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A recent story in the New York Times is worth a close read to help explain why the credit crunch created by stupid banks is trickling down into other areas.

What disheartened me most about this story was the affiliated relationship between the bank and the broker. The banker was trying to help but also motivating the charity, their customer, to stay in the family. I can’t think of a single bank these days that does not have a similar arrangement.

Anyway, take a few minutes to read this excerpt and then the full story on the NYT site.

Excerpt from The Debt Crisis, Where It’s Least Expected.

“The Wish Fund’s foray into mortgage securities began in June, when Terry Ceaser-Hudson, the executive director, consulted her local banker, Steve Perius, about certificates of deposit coming due in the charity’s account. She said the banker, with whom she had done business for 20 years, suggested that she invest the money in a bond fund offered by Morgan Keegan. The firm is an affiliate of her banker’s employer, Regions Bank.

Ms. Ceaser-Hudson’s banker put her in contact with a Morgan Keegan broker to help her make a decision. Mr. Perius did not return a phone call seeking comment.

“I thought I was making a lateral move from the C.D.’s into this fund,� Ms. Ceaser-Hudson said. “The broker said he’d put some thought into this and he had something perfect for the Wish Fund that was extremely safe.�

That broker was Christopher Herrmann, and when Ms. Ceaser-Hudson met him at her banker’s office, she quizzed him about the risks in the Regions Morgan Keegan Select Intermediate Bond fund, which he recommended.

“The first thing I said to him when I sat down was, ‘I want to make sure that I understand this: you’re telling me that this is as safe as a money market or C.D., because we cannot afford to lose one single penny,’â€? she recalled. “He said, ‘This has been good for years,’ so I thought, ‘O.K.’â€?”

Read the full story here.

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Steve

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