And their CEO's probably don't take home tens of millions of dollars every year either.

Note how the smaller banks don't have excessive CEO salary and bonus pay outs. I believe it is the management that make "themselves" too big to not fail. These guys don't even have jets or yachts yet.

This is what you recommend as bank policy analysis? A facile shallow survey without any cata or context? Pray tell perhaps your man could look at what loan pricing is relative to larger institutions, or the extent to which small banks have relied on non-deposit resources... Bloody hell.

The local banks are heavily invested in commercial real-estate and construction loans, however. The commercial market lags residential by about six months, and commercial has hardly yet started to fall off the cliff.

So, will this last?

My dad ran a few of these smaller banks over the last 12 years or so. In fact, his expertice was coming in and keeping a badly faltering bank from failing. He did that three times.

He recently explained to me that his banks, and those of similar size, were under heavy oversight and extremly limited in the levels of risk they could carry. At one point, he was traveling from PA to NYC on a weekly basis to meet with the office of the comptroller of the currency explain how the bank was performing so that it wasn't taken over by the feds.

As we all know, these giant investment banks were not under anywhere near the same level of scrutiny and the limits on risk were unexplainably low (allow too much risk).

It's bizarre (in any realm besides the political) that two different segments of an industry would have such wildly differing sets of rules and limits.

Several small banks in Oregon have been hit hard by the housing problems, many of which have been with construction loans to developers.

But, the credit unions appear to be in better shape. Plus, the small CUs and small banks appear to have far better customer service than the Mega banks. Imagine going through a re-fi in Portland and actually speaking with an Oregonian and not having to deal with someone in La Brea, CA, or Texas or North Carolina. Plus, the locals, return one's phone calls and e-mails. Such a concept.

Small banks aren't the only ones doing fine. The Muslim banks and the micro-loan institutions are doing fine as well. It seems that all of the financial institutions that were considered not very profitable are the ones still making a profit. I guess they weren't so stupid after all. Or maybe they were. They aren't getting free money now, after all.

"...Longman and Frank also explain how smaller community banks and credit unions remained solvent and profitable (and continue to make loans) through old-fashioned "relationship" banking, while the Wall Street behemoths were "efficient" mainly at wasting trillions of dollars in global capital..."

Sshh!!! Now all the idle free marketeers will set these banks in their crosshairs...

I and my little local savings-and-loan have taken a lot of grief over the last 20 years because the bank makes very conservative mortgage loans confined to about a 50-mile radius, and keeps them all in-house, staying out of the secondary market.

Like most customers, I know the loan officers by first name, and the bank president himself closed my first mortgage. They go out of their way to renegotiate loans in bad times because they know that foreclosures ensure everybody loses.

That's the kind of old-fashioned, solid business that earns a lot of ridicule in go-go times, but ends up saving the economy's ass when the flyboys crash.

Anyone who is interested in how corrupt, crooked and just plain creepy the financial sector of the U.S. economy has become should read the "Sex, Lies and Mortgage Deals" article in the November 24th issue of "Business Week."

It describes a business environment more suited to the Mafia than a first world nation. Plus it makes me angry all over again at the attempts of certain right-wingers to blame our financial problems on poor people. You know, all those subprime borrowers who should have known better.

The idea that bigger is always better is discredited even in classic economic theory, something about diminishing returns and a limit to the efficiencies of scale. Several years ago, in Fortune magazine, I read an article (by whom, I can't remember) touting that in the emerging economy, flexibility and speed in responding to changing conditions may be more important that size in predicting the success of an enterprise. Flexibility and speed are part of a corporate culture. Maybe, for the smaller guys, it's easier for the culture to adapt.

The president of the small town, locally-owned bank where I did business for many years before moving to another state told me in 2005 that subprime mortgage lending, which his bank did not practice, was going to collapse and damage the whole system. His further comment: "That's going to make it harder for everyone to buy a home and that's not good for our community, for any of our communities."

Something about dinosaurs and small mammals...

I recommend Kevin Philips' "Bad Money"
http://www.amazon.com/Bad-Money-Reckless-Politics-Capitalism/dp/0670019070

In American Theocracy, Kevin Phillips warned us of the perilous interaction of debt, financial recklessness, and the increasing cost of scarce oil. The current housing and mortgage debacle is proof once more of Phillips’s prescience, and only the first harbinger of a national crisis. In Bad Money, Phillips describes the consequences of our misguided economic policies, our mounting debt, our collapsing housing market, our threatened oil, and the end of American domination of world markets. America’s current challenges (and failures) run striking parallels to the decline of previous leading world economic powers—especially the Dutch and British. Global overreach, worn-out politics, excessive debt, and exhausted energy regimes are all chilling signals that the United States is crumbling as the world superpower.

“Bad money” refers to a new phenomenon in wayward megafinance—the emergence of a U.S. economy that is globally dependent and dominated by hubris-driven financial services. Also “bad” are the risk miscalculations and strategic abuses of new multitrillion-dollar products such as asset-backed securities and the lure of buccaneering vehicles like hedge funds. Finally, the U.S. dollar has been turned into bad money as it has weakened and become vulnerable to the world’s other currencies. In all these ways, “bad” finance has failed the American people and pointed U.S. capitalism toward a global crisis. Bad Money is the perfect follow- up to Phillips’s last book, whose dire warnings are now proving frighteningly accurate.

Longman and Frank also explain how smaller community banks and credit unions remained solvent and profitable (and continue to make loans) through old-fashioned "relationship" banking, while the Wall Street behemoths were "efficient" mainly at wasting trillions of dollars in global capital.

Is this a surprise? A small institution is going to have intimate knowledge of every dollar of its assets at a higher organizational (and decision-making) level than a large institution. This is inevitable.

Of course, given how tightly regulated the banking and financial services industries is, one wonders why we don't have public policy that actively discourages dominance by mega-institutions.