6 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
as mobile technology made the traditional office
obsolete? Technology has mobilized business peo-
ple in ways barely imagined when most of us start-
ed our careers. Wireless technology is cheap and available
everywhere we look. An inexpensive laptop computer can
now hold enough data on its own to outshine small of-
fice networks of the eighties. Virtual servers are cheap to
rent, relatively secure and accessible from any Internet
connection. In fact, all of these innovations have brought
into question the need to have a tradi-
tional office at all.
In truth, there is very little I do in run-
ning my business that I can’t do with
a cell phone and my laptop computer
using virtual resources. And my life
has been that way to some degree
for several years. When I started Busi-
ness Insider Magazine, I was anxious to
get out of the prison cell I once called
my office. I had traditional managers
who didn’t understand the way I liked
to work. Their vision of the workplace
included an indoor skyline of tall filing
cabinets overlooking a landscape of
crinkled papers hanging over the edge
of long neglected in-boxes.
When I left, I felt liberated from the ball and chain we
called headquarters and of all of the paper-producing ad-
ministrative procedures I considered archaic. In this day
and age, a magazine publisher doesn’t need to generate
tons of paper in the office to generate tons of paper at the
printer. But the transition to a mobile work life wasn’t as
easy as I anticipated.
Since much of an upstart publisher’s life involves sales, I
immediately became a laptop road warrior. I regularly in-
vaded every caffeine-fortified Wi-Fi “hotspot” I could find
to go about my business in decidedly modern fashion. Do
I really need a regular office to run my business? The fact
is I don’t. But everyone needs a proper place to work to
be productive. That’s where there is a big disconnect with
mobile technology and workplace productivity. I learned
there are major complications in getting things done when
the workplace has no place to call its own.
Pitfalls to Working on the Road
Whenever you go into a coffeehouse these days, you reg-
ularly see people working on their laptop computers. At
Mobility Problems in the High-Tech Workplace

By David Whitehead
the beginning or end of the workday, it’s a fine place to go
to recharge your motor, check and respond to email and
get caught up on your administrative work. And it’s not a
bad place at all to write, research online, or do creative
work. This is where working from wireless “hotspots” is at
its best.
But most public forums are lousy places to do phone
work. And that’s a big problem for business owners and
salespeople trying to work on the road. Public places
either have too many distractions
or the ubiquitous cell phone shout
ends up disturbing others. Plus, you
have to walk outside to have a pri-
vate conversation. California’s new
law requiring motorists to use hands-
free sets when using a cell phone
while driving just adds another com-
plication to the mobile work life. It
seems mobile technology has devel-
oped a workplace image that is not
I roll my eyes when I see ads depict-
ing young, hard-charging executives
running though an impressive of-
fice plaza while taking an important
call on their cell phone. It creates a
sense of energy suggesting the kind of productivity that
leads to success. But think about this for a moment: How
many people are really so good at multi-tasking that they
can have a coherent business conversation while running
down the street without knocking people over or getting
hit by a bus? Do people really work like that? Well, I oc-
casionally get long, rambling voicemails, usually left after
hours, from someone with a jittery voice huffing through
their words because they are trotting along very quickly
as they are speaking on their cell phone. When that hap-
pens, I really think they are tying to give me an exagger-
ated sense of their own importance by letting me know I
am not worth a proper conversation during the business
day. Mobile technology has given arrogant people entirely
new ways to act unprofessionally.
And I love those ads depicting trendy young people with
laptop computers pointing and clicking away while re-
clined in contorted positions no person over 40 could
hold for more than five minutes. I occasionally do see
young people working that way with their laptops, but real
Continued on page 8
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businesspeople are more likely to be
hunched over them, sometimes gri-
macing as they work. That’s how I
know they are serious road warriors.
Personally, I have found there are
too many glaring productivity prob-
lems that spring up when work-
ing regularly from public places. First,
most coffeehouses have a loud, bis-
tro-like atmosphere, including gur-
gling espresso machines, boisterous
immature employees giggling the day
away, and strange alternative music
reverberating through the room. If
you try to make a business call from
a place like that, people overhearing
the background noise think you are
in a Bohemian night club or maybe
an opium den. I used to look for Star-
bucks locations where fewer people
hung out and the sound system tend-
ed to be tamer. I suspect those are
the ones they plan to close. I couldn’t
work at the Starbucks nearest my
home because it was right next to a
school. The mommies took the place
over after dropping off their kids and
they sat around chatting loudly until
noon about their domestic adven-
tures spiced up with bawdy neigh-
borhood gossip. And then teenagers
would start showing up about 3 p.m.
to create havoc the rest of the day.
Their gossip tended to be bawdier.
It was really a lost cause trying to
work in this environment. There was
one place I hung out frequented by
grouchy retired people who would
regularly admonish me, “This is not
an office!” even when I wasn’t using
the phone. It simply bothered them
to see people stressed out working
when they were trying to relax.
The one place where I general-
ly could work was at airport terminals,
but you can only do that when you
are traveling. Airport terminal activ-
ity creates more commotion than an
individual cell phone user could ever
hope for, and in this environment of
frantic people and endlessly droning
noise, you can usually find a place to
camp out and do the work you need
to do. An airport creates an energy
that puts you immediately into a great
rhythm for getting productive. Plus,
you have absolutely nothing else to
do while waiting for your plane. And
you always sound important when
you tell people you are calling from
the airport. But other public places
are anything but conducive to this
kind of work.
I eventually gave up trying to work
routinely from the road and went back
to a semi-traditional office, meaning
I still work mostly virtual through the
Internet, but I have decided to be far
less mobile by choice so I can get
some work done. Plus, I was drink-
ing too much coffee every day.
So given this marvelous technology
that allows a person to work any-
where, why is the traditional work-
place likely to be around for the fore-
seeable future? Because practically
speaking, even though mobile tech-
About Our
879 W. 190th St., Suite #200, Gardena, CA 90248
Offer Expires December 31, 2008
3 R D I S S U E 2 0 0 8
r. and Mrs. Successful Business Owners (we’ll call
them Mr. and Mrs. Subo), now in their mid-60s,
have recognized that it’s time to make some criti-
cal decisions that affect both business and family. They have
built a solid and growing manufacturing company over the
past 28 years and wish to keep the family business thriv-
ing into the next generation. Of their three children, their
daughter and one son in their early 30s are active in the
business and have shown both competence and interest in
continuing to grow the company. The other son has devel-
oped his career in education and is unlikely to participate
in the family business. Mom and Dad want to treat all three
equally as they address their estate planning goals for the
present and future.
About five years ago, in a joint meeting with their estate
planning attorney and CPA, it was clear that the Subos’
success was resulting in the rapid growth of their assets,
with far more expected. At that time, their net worth was
about $5 million, comprised almost entirely of their busi-
ness. Their advisors recommended transferring a minority
interest, as large as they were comfortable with, to an ir-
revocable trust for the three children. In that way, all future
growth of those assets would occur outside of the Subos’
estate and therefore avoid estate taxes upon death.
Though this made sense economically, Mom and Dad felt
uncertain and awkward about giving up some control of
the company. In addition, though the children were show-
ing good promise in their young adulthood, the parents
were concerned that giving too much to them might be a
curse rather than a blessing. They decided to follow their
advisor’s recommendation and gift a portion of their com-
pany stock to a children’s trust, but kept it conservative by
transferring 20% of their interest. The appraised value of the
company at the time was $4,000,000, but the 20% interest
was worth less than $800,000 due to lack of marketability
and lack of control. So the value reported on the Subos’
gift tax return was actually less than $600,000 as calcu-
lated by a professional appraiser (today that stock is worth
$2,200,000, which translates into an estate tax savings of
about $1,000,000).
Now that this strategy is “old history” for them and the
children are five years older and more mature, the Subos
wish they had done more at the time, but they are now
focused on how to make the most of the next steps of their
succession plan. The company is now worth $11,000,000
and counting (their 80% worth almost $9,000,000), with
their net worth approaching $12,000,000. Though they are
still in good health, they do not fight the realization that
the day will come when they will no longer be here. If they
were gone today, their estate tax liability would be nearly
$4,000,000. With even modest growth over their life ex-
pectancy of about 20 years, it’s not hard to imagine the tax
liability getting out of hand (5% growth would add another
$5,000,000 to the tax bill in 15 years under the 2008 tax
Space restrictions prevent the author from discussing strat-
egies to reduce and/or freeze the size of the taxable estate.
Those techniques can and should be applied as fully and
reasonably as possible with the help of qualified tax and le-
gal advisors. Whatever is left is subject to estate taxes under
two conditions:
The government accepts only cash.
The government expects to receive cash within nine
months of death (for a married couple, typically this
means the second death).
This presents a particularly glaring problem if the estate’s
assets are largely illiquid, as is the case for many business
owners and real estate investors.
Create Needed Liquidity Double Tax-Free
Life insurance is the only method authorized by the Inter-
nal Revenue Code to create income tax free dollars upon
death. When structured properly, it can also avoid estate
taxes. That’s why it is such a popular tool for addressing the
estate tax liability. However, when the premiums are sub-
stantial, several considerations come into play:
The estate owner might not have the cash flow or liquid
reserves to cover the entire premium.
The estate owner might rather have use of the money
for business or other investment opportunities.
Gifting of the premium dollars to an insurance trust
(or the children outright) might exceed the annual gift

Continued on page 38
Your Large Life Insurance Premium Need Not
Come Out of Your Own Pocket
It is Possible to Get Tax Free Money to Pay Your Estate Taxes
Without Impacting Your Working Cash Flow!
By Dennis J. Branconier, CLU
10 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
M A R K E T I N G & A D V E R T I S I N G I N S I D E R
hen the economy starts slowing down and sales
drop off, the natural next step for a business is to
cut unnecessary expenses, which usually includes
advertising. While this may seem like the natural thing to
do, a contrarian approach is to spend more on marketing
and advertising. There is still a need for your product or
service, and the company that comes to mind is where the
money will flow.
How often have you scrolled through to the second page of
a Google search? The theory goes that companies investing
in Search Engine Optimization, or SEO, to get their names
on the first page of a web search will generally see more
business than those that aren’t making the investment.
