LandAmerica Shows Us that the Treasury Doesn't Approve of Ponzi Schemes... Maybe?
Oh LandAmerica, why must you be so fascinating?
First of all, I guess I should thank Richmond Fed (gasp!) for hiring LandAmerica's ex legal counsel as without that particular press release, I may not have noticed this amazing little story and I feel it appropriate here to disclose that I really get a kick out of these sorts of things. (you can read more on our thoughts over at Going Concern) Thankfully I've also got some amazing sources who make this adventure all that much more interesting, so after tipping our hat to Richmond Fed for making a terrible hiring decision, it's only appropriate to blow xoxoxos to our sources for their insight and usefulness. Win-win all around, really.
Anyway, see my July 29th The Good, the Bad, and the Less Bad for Richmond Fed if you have some catching up to do.
I also appreciate that Richmond BizSense will just not let this story die. LandAmerica creditors miffed by new Fed hire set me off and I have not been able to avert my baby blues from the car crash ever since. For this particular rabbit hole, it never seems to end (and that's most certainly a good thing because Wonderland, er, Bizarro World has some stories to tell and there's no way to get to them without leaping head-first into the melee).
Lucky for the Treasury (though perhaps not so lucky for our friends at FRB Rich), perhaps they had an unusual moment of foresight when LandAmerica went banging down their door for some TARP cash:
[I]n early October, LandAmerica, whose headquarters is only a mile or so from S&K, sent then Treasury Secretary Hank Paulson a letter pleading for a loan to help the company pay customers of its 1031 exchange business. The company could not access investments called auction-rate securities that were frozen because the market for them dried up. That problem forced LandAmerica to file for bankruptcy in November.
That letter, which you can read in full here, has become public as part of LandAmerica’s bankruptcy case.
Wrote Ted Chandler: “If LandAmerica cannot immediately translate its auction rate securities into the cash necessary to fund such 1031 real estate transactions, hundreds of innocent businesses and individuals will be needlessly harmed, hundreds of scheduled real estate closings will not occur and there will be a further erosion of public confidence in local real estate deals that are critical to re-building the American economy. Moreover, the ultimate result of LandAmerica’s present inability to sell auction rate securities in its portfolio could be a disastrous chain reaction that would cause customers to cease doing business with it and in state regulated insurers.”
Chandler also wrote, “Although LandAmerica continues to seek financial liquidity alternatives in the marketplace, LandAmerica must conclude at this point that immediate federal assistance under the Emergency Economic Stabilization Act is the only practical means of meeting in good fait to its many customers … Consequently, LandAmerica respectfully requests tat the Department of the Treasury provide essential capital liquidity to our company by either direct purchasing or lending against the $290 million of federally-backed auction rate securities that are currently undermining our ability to keep operating.”
The Treasury apparently refused to lend the company money. Peter Kolbe, a government relations consultant who worked for LandAmerica, said he couldn’t comment because he is contractually obliged to LandAmerica.
(via Richmond BizSense)
This of course begs the question: What did the Treasury know that LandAmerica's 1031 exchangers didn't at that time? I point dear reader to this list of banks that received TARP cash as of May 20th but I warn you, the list will crash your mobile browser and probably your PC as it is so long and extensive. That fact alone should be enough to raise more than just one or two red flags, no?
Curiouser and curiouser!
Like Richmond BizSense, I refuse to let this story die. Besides, it gives me a great excuse to talk about my favorite Fed bank, secretly hoping Richmond Fed realizes that they've gotten themselves in over their heads (hello, Fedgate anyone? Perhaps Ken Lewis would like to weigh in on this also?) but that it's not too late to do the right thing and force Gluck to the pulpit to confess her sins. If not, I'm afraid I might have to knock Richmond's Jeffrey Lacker down a notch and give Dallas Fed's Fisher the coveted "JDA's Favorite Fedhead" distinction. Come on Richmond, you don't want that, do you? Neither do I so hurry up and get it together. Please.
I especially found the line about "we'll call our friends in Congress to hook it up if this plan doesn't work" from LandAmerica's Government Affairs Counsel to be entertainment.
The saga rages on. And the Treasury might have some 'splainin to do.