This page contains a single entry from the blog posted on May 25, 2010 10:12 AM. The previous post in this blog was Goodbye, cruel world. The next post in this blog is Rip City. Many more can be found on the main index page or by looking through the archives.

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Tuesday, May 25, 2010

When cash was king, they were Kings of Cash

We've got a few bucks (alas, nothing to write home about) in the Columbia mutual funds, and in that capacity we've been getting notices lately telling us that most of those funds are in the process of being sold. Bank of America, which has owned them for a few years, is shipping them off to an outfit known as Ameriprise. B of A (slogan: "We've got the City of Portland by the grass roots") is keeping only the Columbia money market fund, which it's renaming after B of A.

Knocking the Columbia name off the money market fund brings an end to an era that saw its heyday nearly 30 years ago, when inflation was running rampant and interest rates were sky-high. When we went to sign up for our first mortgage in 1981, the interest rates being charged for a 30-year home loan were in the neighborhood of 16%. The prime rate that year was higher than 20%. Smaller financial institutions -- there were a whole cohort of them operating in the format of "savings and loan associations" -- couldn't survive in that environment. They were collecting tiny rates of interest on home loans that they had made years before, but when they needed cash, they had to pay much higher rates. And the rates they were offering depositors weren't anywhere the prime, and that didn't exactly bring moms and pops rushing in to park their money there. It was a downward spiral.

Meanwhile, here in Portland, a guy named Jerry Inskeep and his partner Jim Rippey had a small group of mutual funds, named Columbia Management, including a money market fund named Columbia Daily Income Company, which was paying double-digit rates of interest. Founded in the 1970's, it was one of the first money market mutual funds in the country. The minimum investment wasn't all that large, and so schoolteachers, secretaries, salespeople, firefighters, and other everyday Joes and Janes pulled lots of their nest eggs out of the banks and S&Ls and turned them over to CDIC. It was all the rage for several years, until the money markets finally calmed down and rates gradually came back down to earth.

The Columbia brand kept expanding, branching into an ever-larger group of mutual funds, which was eventually sold for $460 million to an East Coast outfit named Fleet in 1997. B of A took them over in 2004. Until now, the funds all retained the Columbia brand, and in fact Fleet renamed many of its own funds after Columbia as well.

Inskeep and Rippey retired, made men many times over, and have given much back as philanthropists. Inskeep died last summer, but apparently Rippey's still alive and kicking, giving gazillions to the U of O.

Ah, the 16% mortgage. Those were the days, kids.

Comments (5)

I had an account in a Columbia mutual fund back in the early 1990's. Unfortunately, it was after they were a top performer and had reverted to the mean.

My wife tells me of buying t-bills in 1981 at the Federal Reserve building in Los Angeles that paid 18% for a six-month period. If she had been blessed with foresight (which virtually no one was), she would have bought the 30-year bonds paying a mere 13%, and which would be finally ending their glorious run next year.

Great memories about a Portland institution. I had my money in Columbia fund and then it went to Fleet. No longer a Portland business and also it wasn't doing so well financially. So I took my money elsewhere. Thanks for telling the back story here.

"Ah, the 16% mortgage. Those were the days, kids."

We may be seeing those again sooner than you might think.

Funny, I had my first mortgage in '81. Complicated deal. We assumed the sellers' first mortgage at 12.5%, the sellers' second at 18% (yikes) and took a third mortgage directly from the seller at 10%. Because of the dollars owed on each the first and second, the assumption was better than getting a new mortgage. The sellers took out a second to finance the building of their new home. And we had to put 20% down on the place. The day we moved in I sat on the staircase and wondered if we were in over our heads. We weren't.

But the loans that were made leading up to the financial meltdown would have been far better served by bigger downs and tighter credit.

Ah yes, those were the days. The first mortgage at 14.1 percent APR and a home bought after the double dip recessions of '81 and '82. Though those transactions may have seemed a leap of faith at the time they really weren't because the excesses had been wrung (through the recessions) and continued to be scrubbed (through tight monetary policy) out of the system.

Now what do we have to look forward to, with the Fed holding over a trillion dollars of Fannie and Freddie bonds on its balance sheet (purchased by virtue of an electronic entry) and the Treasury standing behind trillions more of the Freddie/Fannie mortgage holdings as part firm owner and full-firm guarantor? The wild ride ain't anywhere near over yet.

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