The same theory holds true for advertising in a soft econo-
my. The company that continues to invest in advertising will
not only survive, but will more than likely thrive when the
economy picks up again.
Identify Where Your Target Market Gets Its Information.
If you’ve never considered advertising your business or
you currently are advertising and want to improve results,
consider where your target market gets its information.
What publications do they read?
What trade shows do they attend?
Are there networking groups for that specific
What trade/professional organization do they
belong to?
What networking groups do they attend?
What websites are specific to the market?
Who are their trusted advisors?
Where do their trusted advisors network?
What do their trusted advisors read?
This type of market research helps fine-tune the type and
frequency of advertising investment and ensures that your
ad gets the maximum opportunity to be noticed by your
target audience.
Let’s talk about the trusted advisors. If your business is a
professional service, oftentimes work is generated through
referrals from a CPA, an insurance broker, a networking
group or some other trusted professional advisor. A referral
from one of these people can open doors that are otherwise
difficult to open.
Many chambers of commerce are good places to network.
The trick with chambers is that you get out of it what you

Advertising in a Down Economy
By Ed Burzminski
put in. In other words, to maximize the networking value of
a chamber, be prepared to get involved in committees and
helping out with events.
Size and Frequency
To be effective, advertising has to be repetitive and con-
sistent. Building an identifiable brand is an important com-
ponent to advertising. While it’s common to think bigger is
better, often in advertising a smaller ad that runs regularly is
more effective than a full page that only runs once.
When I lived in Marina del Rey, each week I looked
through the Argonaut community newspaper to find the
Handy-J Car Wash ad for the discount coupon. It was al-
ways there, just in a different place each issue. So I had to
hunt around for it. I made it a point to go to Handy-J when-
ever my car needed a wash—after picking up an Argonaut,
of course, and clipping the coupon. As it turns out, while
at Handy-J’s one Sunday getting my car washed, I met the
woman who later became my wife.
Take Goodyear tires as another example. Why would a
tire company spend huge amounts of money to operate a
fleet of blimps across the nation? Does it make you want to
run right out and buy tires from Goodyear? Not necessarily.
Goodyear is building brand recognition by being visible to
its market-- just about anyone who owns a car, truck, bus,
RV, etc.
The Goodyear Blimp is a reminder that the next time one
of us car owners is looking for tires, we’ll be drawn to the
Goodyear ads in the newspaper or look for Goodyear’s on-
line. I’ve been a devoted Goodyear tire customer for over
20 years. Why? I can’t really explain it; it’s just that I feel a
sense of comfort with that brand… I grew up seeing it all
the time in television commercials, at ball games and just
flying overhead, so I just tend to choose Goodyear over
Where to Advertise
If your business is a consumer product or service, the
most likely places to advertise are in ready-to-buy venues
reaching the masses. These can be via newspapers, cable
television, the Internet, billboards, bus benches, etc. Here
again, it’s important to understand where your market gets
its information—or in the case of consumers, what is the
demographic, where do they shop, what do they read, are
they mostly taking the bus, what and where is their com-
mute, etc.
3 R D I S S U E 2 0 0 8
Newspapers are “ready-to-buy” media, meaning they are
a great place to promote special coupons, products or dis-
counts. The big dailies like the Los Angeles Times reach a
wide audience, while community newspapers generally are
weekly or monthly and more targeted to particular cities.
Local magazines can also be good places to advertise to
reach the general population of a city. To find a magazine
that is specific to a particular trade or business, start with
a Google search for the industry followed by the word
“magazine.” You’ll probably be amazed with the number
of results.
Believe it or not, chamber of commerce business direc-
tories and maps are actually an excellent place to connect
to a certain kind of audience. Generally, the members of a
chamber of commerce are business owners or, if the com-
pany is larger, a mid- or higher-level manager. The board of
directors is generally composed of the movers and shakers
of the business community and the chamber is generally
perceived as an organization that gives its “stamp of ap-
proval” to its business members.
Reaching out to the chamber market is a good way to
reach other business owners and managers. A good busi-
ness directory will have at least a one-year shelf life, in-
clude valuable information about the community, the busi-
ness infrastructure, the quality of life in the community and
a comprehensive listing of products and services available
in the community. That list is usually limited to members of
the chamber and, in the general scheme of things, a cham-
ber membership is not very expensive.
In fact, the publisher of the chamber directory or map will
usually design the ad for you at no extra charge, as long as
you provide them with the text, a photo and/or a logo.
That leads to the next issue—actually creating the ad.
With all the available software these days, it’s pretty easy
for anyone to fancy themselves a graphic artist and create
a display ad. Well, you wouldn’t hire a dentist to repair a
muffler. Then why hire yourself to do something an expert
can do much faster, with much more experience and un-
derstanding of design? Hiring an expert will give your ad a
clean, professional appearance.
Designing the Ad
How do you find a graphic artist? Contact the local cham-
ber of commerce for a referral. When you find an ad that
looks good, contact the company and ask to be referred to
the graphic artist that created the ad for them.
Full-service marketing or public relations companies will
generally include graphic design services. Although work-
ing with agencies can be very rewarding, it can also be-
come costly. Research and referrals pay off well here.
When all else fails, do a Google search for graphic artists
or graphic designers in your city. Take a good look at their
portfolios and make sure they have experience designing
both print and online ads.
Web Advertising and Special Offers
Online advertising can be a valuable tool. Having a web-
site is becoming a must these days so people can get a bet-
ter understanding of what you do can create value for the
buyer. Optimizing the website so it gets more easily found
during a search, or SEO (Search Engine Optimization), is
a good place to invest some money with an expert. SEO
optimizes keywords to help your website not only show up
when someone searches for your product or service, but
also ideally help it show up on the first page of the search.
This can be quite involved and it is a good investment.
Special promotions are great ways to get people to try the
product or service. A free consultation, 20% off your first
order, or a free extra of some sort lowers the barrier. The
local Thai restaurants and pizza parlors often use this tech-
nique with their mini-menus that show up hanging on the
Pictures in an ad, on the website and in any promo help
draw in customers. A nice photograph of a schwarma plate
on a flyer is a lot more enticing and informative than just
writing “schwarma plate” on a menu. Those who don’t
know what it is will just pass it up. Those who do may go
get it. But a photo can make it look really tasty even if you
don’t know what it is.
An economy in decline can be an opportunity to grow.
A smartly planned advertising strategy is an integral part
of survival and can help position a company for gaining
market share when the economy again starts to pick up
Ed Burzminski is a Business and Management Consultant
helping business owners realize maximum performance and
value from their business. He was President and co-founder
of Performance Publishing Group, Inc. in El Segundo, CA. You
can email Ed at:
To be efective, advertising has to be repetitive and consistent. Building
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12 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
A R E A L E S T A T E P R O ’ S P E R S P E C T I V E
By Ken Roberts
he financial events of the
last few weeks are almost
unprecedented. To draw
an analogy we Californians can
relate to, the financial landscape
is on fire and blazing out of con-
trol. Even with the firefighting
Fed’s tireless efforts to contain
the blaze, it is picking up speed
and cutting a path of destruction through the biggest names
on Wall Street. And I applaud the leadership, creativity and
courage of fire captains Ben Bernanke (Fed Chairman) and
Henry Paulson (Secretary of Treasury), whose decisions and
economic policies impact not only our nation, but the en-
tire civilized world. They are proposing a bold measure to
try to quell the financial inferno threatening us. But before
we get into the details of the firefight, let’s examine the
events leading up to perhaps the most complex financial
firestorm in history.
Much has been said by many about the creation of invest-
ment vehicles by Wall Street to meet an underserved mar-
ket of Baby Boomer funds in search of safe, high-yielding
investments providing greater returns for retirement. With
no open market for the Collateralized Debt Obligations
(CDOs) and Structured Investment Vehicles (SIVs), rating
agencies set the value of these investments. It wasn’t un-
til hedge funds began to fail because of mounting losses
from non-performing sub-prime mortgages contained with-
in these portfolios that the ratings of these debts got dra-
matically downgraded. Along with the ability to leverage
in some cases hundreds of times over the actual dollars in-
vested was the unbridled proliferation of these investments
based on plain old-fashioned corporate greed and a flawed
computer model that didn’t see the most glaring hole in its
risk assessment: a substantial downturn in the real estate
market. That was the lightning strike in the dry brush amidst
gusting Santa Ana winds and low humidity that ignited the
pending catastrophe we face today.
Rumors of accounting irregularities and subsequent finan-
cial instability have plagued the two Government Spon-
sored Enterprises (GSEs) Fannie Mae (Federal National
Mortgage Association) and Freddie Mac (Federal Home
Loan Mortgage Corporation) over the past year. On Sep-
tember 7, 2008, James B. Lockhart III, the director of the
Federal Housing Finance Agency (FHFA), announced his
decision to take over Fannie Mae and Freddie Mac with the
full support of Paulson and Bernanke. Combined GSE losses
of $14.9 billion and market concerns about debt and their
ability to raise capital threatened to disrupt the U.S. hous-
ing financial market. The Treasury was authorized to put
as much as $100 billion into each institution to make sure
they remained solvent. Guaranteeing mortgages purchased
by Freddie and Fannie was the Fed’s attempt to stabilize the
mortgage markets and ensure the housing markets have fi-
nancing readily available. This may make Mortgage-Backed
Securities (MBS) more attractive to investors. If MBS carry
a higher yield than Treasuries with the same U.S. govern-
ment-backed guarantee, they could attract additional in-
vestment funds and thereby lowering mortgage rates, fur-
ther fuel home buying, and hopefully begin to shore up the
sinking housing market. We now know that deregulation of
Fannie and Freddie allowed them to leverage their invested
funds up to 50 times! There were several attempts over the
last few years to pass legislation requiring more oversight
and accountability for both institutions. In 2003 and again
in 2005, bills were introduced, but didn’t have enough
support to get passed. The warning signs were there. Sur-
prisingly, some of the loudest voices now being heard in
Congress decrying the lax policies that led Fannie and Fred-
die into their current financial mess are the same voices
that wouldn’t vote for the proposed oversight because they
didn’t see the need at the time!
