The Riverboat Gamblers

68 banks failed in Florida during the past five years. From 1994 to 2008, more than 230 new banks started in the state. This ramped up competition for customers and experienced staff.

"There were just too many banks," said Hudgins, who now serves as chief credit officer for First National Bank of the Gulf Coast in Naples, "and not enough really good bankers who had been in the business for 25 to 30 years and had experienced all the different kinds of crooks and what they can do to you."

With fewer and fewer options, some bankers turned to borrowers with bad credit, past jail time or clear evidence suggesting they would never make good on the debts. In many cases, making loans to people with questionable backgrounds was a conscious business decision, according to Bill Black, a University of Missouri professor and former Savings & Loan regulator. It was a strategy used by banks and thrifts during the run-up to the Savings & Loan crisis of the 1980s and early 1990s, Black said. This allowed lenders to make more loans and book higher profits than they might have through the more arduous task of finding credit-worthy borrowers. "Making money in banking is really hard," Black said. If a bank wants to grow by making good loans, it has to seek borrowers with the best credit histories and compete for their business by offering the lowest possible interest rates. But if a bank focuses on making loans to borrowers with poor credit, it can charge much higher rates and will not face the same competition. "If you make really crappy loans and charge a premium to people with nowhere else to go, you can make money really fast," Black said.

At least half of Florida's community banks failed because their leaders were greedy, arrogant, incompetent or sometimes corrupt, a Herald-Tribune investigation found. The newspaper obtained previously confidential state records that show how failed bankers broke the law, manipulated financial documents and gorged themselves on insider deals.

Banks lent more than $400 million to borrowers convicted of crimes, indicted by federal prosecutors or dogged by a past bankruptcy. Each loan went into default. Florida Community Bank, for example, lent $8 million to a company partly controlled by Leonard Mercer, identified by New Jersey law enforcement as a "front man" for the "Little Nicky" Scarfo crime family.

In the Panhandle, Coastal Community Bank bought an insurance company from the chief executive's son and sold it back to him three years later at a $900,000 loss.

In Port St. Lucie, the adult children of Riverside National Bank's chief executive borrowed $3.8 million. The bank wrote off the losses when they did not repay.

At First Commercial Bank of Tampa Bay, employees were so fearful of the chairman that they met privately with state officials and told them of secret dealings, altered documents and questionable loans.

Bankers ignored a declining real estate market and warnings from regulators to slow down. They made some of their biggest loans after the slump took hold, and provided borrowers additional cash to keep up with their payments. Sarasota's Century Bank lent more than $70 million to just 10 borrowers in late 2006 and early 2007. One of these borrowers had already spent time in prison; three others would later do the same. All of those loans went into default.

 Thirty-four of the 68 banks broke federal or state laws, ignored repeated warnings from regulators, had high amounts of insider loans or made risky bets on customers who clearly couldn't repay their loans.

Twenty-one banks engaged in some form of insider dealing. Although these transactions were not illegal, they raised questions from regulators about conflicts of interest. Banks leased property from executives, bought cars from dealerships owned by directors, provided jobs for relatives and subsidized sister companies owned by insiders. At Ocala National Bank, directors started their own mortgage company, lost $1 million and persuaded the bank — by threatening a lawsuit — to pay them off.

Eighteen banks paid a dividend to investors during years they lost money. Essentially, these banks were giving out cash that they could have used to cover growing problems created by foreclosures and the collapse of the housing market. Naples-based Orion Bank paid out $28 million in 2007 — the same year it lost $6.1 million.

Only three people have been charged with crimes related to their banks. Orion CEO Jerry Williams was imprisoned for lending money that was later used to buy stock — a practice meant to fool regulators into thinking a bank has more capital than it actually does. Four other banks — Florida Community Bank, First Priority Bank, Lydian Private Bank and Community National Bank of Sarasota County — were accused by regulators, shareholders or employees of similar behavior. No one has been prosecuted.

"Bankers operated like riverboat gamblers," said Jack McCabe, a Florida real estate consultant. "They threw caution to the wind to prop up their bottom lines. The country suffered, but very few have been brought to justice."

Top financial regulators vow to give bankers more freedom. Gov. Rick Scott has cut 10 percent of employees in the Division of Financial Institutions and is closing half of the regulatory offices across the state.  Now the state's top banking regulator says there is no need to get tougher on the industry. " ‘Tougher' is a hard word to use because we do live in a free-enterprise environment," said Drew Breakspear, the state's top regulator."Bank and other financial regulators must change so they do not stand in the way of banks."Instead of blaming  bankers, Breakspear attributed the failures largely to homeowners who were "out of their league in terms of their spending habits." However,  most Florida institutions went under because of multimillion dollar loans to real estate developers — not to average home buyers.

 Peninsula Bank lent millions to developers whose behavior should have raised red flags. The bank's growth was fueled by loans to people with questionable ethics or past financial problems.A property flipper who later went to prison. An attorney suspended three times from the Michigan bar. A builder sued four times for copyright infringement. And six developers with a past bankruptcy. None of those people would ever repay their loans. A money launderer moved cash in and out of its vaults. A jury found that it lent $10 million to a man running a Ponzi scheme. And during its final months, state examiners say a director accused the CEO of using accounting tricks to hide information from regulators.

The federal government report by the Financial Crisis Inquiry Commission borrowed a quote from Shakespeare when it came time to assign blame for the financial crisis:
"The fault, dear Brutus, is not in our stars, but in ourselves."