Next, one of the oldest investment banks, 158 year-old
Lehman Brothers filed for bankruptcy while 94 year-old
Merrill Lynch was acquired by Bank of America in a fire
sale of half its market valuation just a year earlier. And the
Federal Deposit Insurance Corp. (FDIC) seized control of
Washington Mutual, Inc., and JP Morgan Chase & Co. will
buy its assets for $1.9 billion. Wamu’s takeover makes it the
largest bank failure in U.S. history. Then as the fire rages,
the two remaining major independent investment banks,
Goldman Sachs and Morgan Stanley, threw in their tow-
els by becoming bank holding companies. This will give
Where There’s Smoke...
A Financial Blaze is Soon to Follow
Now let’s turn to the bailout plan devised
by the Treasury and the Fed. As it was
pointed out to me, we need to stop
calling it a bailout, but rather a plan to
stabilize the economy.
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them the ability to borrow directly
from the Fed’s emergency lending fa-
cilities as needed to maintain liquid-
ity. And with it comes a substantial
increase in federal oversight required
in the banking world and new capital
requirements. With the acquisition of
Bear Stearns by JP Morgan in March
of this year, the recent bankruptcy
of Lehman Brothers, the purchase of
Merrill Lynch by Bank of America and
the transition of Goldman and Mor-
gan to banks comes the end of an era
on Wall Street as we know it.
A few substantial fire blocks have
been put in place to contain the blaze.
The Federal Reserve announced it will
expand its emergency lending pro-
gram to include the approximately
$3.5 trillion in assets invested in mon-
ey market funds, and President Bush
authorized the Treasury to be able to
access up to $50 billion from a De-
pression Era fund to be able to insure
money market funds. This was done to
bolster investor confidence and avert a
run on those assets by consumers. Fi-
nally the SEC announced a temporary
ban on short-selling of stocks for 799
financial companies in an attempt to
reduce harmful speculation that puts
further stress on the financial sector.
One potential bright spot, although
certainly criticized, was the $85 bil-
lion loan to insurance giant AIG. Al-
though AIG has 74 million clients
in 130 countries and an estimated
$1.1 trillion in assets, it currently
has short-term liquidity needs. Most
people aren’t aware that this is a loan
transaction; not a bailout. It is a very
straightforward business deal. For the
$85 billion, the U.S. government gets
a 79.9% equity interest in AIG and all
its primary subsidiaries as collateral,
with an effective interest rate equal-
ing 11.98% today (the three-month
LIBOR rate currently at 3.48% today
+ 850 basis points), all due and pay-
able in two years. AIG will be able to
sell some of its businesses in an or-
derly manner to repay the loan. This
loan could actually work out well for
Continued on page 14
Now let’s turn to the bailout plan de-
vised by the Treasury and the Fed. As
it was pointed out to me, we need to
stop calling it a bailout, but rather a
plan to stabilize the economy. Paulson
and Bernanke proposed $700 billion
of federal funds to buy troubled mort-
gage-related securities and other bad
debts, get those off the books of the
financial services industry and unload
them to a government-sponsored third
party that can hold them long enough
to realize some future upside value.
This would be similar to the Reso-
lution Trust Corporation (RTC) that
came to the aid of troubled savings
and loans in the late ‘80s by acquir-
ing defaulted mortgages, foreclosed
real estate and other assets of nearly
14 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
750 failed S&Ls. This new entity would service and modify
loan terms in an attempt to get them to perform again and
hold the problem mortgage-backed securities until a more
favorable economic climate in which to sell them presents
itself. It’s much like a real estate investor who buys fixer-
uppers, makes cosmetic repairs and rents them out until
the real estate market rebounds before selling. There are
some respected analysts who believe the government could
actually turn a profit from this transaction! While that may
prove to be optimistic, the point is that this is far from lin-
ing the pockets of Wall Street with $700 billion never to be
seen again.
The first draft of the bill was a blank check with no over-
sight, no accountability, no liability and no chance of be-
ing approved. But over the weekend, both political parties
rolled up their sleeves and hammered out a plan that had
safeguards, oversight, accountability and some potential
recourse down the road, while doing away with golden
parachutes for senior management of any company helped
by the program. It would be broken up into installments.
There would be $250 billion available immediately for the
Treasury’s use, followed by an additional $100 billion later.
The remaining $350 billion could be cancelled by a future
no vote of Congress.
At first, the proposal was defeated in the House of Rep-
resentatives. The stock market sold off on the news and
the Dow Jones Industrial Average closed down 778 points
in the worst single-day decline ever on Monday, Sept 29.
There was much debate and finger-pointing by both par-
ties for not getting the plan passed. The average American
is mad as hell and dead set against what they perceive
as a Wall Street bailout with tax dollars. Many legislators
who were either skeptical or opposed to the plan changed
their minds when the likes of Warren Buffet said it must be
passed to avoid financial Armageddon. Because legislators
are coming up for reelection, however, they wanted oth-
ers in the House to vote for the measure to pass it—not
them—for fear of not getting reelected by their uninformed
constituents! The public needs to understand where we are
and what’s at stake. Congress needed to stand-up and do
what’s right for the public good. On Friday, October 3, it fi-
nally did by passing the Senate version of the bill, allowing
President Bush to sign the document into law the same day.
Let’s look at the dilemma we would have faced if Congress
Banks can lend about 12 times their capital base. If they
have mounting non-performing assets on their books, they
either have to sell more equity or reduce their loan portfo-
lio to maintain reserve requirements. Because of banking
regulations, they must “mark to market” the value of their
assets. If they have “performing” loans and no one wants to
buy them, it makes the value in today’s market inordinately
low even though in a normal market they would be worth
a substantial amount. Banks are finding that it is extremely
difficult to raise the needed capital and there is no mar-
ket for selling their non-performing or bad loans. So they
have to sell the good loans that are performing, but be-
cause of weak demand, at a deep discount. Because banks
and investors originally used leverage to buy more assets,
they must now deleverage. With the non-performing assets
on their books, banks have to have extra cash reserves on
hand, which reduces the amount of money they have to
lend. It is a downward spiral. By removing the “bad assets”
to the only organization that has the wherewithal to take
them over (the federal government), we free up our banking
system to function again and bring back confidence to the
markets, both here and abroad.
Many medium and large companies finance their daily
operations with Tier 1 commercial paper. It is the lifeblood
of the business world. It is drying up. At the rate it is declin-
ing, in a matter of days, businesses could find they can’t do
business, period. The costs of raising money through the
issuance of high-yield bonds that many businesses use to
finance their growth are so high that it’s impossible for them
to raise needed capital. Accordingly, the financial markets
are seizing up. This is how dire the situation is.
Technically, we may not have the data to officially declare
a recession. But sinking stock values, declining real estate
prices, rising unemployment and a straightjacket from the
credit crunch making all forms of financing difficult if not
impossible to get, sure makes average Americans feel like
they are right in the path of a raging financial wildfire. I
venture to say if the actions being discussed today had been
implemented a few months ago, some of the current casu-
alties on the financial landscape might have been averted.
More importantly, Congress finally realized if something
wasn’t done and done quickly, we wouldn’t have to worry
about a recession. Think real estate values at .50 on the dol-
lar, the Dow at 8,000 and 10% unemployment. It wouldn’t
just be former Wall Street folks in soup lines. And it wouldn’t
have been confined within our borders. Everyone needs to
recognize the magnitude of the situation.
I liken it to being at a dinner party when the person sit-
ting next to you begins to choke. You could have a debate
with other guests about how maybe the choking guest
should not have taken such a big bite. You could weigh in
on the choking guest’s character and physical condition.
Did they bring this on themselves? Has their behavior war-
ranted their being saved? What is their importance in the
community? If they passed away, would it deeply impact
everyone else’s appetite and enjoyment of the evening? If
you save this guest, does it set a dangerous precedent that
Continued on page 39
Continued from page 13
3 R D I S S U E 2 0 0 8
P U B L I S H E R ’ S P E R S P E C T I V E
he week before this issue went
to press, I went back to the
drawing board several times re-
working this column. Our Real Estate
columnist Ken Roberts was cheerlead-
ing for the $700 billion rescue plan.
He laid out a foreboding scenario fac-
ing the economy if a plan wasn’t ex-
ecuted immediately.
Being the monetary policy nerd I am,
I was keenly aware he was right about
the precipice we were teetering over.
I was also keenly aware this could
set us up for a much bigger fall later
because the country is flat broke and
deep in debt publicly to the tune of
$10.2 trillion. That’s why despite the
fact my own business would suffer
greatly if the economy didn’t get some
financial relief, I couldn’t bring myself
to support it.
I flipped when I first saw the “$700
billion” headline in the Los Ange-
les Times in September. Then I was
pleased when the House of Represen-
tatives rejected the first version. And
then I realized the Senate version of
the plan was not only more politically
palatable, it went right to the heart
of consumer fears and added a layer
of oversight the original bill lacked. I
thought it was sneaky to insert an ex-
tension of the Alternative Minimum
Tax into this legislation that excludes
about 20 million Americans from this
unpopular tax affecting middle class
families. Who in Congress wants
to vote against that? But this and a
lawmaker’s wish list stuffed into the
451-page novel that was ambiguous
political legalese at its finest was the
clincher that turned things around.
On Friday, October 3, the House of
Representatives approved the Senate
sponsored version of the bill in a 263-
171 vote. The President signed it into
law the same afternoon and it’s now a
done deal.
I fully recognize we face catastroph-
ic consequences if they had chosen to
let the economy correct on its own.
And let’s face it: the term “correction”
is a euphemism when referring to an
event of this magnitude. For that rea-
son, I empathize with the call to put
this fire out immediately. The short-
term consequences Ken laid out (see
column on page 12) if a rescue plan
wasn’t enacted are absolutely correct.
However, I fear the eventual conse-
quences far more if we continue to
operate under a dangerously distorted
and manipulated economic model.
The root causes of this crisis go far
beyond any momentary issue facing
the financial industry. It’s the aggre-
gate debt load caused by more than a
generation of debt-driven economics
that is now destroying our economy
in short order. It has reached an apex
that can only be fixed by allowing a
genuinely free market with appropri-
ate rules of the road as opposed to po-
litically charged bureaucratic regula-
tions to correct it.
No matter how financial leaders
paint a rescue plan that could recoup
this expenditure to the government
and ultimately to the taxpayers, there
is no functional way to do this with-
out shifting the debt elsewhere that
will ultimately return this astronomi-
cal financial burden to the American
people. No one in the mainstream is
talking about the debt-charged for-
eign investment money that’s going
to fund this scheme. In fact, the plan
is really designed to keep that going
as opposed to rescuing anything. No
rescue or bailout is possible because
our nation is simply too broke to do
it. We will need to continue massive
borrowing from abroad to function
and the next crisis will only be that
much worse.
For most people it hasn’t sunk in yet,
but this may be remembered as one
of the most far-reaching decisions
our government has ever made. And
expect the controversy to grow. As
Wall Street royalty the likes of former
General Electric CEO Jack Welch are
screaming for the taxpayers to res-
cue their cozy country club world,
The root causes of this crisis go far beyond
any momentary issue facing the fnancial
industry. It’s the aggregate debt load
caused by more than a generation of debt-
driven economics that is now destroying
our economy in short order.
By David Whitehead
Continued on page 16
The “Bailout” Passed
The “Borrowout” Passed
Good News:
Bad News:
16 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
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the public didn’t buy it at the onset. I
was and still am totally against throw-
ing another $700 billion on the debt
heap. Unfortunately, we are left with
no good options. The rescue plan pro-
vides $700 billion in liquidity that
was expected to keep investor share
prices propped up awhile longer and
give consumers a short reprieve from
their inevitable financial miseries. But
that hasn’t happened as of this writ-
ing as the Dow Jones industrials sank
875 points over the two-days prior to
October 8. But not implementing a
massive liquidity infusion plan means
the economy would have been free
to correct itself in short order. If the
new Senate proposal failed, we would
have been poised to let the financial
tsunami hit us full force. But continu-
ing to expand the debt load will make
the collapse that much worse when it
finally happens. On the other hand,
letting the system collapse would
have given international financiers a
free hand to pick up the pieces and
reshape the global economy in their
ideal image. Most people don’t real-
ize this, but we just missed an oppor-
tunity to find out the true state of the
U.S. financial system. Many leaders in
government and finance have known
this reality for some time. We have a
corporate controlled media addicted
to Wall Street money that kept this
process as fuzzy for years.
Confronted by a financial reckoning
this extraordinary, we need transpar-
ency and honesty—not the destructive
financial policy disguised as a bailout
we ended up with at the end. What
we need is a full acknowledgement
by central banks, the government and
financial leaders of the out-of-con-
trol debt that caused this problem in
the first place. That means a return to
economic fundamentals that protects
the domestic wealth and sovereignty
of the United States of America. This
is an idea we tossed out the window
so long ago most people don’t under-
stand the monster we created that is
destroying our economy.
Original Version of Bill
Would Have Given Treasury
Secretary Extraordinary Power
The $700 billion bailout package as
originally written would have given
the Treasury Secretary a mandate that
amounts to financial martial law. The
original text of the bailout bill con-
tained 32 words that probably made
it unpassable in an election year. This
inflammatory language alone makes
me suspicious of their real intentions.
I personally thought it was tantamount
to a modern day “Enabling Act” for
the financial system. They read as fol-
“Decisions by the [Treasury] Secretary
pursuant to the authority of this Act
are non-reviewable and committed to
agency discretion, and may not be re-
viewed by any court of law or any ad-
ministrative agency.”
Giving Paulson money is one thing.
Giving him some emergency powers
to be executed for a limited period
with oversight is another. But to cor-
onate him as a “money czar” blows
my mind. Ronald Reagan is looking
down from a cloud saying, “Oh my
God! What have I created?” Musso-
lini and Stalin are looking up at this
from the depths with glowing approv-
al. Our nation has sunk lower than I
ever imagined, and perhaps people
are finally waking up enough to un-
derstand how dangerous this situation
has become.
By default, when we hand that level
of wealth over the to a government
agency to use at its discretion with
virtually no oversight, we are giving it
enough influence to rule our financial
destiny by decree. And we should all
be savvy by now to realize that those
who control money and finance ulti-
mately control everything else. Per-
Continued from page 15
Continued on page 28
3 R D I S S U E 2 0 0 8
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to learn more about his corporate
training programs. Duncan would
also be a dynamic speaker for your
business and civic event.
Rancho Palos Verdes, CA
22 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8 2 0 08 - 2 0 0 9 E V E N T GU I D E 6
Holiday Inn Express
is THE smart choice
for people on-the-go.
We’re Near the Airport and Your Favorite
Beaches! Holiday Inn Express Hotel and Suites
LAX/South Bay is the premium mid-priced hotel
located in the heart of the South Bay, serving the
areas of Manhattan Beach, Torrance, El Segundo
and Lawndale. We offer complimentary Express
Start breakfast bar, wireless high-speed internet
access and Priority Club rewards.
14814 Hawthorne Blvd.
Lawndale, CA 90260
Toll Free 877-432-3231
Banquet & Meeting Rooms
The New Doubletree Hotel
Torrance/South Bay
Book your next business meeting
or social event at the Doubletree
Hotel Torrance/South Bay. The
Crystal Ballroom, lobby-level, can
accommodate up to 400 people
for banquets, 300 classroom-
style and 500 for receptions with
5,293 square feet. The Penthouse
Ballroom will impress your guests
with fabulous views of the South
Bay and can accommodate up to
120 guests classroom-style and 230
for banquets with 3,640 square feet.
The Horizon Ballroom, penthouse
level, also features spectacular
views of the South Bay with 1,592
square feet of meeting space to
accommodate 80 guests classroom-
style and 120 guests for banquets.
Our Executive Boardroom, lobby-
level, is the perfect venue for up to
10 people with 319 square feet of
space. The new Doubletree Hotel
Torrance/South Bay, formerly the
Hilton Torrance/South Bay, is a full-
service, fully renovated deluxe hotel.
There are 366 beautifully appointed
guestrooms and suites, Concierge
Executive Level and Concierge
21333 Hawthorne Boulevard.
Torrance, CA 90503
The East Grand Cafe
DoubleTree Hotel LAX-El Segundo
This is a newly renovated full-
service restaurant & lounge featuring
contemporary California cuisine for a
casual yet elegant dining experience.
Open for breakfast, lunch and dinner,
we’re a perfect place for a quick or a
full course meal.
1985 E. Grand Ave.
El Segundo, CA 90234
Team Building & Banquet Events
Toyota Sports Center
If you are looking for a fun place
to have a corporate event or team-
building activity (like broomball),
give us a call! The Toyota Sports
Center is the official training center
The 2008-2009
South Bay Business Meeting, Event & Banquet Guide
is a special Supplement of:
Business Insider Magazine
Main: Website:
Classified Advertising Website:
BIM Publications - Business Insider Magazine
PO Box 1032, Palos Verdes Estates, CA 90274
(310) 872-9732
©2008, BIM Publications - All Rights Reserved
3 R D I S S U E 2 0 0 8 7 2 0 08 - 2 0 0 9 E V E N T GU I D E
Events With More:
of the Los Angeles Kings and a non-
stop hub of ice and inline skating
activity for both professionals and
amateurs throughout the entire year.
With two full-sized ice surfaces and
an inline roller rink (that converts
into a large banquet hall), TSC is one
of the premier community recreation
centers in the country. We’ve hosted
hundreds of events from weddings
and bar mitzvahs to birthday parties
and casino nights! If you are looking
to mix some fun with your business,
give us a call!
555 North Nash Street
El Segundo, CA 90245
Holiday Inn Express LAX/Southbay
Need a business traveler-friendly
affordable option to lodge attendees
coming from out of town to attend
your event? Look no further. The
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Suites LAX/South Bay is a short
drive from LAX as well as event
venues in the South Bay area. We
offer complimentary Express Start
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14814 Hawthorne Blvd.
Lawndale, CA 90260
Great Food. Great Events. Anywhere. Anytine.
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3 R D I S S U E 2 0 0 8
7 South Bay
Financial Institutions
Provide a Ray of Hope
to a Dark Market
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
midst the current frenzy of financial gloom and
doom, it seems difficult to find a silver lining. Yet
if there is a bright spot, the South Bay can stake a
claim on a chunk of it. An area equally prized for its ap-
pealing location and economic diversity, the South Bay
hasn’t experienced quite as harsh a jolt as other regions.
And after talking to several executives from various small
to medium sized financial institutions that service the area,
we were surprised to learn that things are rather hunky
dory, particularly in the realm of business banking which
hasn’t been impacted anywhere near that of the residential
market. In fact, many of the firms and agencies interviewed
have even profited from the ongoing economic woes. This
news comes as a welcome departure from the seemingly
daily dosage of dire reports—a soap opera so volatile that
various bits of information within this article will likely be
outdated by the time you read this.
This much is basic: Starting with the sub-prime collapse
about 14 months ago and continuing with a severe real es-
tate downturn and crippling credit crunch, the U.S. econo-
my has spiraled into a freefall the likes of which we haven’t
seen in perhaps decades. That isn’t the worst of it. When
the very institutions that could always be counted upon are
suddenly vulnerable, the confidence that has long been the
backbone of national investing has been seriously shaken.
The list of casualties reads like a financial who’s who: Bear
Stearns, Indy Mac, Merrill Lynch, AIG, Washington Mutual,
Wachovia, Morgan Stanley, Lehman Brothers, Fannie Mae
and Freddie Mac, to name the most prominent of the fallen
stars. That’s not the end of it. Other notable banks and lend-
ers could be next in line for a bailout or takeover. In fact,
nine regional banks had already failed this year alone as of
press time.
Meanwhile, investors worry that their savings are no lon-
ger safe. Some even fret that the very bastion of govern-
ment-backed reliability, the FDIC, could be in trouble if it
isn’t recapitalized soon.
As of press time, Wall Street had just taken its biggest hit
since 9/11 and Congress had just passed a $700 billion
bailout plan for the mortgage industry. Whether this plan
can stabilize the market remains to be seen. In the mean-
time, several South Bay-based financial institution execu-
tives weighed in on the matter and let us in on how they’ve
managed to circumvent the crisis.
Malaga Bank CEO Randy Bowers sees the country’s finan-
cial meltdown as a multi-step process that started with the
sub-prime collapse. Next, larger institutions with sizable
investment portfolios found themselves exposed to mort-
gage-backed securities, which created enormous write-
downs. Then, construction and land development loans
began to default left and right, adversely affecting smaller
banks that specialize in such lending. Increased credit card
defaults followed that and, if nothing improves, business
By Brian Simon
26 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
loans could be next
on the list of prob-
lems. Though not
immune to the cur-
rent spate of trouble
spots, Malaga has
managed to avoid
the worst of it.
“On the asset side,
we didn’t have mas-
sive investment port-
folios and didn’t
make loans in mar-
kets that were trou-
bled,” said Bowers.
“We did very selec-
tive construction
lending and no sub-
prime whatsoever. We’ve always been somewhat cautious
and prudent. At the same time, we haven’t significantly re-
stricted our lending.”
If there is one area where Malaga has run into some chal-
lenges, it’s on the deposit side of the coin. Though the mar-
ket rate for a typical 12-month CD was running at 2.25
or 2.50 percent, several banks were offering close to 4.0
percent, or even higher—a move many called “pricing out
of desperation,” but one nonetheless tempting for interest-
hungry investors. Bowers estimated that Malaga has lost
some of its deposits as a result, but is well-positioned to
weather the storm. “We’re going to continue what we’ve
been doing and keep our eyes open,” he said of the 23-
year-old, four-branch operation. “We’re still growing, antic-
ipate continuing to do so, and will be looking at expansion
opportunities if they arise.”
In the meantime, Bowers is hopeful that time will take care
of the current shakeout. “The question is how much time
and how much worse does it get,” he said, estimating that
it may be another year before we see the bottom. “When it
recovers is anyone’s guess. People just have to be prudent
in how they spend their money.”
When asked why banks engaged in sub-prime or aggres-
sive construction lending in the first place, Bowers said
competition compounded the problem, but that the ring-
leader may have been Wall Street itself. “It fed the monster
by allowing a lot of poorly written loans to be originated and
sold to investors despite a lack of equity in their property, or
approved 100 percent loans or loans with no documenta-
tion of income or assets, poor credit histories, or a combi-
nation of any of these,” said Bowers. “It shouldn’t come as
a surprise that this happened. Home appreciation is his-
torically cyclical and can’t go up indefinitely. Combine that
with poor underwrit-
ing standards and it’s
a recipe for disaster.”
Known for a con-
servative philosophy
that has helped earn
it top safety ratings,
Farmers & Mer-
chants Bank steered
clear of sub-prime
lending and didn’t in-
vest a penny in Fanny
Mae or Freddy Mac.
“It’s not part of our
business,” explained
CEO Henry Walker.
“We focus on con-
servative commercial lending. Our priority is to safeguard
our depositors’ money.”
With that in mind, Walker could only shake his head
when asked about the failures of several major banks in
recent weeks. “A lot of banks put money into bonds backed
by sub-prime mortgages, which only earned a half-percent
more than what they would have gotten with government-
backed bonds,” he said. “Just look at the risk in that. They’re
not concerned about future return on assets; they were
more concerned about appeasing their shareholders for
that year’s return. Most of the people running these banks
weren’t owners. They were worried about this year’s salary
and this year’s bonus. It appears that neither management
Randy Bowers
Continued on page 30
Henry Walker
“It shouldn’t come as a surprise that this
happened. Home appreciation is historically
cyclical and can’t go up indefnitely. Combine
that with poor underwriting standards and it’s a
recipe for disaster.”
Randy Bowers, CEO
Malaga Bank
“I think there’s a couple out there on shaky
ground, but our fnancial market with FDIC
insurance has proven to be a stability in our
economy. If it wasn’t for FDIC, I think there
would be huge panic and put the industry in
Henry Walker, CEO - Farmers & Merchants Bank
3 R D I S S U E 2 0 0 8
Redondo Beach Chamber of Commerce and Visitor’s
For more information about the events listed, call 310-376-
6911 or visit
Networking Events:
Young Professionals Coffee Connection
Tuesday, October 21, 2008, 9:00 a.m.
SweetWave Coffee
800 Torrance Blvd., #110, Redondo Beach
This casual networking opportunity allows Young Profes-
sionals to meet, mix and mingle over their morning cup o’
joe. If you like to start your day meeting new people and
talking business, then Coffee Connection is for you. The
South Bay Young Professionals is open to all people ages
21-39 who would like to meet new, like-minded people in
a fun environment.
Network Café
Thursday, November 13, 2008, 11:30 a.m. – 1 p.m.
Redondo Beach Cafe
1511 S. Pacific Coast Hwy., Redondo Beach
Enjoy a great lunch and learn about Chamber members
and their businesses while promoting your own. Each
person will get to present a 30-second commercial in front
of the whole group! Advance reservations are required.
Members with reservations are $20 and guests and mem-
bers without a reservation are $25. Please call 24 hours
in advance to cancel. No-shows will be invoiced. Bring a
door prize to further market your business.
South Bay Association of Chambers of Commerce
Tuesday, November 18, 2008, 5:30 to 7:30 p.m.
Redondo Beach Performing Arts Center
1935 Manhattan Beach Blvd., Redondo Beach
South Bay Association of Chambers of Commerce hosts
Air Force Week. RSVP required with the Redondo Beach
Chamber of Commerce. Admission Free.
Palos Verdes Peninsula Chamber of Commerce
For more information about the events listed, call 310-377-
8111 or visit
Evening Mixers:
All mixers take place from 5:30-7:30 p.m. the third Thurs-
day of each month. Admission $5 for members and $10
for guests. Cash bar, food and prizes.
Thursday, October 16
Medawar’s Fine Jewelers
810 Silver Spur Road, Rolling Hills Estates
Thursday, November 20
Palos Verdes Art Center
5504 Crestridge Road (at Crenshaw Blvd.), Rancho
Palos Verdes
Breakfast Mixers:
Breakfast mixers take place from 7:15-9 a.m. the first
Wednesday of every month. Admission is $15 for
members with R.S.V.P. and $18 for members without
R.S.V.P or Guests.
Wednesday, November 5
Trio Mediterranean Grill
46 Peninsula Center, Rolling Hills Estates
Torrance Area Chamber of Commerce
For more information about the events listed, call 310-
540-5858 or visit
Business Expo 2008!
Thursday, October 30, 2008, 4-7 p.m.
Torrance Marriott
3635 Fashion Way, Torrance
Join members of the Torrance Area Chamber of Com-
merce and local business leaders for this premier
annual networking event. The Torrance Marriott’s main
ballrooms will be lined with member displays offering
products and services of all kinds. Admission is free to
the public. Food and drinks served.
El Segundo Chamber of Commerce
For more information about the events listed, call 310-
322-1220 or visit
Salute to El Segundo Mayors Mixer
Thursday, November 13, 2008, 5:30-7:30 p.m.
Mattel, Inc.
333 Continental Blvd., El Segundo
Holiday Mixer
Thursday, December 4, 2008. 5:30-7:30 p.m.
Citizens Business Bank
275 Main St., El Segundo
Save The Date!
28 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
P U B L I S H E R ’ S P E R S P E C T I V E
haps the public at large is starting to see the scam and I
have no doubt the lawmakers who turned against the origi-
nal bill at the last minute preferred the wrath of their corpo-
rate financial supporters to an angry electorate that would
have shown them the door this November. Many said they
were offended by a partisan speech by House Speaker Nan-
cy Pelosi, who was pushing this bill on behalf of the Bush
Administration. However, I don’t believe for a minute they
would base a decision this serious on something that petty.
It was merely a convenient excuse to wash their hands of
the entire mess. The new Senate version includes oversight
and limits the duration of the authority of the legislation. As
it turned out, the electorate was properly frightened and the
new version of the bill sailed through easily.
The desperation this process reveals is both extraordi-
nary and unprecedented. Our nation’s longstanding cycle
of debt-driven economics is revealing its dark side as the
credit crunch spreads its toxins around the world. In the
United States, the reported public debt has grown from 2.7
trillion in 1989 to $10.2 trillion and rising fast as of this
writing. It began to grow exponentially following Septem-
ber 11, 2001.
Most people don’t realize the multi-billion dollar bailout
is really a “borrowout” that only compounds the problem
when the next financial tsunami hits us. This isn’t a political
affirmation. It’s mathematical reality. Money issued to the
government by central banks accrues compounding inter-
est that must be paid back. With the help of the Treasury
Department and the Federal Reserve, the Bush administra-
tion shifts us into high gear as the gas gage nears empty.
Try doing that with your own business and see how long
you last.
First $300 billion to back the Bear Stearns buyout and
now the government has been forced to take responsibil-
ity for approximately $5.3 trillion of mortgage debt held
by Fannie Mae and Freddie Mac. That’s nearly half of all
U.S. mortgages! As of this writing, there are 117 banks on
the FDIC watch list of troubled financial institutions. The
recent IndyMac Bank rescue depleted approximately $20
billion of the organization’s $50+ billion budget, meaning
the FDIC will need help from other agencies on a massive
scale before this is over.
Now the unthinkable is happening. Before the sub-prime
blowout initiated this mess, there were five major invest-
ment banks on Wall Street. Now there are two still function-
ing. The great behemoth Lehman Brothers declared bank-
ruptcy in September, and the same week Bank of America
announced it was purchasing Merrill Lynch. Then at the be-
ginning of October, Citigroup and Wells Fargo were vying
to purchase Wachovia Bank.
And the end of this is nowhere in sight as President George
W. Bush embarks on what will likely be a multi-trillion dol-
lar bailout the rest of us (or perhaps our grandchildren)
would eventually pay back in one form or another. Keep in
mind the $700 billion figure they pitched for this “bailout”
was no doubt a conservative estimate. Before this is over, it
will head into the trillions. In fact, the day the bailout pack-
age failed in the House, I became aware of a September 23 article that took a while to make its way around
the Internet. It revealed the $700 billion figure was chosen
purely for political reasons. It had nothing to do with the
actual amount needed for a bailout, which in reality no one
really knows. The real value of domestic mortgage debt is
still a mystery.
“It’s not based on any particular data point,”
quoted a Treasury spokeswoman as saying on September
23. “We just wanted to choose a really large number.” Isn’t
that just marvelous? This bill was thrown together so quick-
ly I doubt if anyone really knows if it has any merit.
Some would argue the course was set in the early 20th
Century when we shifted to issuing currency at interest
through a for-profit central banking system. Believe it or
not, you must look at the 100-year tend to understand the
strains placed on the economy by the central banking sys-
tem. When money itself accrues interest before a chartered
bank can lend it to a borrower, it adds an additional strain
to the economy. There is a large and growing movement
in America that believes the strain from this added layer of
compounding interest tied to units of currency issued is the
reason our nation lost control of its debt in the first place.
A Central Banker Makes a Candid Admission
Richard W. Fisher, president and CEO of the Federal Re-
serve Bank of Dallas, gave an uncharacteristically candid
appraisal of the national debt May 8 in a speech he made
before an audience in San Francisco at the Commonwealth
Club of California. “I have been scanning the horizon for
danger signals even as we continue working to recover from
the recent turmoil,” the transcript read, “In the distance, I
see a frightful storm brewing in the form of untethered [sic]
government debt.”
Following his litany of foreboding rhetoric, Fisher dropped
a bombshell describing how un-funded obligations for So-
cial Security and Medicare were, as he put it, estimated at
“$99.2 trillion over the infinite horizon.” Some have taken
this to suggest the national debt is really more than $100
trillion, but there is really more nuance to it than that. What
he meant was, we haven’t funded future obligations we
know about for Social Security and Medicare as the baby
boomers are entering retirement at a rapid pace. The high
birthrate and longer life expectancies we are experienc-
ing today have forced estimated costs of these programs
to grow enormously, and the “pay as you go” system can’t
cover these un-funded costs.
What he implied was we could be in the hole for nearly
$100 trillion in a few years if we don’t do something to
properly fund these programs that don’t just shift the debt
Continued from page 16
3 R D I S S U E 2 0 0 8
bailout extends debt of one form or
another and exacerbates the com-
pounding interest that much more.
Also, the Federal Reserve opted for
liquidity over controlling inflation by
dropping the key lending rate to two
percent from the low fives when the
credit crisis hit. The economy is enjoy-
ing some short-term stability from the
money flush, but inflation will persist
as the root problem of compounding
debt is exacerbated further. In late
September, the Fed opted to leave the
rate at two percent, indicating that
the organization’s latitude for extend-
ing liquidity is reaching its limit. But
then less than a week after the bailout
plan was announced, the Fed rushed
through a 1/2 percent rate cut in the
wake of a plunging stock market.
And yes, ultimately citizens will have
to cover this tab and most of us would
go bankrupt individually if we had to

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elsewhere. That is an astoundingly
candid admission to come from a
central banker. I was amazed bloggers
were able to find this speech posted
on his organization’s website because
the Federal Reserve has a reputation
for being extremely secretive on these
matters. In fact, if Fed Chairman Ben
Bernanke had made statements like
this to the national media, rest as-
sured the financial markets would
have gone wild months before recent
events started tearing them apart.
Deep Debt Driving
the Credit Crunch
The mainstream media would have
you thinking irresponsible lending
practices and homebuyers overex-
tending themselves are the sole cause
of the credit crunch. Others would
cite corporate greed. But should we
blame the kids when they get sick
from eating too many sweets or the Continued on page 39
parents for leaving the candy dish
within their reach? Let’s say there is
plenty of blame to go around. How-
ever, we need to go as high as we can
in the economic order to truly under-
stand this.
The root economic problems causing
this incredible volatility have not been
addressed, and the individual issues
have been politicized to the point that
it makes it nearly impossible for the
average person to grasp what is actu-
ally happening.
There are credible experts that assert
our nation’s payments on compound-
ing interest accrued by ongoing ex-
pansions of the money supply cannot
be covered by realistic expansions of
the GDP. But unlike average citizens
who have to declare bankruptcy when
credit limits are maxed out and com-
pounding interest surges ahead of in-
come, governments have no defined
limits on borrowing. Therefore each
30 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
nor the board did their fiduciary obligation to safeguard
the depositors’ money. The result: Big investment banks and
investment houses that failed are simply getting what they
Walker sees the government bailout plan as a “positive”
and “necessary for now,” though he admitted, “At some
point, the government needs to quit intervening and get
back to a free market principle. There never should have
been a Fannie Mae and Freddie Mac in the first place. The
free market would have taken care of it. It has helped Amer-
ica excel far better than any country in the world.”
Walker is optimistic that the housing market will right it-
self and believes we are near the bottom in Southern Cal-
ifornia based on recent evidence that investors who had
been waiting on the sidelines are beginning to dip back in
once again.
As for business banking, he noted that the industry as a
whole does a very good job of lending money, is well-regu-
lated, and has a strong balance sheet with F&M being one
of the strongest. Still, he disclosed that business customers
have reflected that earnings are down. “When consumers
are uneasy and don’t feel good about the economy, they
quit spending,” he said. “Right now, people are pulling
back on their spending. We’re seeing it and hearing it from
our retail and restaurant customers especially.”
Walker expects recovery to start by the end of next year,
but cautions that it may not feel like it to the everyday Joe.
Still, he sees the current crisis as “a good thing” that will
help strengthen the economy and the industry. “Recessions
can be positive because they shake out those who engaged
in risky behavior and cause painful losses to others.” he
Asked if he expects more “big names” to follow Indy
Mac, Wamu, Wachovia and others into the financial abyss,
Walker opined, “ I think there’s a couple out there on shaky
ground, but our financial market with FDIC insurance has
proven to be a stability in our economy. If it wasn’t for FDIC,
I think there would be huge panic and put the industry in
What about those who worry about the FDIC’s own sol-
vency? “It’s an implied commitment by the government to
recapitalize the FDIC, and by the end of the day, there are
still a lot of safe banks
out there. FDIC insur-
ance is doing what
it was designed to
do—calm the markets
and reduce the panic.
It speaks of how well-
designed and resilient
our country is...”
First California Bank
CEO C. G. Kum iden-
tified residential lend-
ing and construction
as the main culprits
for Southern Califor-
nia’s financial woes.
“Until we are able to
work through the in-
ventory of homes for sale, we are going to be where we are
for the foreseeable future,” he said.
At the same time, Kum doesn’t feel business banking has
suffered nearly as much, though it isn’t growing at a rapid
clip thanks to a generally slow economy. “The business
banking sector is not impacted materially in terms of credit
quality,” he said. “Overall, we have a low level of problem
loans, and the sector seems to be holding up well even
though the economy is slowing down. Problem institutions
with a business banking component are struggling mainly
due to construction loans.”
Kum said FCB will not pull back any products, particularly
in business banking, although it will look at credit with a
“more conservative eye” because the economy dictates it.
“Our clients tend to be more conservative business people,
which makes our job easier,” he said. “We’re still lending
in the residential sector, but very cautiously—it’s the only
sector where we have pulled back a bit. FCB has one of the
lowest level of problem loans in California.”
Now, any type of construction lending is under heavy
scrutiny and many commercial developments are on hold
because credit is tight, Kum pointed out. “If it’s a large proj-
ect, banks of our size are too small to provide financing,”
he said. “Many large projects were financed by offshore
money, large banks and large thrifts. Now these players are
not making these loans at all, which is stalling the proj-
Meanwhile, FCB recently merged with South Bay Bank
(a subsidiary of First California Financial Group, Inc.) to
double in assets, grow to 12 branches and become a ma-
Continued from page 26
C. G. Kum
Continued on page 32
“The business banking sector is not impacted
materially in terms of credit quality ... the sector
seems to be holding up well even though the
economy is slowing down. Problem institutions
with a business banking component are
struggling mainly due to construction loans.”
C. G. Kum, CEO
First California Bank
3 R D I S S U E 2 0 0 8
l/ /s oar /oaoda//oo.
l/ /s u/a/ ue oroc/de /o uoa.
l/ /s oar orou/se /o uoa.
A ßank vou can trust.
A ßank vou can count on.
Formerlv South Bav Bank
2200 Sepulveda ßoulevard
Torrance, Calilornia 90501
32 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
Don’t continue to rent. Buy or develop your own building!
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jor player in the mid-tier ($1 billion
to $10 billion in assets) niche mar-
ket. Neither bank engaged in any
sub-prime lending, although SBB had
a strong presence in residential con-
struction. But even that sector wasn’t
as negatively impacted as it was else-
where. “Our markets are mostly in
coastal communities in Ventura and
LA counties,” said Kum. “Those mar-
kets, including the South Bay, have
held up better than other markets in
Southern California--another reason
why our loan portfolio is cleaner than
other markets. Values haven’t dropped
as significantly in the residential sec-
tor compared to the Inland Empire.
In some cases, they’ve even gone up.
People will always want to live on the
west side of the 405, so as a result the
residential sector has held up.”
The South Bay’s residential market
may be in better shape than other
regions, but it is the business sector
where various financial institutions
are especially thriving. As American
Business Bank regional vice president
Patti Vollmer explained, “The credit
crunch is not impacting us as a bank
to any great extent because we focus
on businesses. Our customers have
typically been around for many years,
so they have very strong management
teams that have been through down-
turns and they are navigating through
these difficult times quite well. For us
it is really business as usual.”
Now celebrating its 10th anniversary,
ABB has five locations and focuses on
middle market ($5 million to $100 mil-
lion in revenues) companies. The bank
has no 30-day past-due loans and no
net charge-offs. The only real estate
lending it
does is of
the owner-
occupi ed
variety. “If
s omeone
wants to
or buy a
bui l di ng,
we will
provide the credit for that purpose,
but we don’t do investment real estate
or construction financing for develop-
ers,” said Vollmer. Though ABB’s low
loan-to-deposit ratio (around 50 per-
cent) gives it flexibility to lend more
if needed, half of its customers don’t
borrow at all. “They’re great, success-
ful, middle market businesses—they
may have a line of credit, but often
don’t use it at all.”
Though many businesses don’t take
out loans at ABB, the bank has actu-
ally noticed a recent growth spurt
that Vollmer attributes to the current
economic crisis. “We’re bringing in
a lot more customers now than nor-
mal because many companies have
become uncomfortable with their ex-
isting bank that may be having credit
problems,” she explained. “So we’re
profiting from the credit crunch in that
The new clients are coming from two
different categories— large national
banks that overextended and reported
significant losses; and smaller regional
banks that focused heavily on real es-
tate and suffered the consequences.
A medium-sized bank with assets
just under $700 million, ABB recently
reported growth in assets, loans and
core deposits compared to the same
quarter a year ago. “It looks like the
bank may be doing better during these
troubled times than if things were nor-
mal,” Vollmer admitted. “I hate to see
what’s going on in the banking indus-
try right now. On the mortgage lend-
ing side, it seemed so predictable it
Continued from page 30
Patti Vollmer
3 R D I S S U E 2 0 0 8
had to come to a head sometime.”
Asked how the bank does it, Vollmer
noted, “We don’t change our under-
writing during downturns. We stay
very consistent. Our customers know
the loan we made them a year ago is
still available. We go into the relation-
ship on a conservative level so we can
just work with them. Back then (be-
fore the economic crisis), we weren’t
being the most aggressive out there.
We’re growing nicely, but have stuck
to our core beliefs and underwrit-
ing parameters. It makes us do well
in very competitive times but we do
even better when there is a hiccup in
the rest of the industry.”
The “new kid on the block” having
opened in 2007, Bank of Manhattan
avoided some problems simply by
virtue of not yet existing. As President
Jeff Watson put it, “We weren’t in the
marketplace three years ago. Would it
have made a difference? To be honest,
most likely we would be feeling the
impact in some respect—we would
have probably had some problem
loans in our portfolio. But we don’t
have them now because our under-
writing is very strong and we are com-
ing in during a tough market where
credit availability is scarce and we’re
getting opportunities to get the upper
tier of borrowers.”
Continued on page 34
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M e m | e r | 0 | C
South 8ay RegionaI Office
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“We’re bringing in a lot more
customers now than normal
because many companies have
become uncomfortable with
their existing bank that may
be having credit problems. So
we’re profting from the credit
crunch in that respect.”
Patti Vollmer
American Business Bank
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34 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
Catering to small to
middle market busi-
nesses, B of M re-
ports no problem
loans and, like ABB,
can partially thank
the current finan-
cial crisis for its early
successes. “There’s a
stat out there where
over two thirds of the
highest performing
banks were started
in recessionary pe-
riods,” said Watson.
“Timing is everything.
They didn’t have to
go through the prob-
lem credit cycle. They
came in at the bottom
and rode it out.”
In B of M’s case, the founders figured that a chunk of its
original capital raise goal of $20 million would come from
institutional funds. But that money dried up as prices of
community bank stock began to plummet. “We were for-
tunate enough to have about 350 local investors raise $25
million, which has proven to be more beneficial subse-
quent to our opening since they’ve also become clients,”
said Watson.
Well-capitalized and not needing to focus any resources
on “troubled asset management,” B of M hopes to take ad-
vantage of new opportunities as other banks struggle with
credit. That includes expanding into a much larger orga-
nization if the arrangement makes sense. Again, timing is
everything. Had the bank started up a bit earlier, it may
have run into some roadblocks due to a desire to grow and
compete, Watson admitted. “The competitive nature for
assets made certain people stretch on credit and pricing
issues,” he said. “We probably would have had some prob-
lems crop up. It’s the nature of the business. What looked
good three years ago obviously has been affected.”
Though Watson is very optimistic about his own bank’s
prospects and solvency, he is less rosy about the overall
economic picture, predicting another two years of turmoil
before any turnaround. “It’s going to be a tough 2009/2010,”
he said. “This is a different cycle—it’s not like the ‘90s. It’s
more dangerous because the liquidity and housing impact
are deep.”
Asked for a possible solution, Watson suggested (a week
or so before the $700 billion bailout made national news)
that the government may have to step in to provide more
liquidity in the marketplace. “The housing market com-
pounds the problem,” Watson explained. “People can sell
properties, but can’t get financing for buyers.”
With a name like Citizens Business Bank, you can prob-
ably guess where the focus lies. Sure enough, only 3.5 per-
cent of CBB’s portfolio resides in residential construction
and land loans. “We’ve got $3.5 billion in loans, but only
$125 million of that is in residential construction,” said
CEO Chris Myers. “Our loan problems are very contained
and small compared to a lot of our competitors and we
haven’t had to change our business model.”
A medium sized bank with three of its locations in the
South Bay, CBB
zeroes in on the
percentiles of top
performing busi-
nesses throughout
the various sec-
tors, figuring those
are the ones able
to withstand dif-
ferent economic
downturns. “And
if they’re our cus-
tomers, we’ll be
around for a long
time too,” Myers
reasoned. “That
Jef Watson
Chris Meyers
Continued from page 33
“ ... over two thirds of the highest performing
banks were started in recessionary periods.
Timing is everything. They didn’t have to go
through the problem credit cycle. They came in
at the bottom and rode it out.”
Jef Watson, CEO
The Bank of Manhattan
“Have we hit bottom yet? I don’t know what that
really is. I think the election will be an interesting
wildcard. There are infationary pressures.
The government has to balance infation with
keeping rates low. This is a difcult task.”
Chris Myers
Citizens Business Bank
3 R D I S S U E 2 0 0 8
has been our philosophy for the last
34 years.”
As various major players have fall-
en out of the banking wars over the
past 14 months, Myers has begun to
see more loan opportunities come
his way. “We felt the credit structur-
ing from a couple of years ago was
getting too aggressive,” he said. “We
pride ourselves in providing a consis-
tent source of credit through different
economic cycles for our customers,
so we’re reliable for them.”
Like Bowers at Malaga, Myers sees
major deposit competition among the
banks, with many institutions paying
up, especially on jumbo CDs—a reci-
pe for disaster, in his opinion. “When
you look at something like that, think
of the economics,” he said. “The
theoretical rate that a bank can bor-
row from the Federal Reserve is two
percent. This is called the ‘Feds Fund
Rate.’ The fact that a bank will pay five
percent for a deposit means it needs
liquidity, and most likely cannot bor-
row from the Federal Reserve. The
prime borrowing rate is five percent,
so to pay five percent for a deposit
means you’re not making any money
on loans that are at the prime lending
Asked how such rates impact busi-
ness lending, Myers responded,
“Banks typically look for a positive
sloped yield curve—where short-term
rates are lower and long-term rates are
generally higher. In 2006, the yield
curve flattened dramatically and you
couldn’t make enough spread on new
loans. Over the past nine months,
our net interest margin has widened,
which is good for us and makes good
business sense for us to lend. If I can
pay two percent for a deposit and lend
at six and a half percent, I’m doing
Myers expects the current crisis to
continue well into next year and hopes
to see recovery starting by early 2010.
Have we hit bottom yet? “I don’t know
what that really is,” he said. “I think
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Continued on page 36
36 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
B a n k i n g o n t h e S o u t h B a y 2 0 0 8
the election will be an interesting wild card. There are infla-
tionary pressures. The government has to balance inflation
with keeping rates low. This is a difficult task.”
During the upheaval, CBB has not only picked up some
new clientele but also a few key employees from other
banks who are frustrated about lending limitations at those
institutions. “We’re an attractive employer right now,” said
Myers. “Our assets and loans have increased. Our profit-
ability is up eight percent from 2007 and our loan growth
is up over 10 percent. We are a good success story in this
kind of economy. We’re one of the few banks in the black
at a time when at least 75 percent are in the red.”
While the argument can be made that the business sector
is driving South Bay banking, there are other financial in-
stitutions doing just fine without it. In the case of Torrance
Community Credit Union, business banking has been vir-
tually non-existent.
CEO Steve Stoppel reports that the credit union itself is still
making money, in part thanks to the fact it didn’t engage in
“exotic lending” in the mortgage realm. But he has noticed
some impacts. “On consumer loans, some of our mem-
bers are having issues making payments, which in some
cases have gone up 50 to 75 percent,” he said. “They’re
also struggling to make car and credit card payments.” As a
result, Stoppel estimates that delinquencies are up 20 per-
cent, though TCCU has the capital and flexibility to navigate
through such obstacles. “We’re trying to help our members
to reduce their financial burden, so we’ve been doing some
work-outs, allowing them to skip some payments so they
can get back on their feet.”
TCCU’s standard policy is to give a loan to virtually any-
one who can pay it back. As such, it has picked up business
from customers needing home equity lines of credit—as
many institutions have frozen or limited that type of lend-
ing. As an example, Stoppel offered the following: “A mem-
ber starting to remodel his house found out his bank (one
of the big ones) cut his credit limit down to his balance, so
he had no access to funds. We were able to give him his
loan here.”
Stoppel believes it’s more of a knee-jerk reaction when
some banks cut or freeze credit lines, especially when the
customer in question boasts an excellent credit score, great
income, and plenty of equity.
Once limited to City of Torrance employees and their fam-
ilies, TCCU has recently expanded its scope and can ser-
vice anyone in Torrance as well as Hawthorne, Lawndale,
Redondo Beach and the Palos Verdes Peninsula. Full-scale
business banking,
now only available
in small doses for
sole proprietors, is
also on the long-term
Why would some-
one switch to a cred-
it union? “We don’t
have a credit crunch,”
Stoppel replied.
“We have plenty of
money to lend out.
As long as you have
the resources to pay
us back. We’ve got
$35 million in in-
vestments just sitting
Steve Stoppel
Continued from page 35
“Our greatest increase in assets has always been
when there is trouble in the economy. It’s a fight
to quality.”
Steve Stoppel, CEO
Torrance Community Credit Union
3 R D I S S U E 2 0 0 8
With higher than average market
rates for deposits, TCCU has increased
its deposit base since the financial
crisis started. And like several others
profiled here, it has profited during
the down times. While not pleased
about the country’s financial woes,
Stoppel noted that the credit union’s
market share usually increases when
times are tough and tends to nor-
malize when the economy is stable.
“Our greatest increase in assets has
always been when there is trouble in
the economy,” he said. “It’s a flight to
quality. We’re better capitalized than
most banks (10 percent vs. 5-6 per-
cent). We were at $52 million in as-
sets when I started six years ago. Now
we’re at $84 million.”
So to quote an old Supertramp album
title: “Crisis? What Crisis?”
Brian Simon is a freelance writer living in El Se-
Our South Bay Business BanIing Center is Iocated at
8¯9 V. I9Jth St.. Suite 35J GarJena. Calilornia 9J2+8
3IJ.2+3.I56J or 8JJ.¯88.9999
38 S OU T H BAY BU S I N E S S I N S I D E R MAG A Z I N E 3 R D I S S U E 2 0 0 8
tax exemptions ($12,000 per donor per beneficiary in
2008) and therefore incur a gift tax liability or force
the use of a portion of the lifetime gift tax exemptions
($1,000,000 per person). Though life insurance can
for many reasons warrant the use of these exemptions,
most planners want to try to avoid using them if other
avenues exist.
Financing the Premiums Through Private Sources
For high net worth individuals, the money needed for
life insurance premiums almost always exists; it’s just in a
different place than where it needs to be. There are three
common sources of private loans as well as several com-
mercial lenders who participate in premium financing ar-
Typically a private loan to the children
or their trust comes from:
The estate owner’s personal funds.
The family business.
Another family member.
Private loans are often attractive because the lender is
more open and friendly to the cause, the interest rates are
relatively reasonable, and the insurance proceeds remain
within control of the family system. Loans are arranged in
legitimate, fully disclosed terms with interest rates declared
by the IRS for such loans (the “Applicable Federal Rate”
or “AFR”). Care must be taken so that nothing about the
arrangement could cause incidents of ownership of the
policy on the part of the estate owner, as that would bring
the insurance proceeds into the individual’s taxable estate.
The attorney who is drafting the estate planning documents
can keep you out of trouble in this area.
Financing the Premiums Through Commercial
Third Party Sources
For situations in which private loans are either not avail-
able or not desirable, there are third party commercial lend-
ers who specialize in premium finance programs (this is not
“Stanger Originated Life Insurance” that has been heavily
promoted through seminars and direct marketing and relies
heavily on third party financing). Loan underwriting will be
necessary. Interest rates are usually based on “prime plus”
or “LIBOR plus” formulas and thus carry interest rate risk
into the arrangement. Interest is generally not deductible.
Regarding collateral requirements, commercial lenders
not surprisingly want the premium loan to be fully collat-
eralized. The cash value of the policy will provide some
portion. If the insurance trust does not own assets that can
be allocated for this purpose, a personal guarantee may be

In any case, whether financing is private or commercial,
care must be taken when posting collateral to ensure that
the client is not deemed to have incidents of ownership in
the insurance policy. Again, a qualified attorney will make
sure this is handled properly.
Interest Payments Are a Fraction of the Premium
One of the great advantages of premium financing is that
instead of paying the annual premium from cash flow, an
individual can pay only the interest on the borrowed pre-
mium. Not only are the annual payments a fraction of the
premium, but they are typically small enough to fit within
the annual gift tax exemption limits ($12,000 per donor per
beneficiary). If a portion of the lifetime gift tax exemptions
must be used in the family’s estate plan, the key is to use
them wherever the greatest impact can be made. Life insur-
ance is very often offers that opportunity more than any
other asset.
It is also possible to accrue interest, though doing so is
rarely available with commercial loans. It is more common
with private intra-family loans, not only because the lender
is not subject to regulatory conditions, but also because
ultimately all the money remains within the family system.
For example, assume a $10,000,000 policy calls for an an-
nual premium of $150,000. If the premium loan grows at
5% interest, it would accrue to approximately $5,500,000
in 21 years (the actuarial life expectancy for two 65-year-
olds). The trust would use death proceeds to first pay back
the loan, leaving $4,500,000 for estate liquidity. But the
other $5,500,000 is still within the family’s economic con-
trol, whether it be in an investment account or a business.
The bottom line result is that 4,500,000 new dollars are
introduced into the family’s control. This is particularly
critical for the type of situation the Subos have, in which
liquidity is needed not only for estate taxes, but also may
be needed to “equalize” the estate for the heirs who will
remain in the business and those who will not.
Having an Exit Strategy
It is more prudent to pay annual interest in whole or in
part (for example, to put a ceiling on the accrual) so that
the loan balance does not grow to consume all the death
proceeds. Indeed, there are scenarios in which it could ac-
tually grow larger than the death benefit. So proper plan-
ning must be done. Though many premium financing ar-
rangements assume that death is the only exit strategy, it
is better to employ the premium financing method when
there is a definable exit strategy. Two common scenarios
will illustrate:
Fund the insurance sufficiently for the cash values to
grow over time, such that they can eventually be with-
drawn to pay back the loan without collapsing the in-
surance coverage.
Fund the trust with other assets that are anticipated to
Continued from page 9
3 R D I S S U E 2 0 0 8
all choking guests must be saved? Then, if we decide they
are worth saving, what should be done? Is it possible they
could stop choking without any assistance? How about a
slap on the back, the Heimlich maneuver or a 911 call to
let the paramedics handle it? If you try and help and the
guest doesn’t make it, do you have exposure to financial
liability? Should the choking guest be required to sign a
liability waiver and a statement of financial responsibility
before doing anything?.. You get the picture. Sometimes the
less than optimal action taken immediately is better than
the best action taken too late. Time is of the essence. We
now have an economic stabilization proposal that needs to
be swiftly implemented. The financial markets are ablaze.
For most Americans, Wall Street is a distant reality far re-
moved from Main Street. I don’t know about you, but I
think I smell smoke! Is it warm in here or is it just me?
Ken Roberts is a mortgage planner with nearly 30 years experience in the
South Bay real estate market. Ken can be reached at (310) 534-6200.
nology works just about anywhere, you can’t work any-
where. Sure, there is a lot of stuff you don’t need anymore
for an office to be an office, but whatever you do, you
need a decent place to do it. So I suggest you text this
message to all of your mobile workmates struggling to be
productive on the road.
David Whitehead is the Publisher of Business Insider Magazine
Continued from page 8
Continued from page 14
appreciate over time and can be used to repay the loan.
Funding the trust can be done in a way that triggers
little or no gift tax (when done in conjunction with spe-
cial trusts that are commonly and legitimately used in
this circumstance).
The Proper Use of Life Insurance
A skilled life insurance professional will work with the
family’s other advisors to construct an effective estate plan.
Again, efforts will first focus on reducing or even eliminat-
ing the estate tax. But the taxes that cannot be avoided need
to be paid somehow. Insurance delivers a block of income
tax free dollars precisely at the moment they are needed.
The premium and the source of premium represent the so-
lution, not the problem.
Dennis J. Branconier, CLU, is Vice President of M Advisory Group in Tor-
rance. For affluent clients and entrepreneurial companies, the firm provides
wealth preservation and executive benefit planning, insurance expertise and
retirement plan consulting. He is past president of the South Bay Estate Plan-
ning Council and active in several local community organizations. Dennis can
be reached at (310) 530-5525 or
This material is not intended to present advice on legal or tax matters. Please
consult with your attorney or tax advisor, as applicable.
Securities and investment advisory services offered through M Holdings Se-
curities, Inc., a registered Broker/Dealer and Investment Advisor, Member
Services provided through Cal-Surance Benefit Plans, Inc. Both Cal-Surance
and M Advisory Group are independently owned and operated.
cover this daunting obligation as a nation in short order.
That’s the dark secret no politician wants to see put into
sound bites. So most of them, whether they be conserva-
tive or liberal, stump for policies that continue to roll the
debt over with unrestrained borrowing at the central bank-
ing level. The recent federal stimulus package and these
bank bailouts are classic examples. Not to mention the
enormous sum being spent on the War on Terror. Consum-
ers are just now feeling this strain form the latest round of
unprecedented expansion of debt.
By the way, $2 trillion of our reported $9.6 trillion na-
tional debt is owned by foreign governments. These are the
same governments whose domestic industries are getting
fabulously wealthy selling us cheap imports driving the
trade deficit up to over $700 billion. We saw that figure
drop from over $750 billion to near $711 billion recently
because the weakening dollar is driving demand for U.S.
exports. However, unless economic fundamentals change,
expect the long-term trend to continue. This includes mon-
ey supply disappearing at a faster rate as more is needed to
cover the debt, more money being issued without appro-
priate backing exacerbating the debt, citizens screaming,
“Don’t tax us for God’s sake, the inflation is killing us!”
while our political leaders, most of whom don’t understand
this situation very well, are taking desperate actions to en-
sure their own reelections and continue the game as long as
possible (as more debt continues to mount, of course). You
see, when foreign governments step in to save our economy
by continuing to invest in it, they aren’t merely lending to
an insolvent borrower. They are making payments towards
the nation they ultimately plan to own when the borrower
ultimately defaults. Tell me why there is practically no one
in government who considers this an issue of national se-
In this election year, I have no interest in arguing about
John McCain’s age, Barack Obama’s aloofness, Joe Biden’s
hair plugs or Sarah Palin’s lipstick. Let’s get real, folks and
put the puzzle together so we can get some semblance of
Continued from page 29 national consensus and avert the disaster we seem com-
mitted to experiencing. There is too much at stake here to
play games anymore. If any one of those folks said anything
that made me believe they understand this problem and
can propose any reasonable policy that can address it in a
meaningful way, I would vote for them.
David Whitehead is the publisher of Business Insider Magazine.
You can read the full transcript of Richard W. Fisher’s speech posted on the
Federal Reserve Bank of Dallas website at website at: