Markets Indicate Growing Concern of Potential Bankruptcy By Some States

The credit default swaps of 5 states are now trading at over 100.

Michigan 192
California 165
Nevada 164
New Jersey 150
Ohio 104

These are not total panic levels, but they are very high. It shows increasing concern about holding paper from these states.

Credit default swaps are often used to manage the credit risk (ie the risk of default) which arises from holding debt. Typically, the holder of, for example, a government bond may hedge his exposure by entering into a CDS contract as the buyer of protection. If the bond goes into default, the proceeds from the CDS contract will cancel out the losses on the underlying bond.

For example, a pension fund owns $10 million of a five-year bond issued by Country X. In order to manage the risk of losing money if Country X defaults on its debt, the pension fund buys a CDS from Derivative Bank in a notional amount of $10 million. The CDS trades at 100 basis points (100 basis points = 1.00 percent). In return for this credit protection, the pension fund pays 1% of 10 million ($100,000) per annum in quarterly installments of $25,000 to Derivative Bank.

John McCain's Son Resigns From Board of Nevada Bank

Silver State Bancorp, a Henderson, Nevada-based holding company for the similarly named bank, reported that Andrew McCain, son of Republican presidential candidate John McCain, resigned today from the boards of directors of the bank and bank holding company.

The company cited “personal reasons” for McCain’s resignation, and a Silver State spokesman declined further comment.

Prominent libertarian writer, Douglas E. French, formerly Executive Vice President of Commercial Real Estate Lending at Silver State Bancorp, resigned from the bank for "personal reasons" in May.

Apparently, the personal reasons virus bug has hit Silver State Bancorp big time. Keep an eye out for more news from Silver State to better explain just why this virus is hitting now. From a high of $26 in January 2007, the stock has traded down to a Friday closing of $1.28.

The resignation of French has been controversial. Over at Google Finance one poster writes:

Having noted Mr. French’s “resignation” for “personal reasons” following his sale of Silver State Bancorp shares valued between approximately $15 and $10 in the November, 2007 to February, 2008 period, one has to wonder (as the stock now sits at $2.50): “Wasn’t that unconscionable insider trading?”

Does the company have anything to say on the topic?

Two other posters counter:

Doug French over the past 10 years has made more money for Silver State Bank than the rest of the lending staff combined. Just over 2 years ago this bank was producing an ROE of over 30%. Corey Johnson, the CEO, has been in charge just over 2 years and along with COO Micheal Treet they have totally ruined this bank. Check the RJ records and you can find Johnson smugly telling the RJ two years ago that he
was going to turn Silver State Bank into a "multi-state regional bank holding company" blah blah blah. Soon after Johnson expanded into Arizona, got himself and his minions (with the exception of French) covered under Million dollar golden parachutes, moved the company's executive offices to plush new space at "the District", came out with a botched stock offering, then came out with a botched "stock repurchase", then somewhow managed to be 90 days late reporting the
bank's real estate loan problems when compared to the other banks in the SAME market, and now he's asking the"bagholders" to cough up more money. With a track record like this I can't imagine not giving these guys a big raise!! Oh wait, they also got big raises back in December along with their big bonuses. Guess they had to throw French under the bus, but hey, Johnson and Treet are still knocking back their big salaries for a job well done! Wish I could get a job like that.

and

SOUnds like your familar with this group. Not only did they throw Frenchy under the bus, they backed up to make sure they got him. It's actually insulting to anyone who has been privy to the inner workings goign on at Silver State Bank when the press release states that French resigned. Make no mistake, he was fired !!!!

French received total compensation of $ 652,364 in 2007 and $ 604,287 in 2006. Compensation was a combination of salary, bonuses and incentives.

Filings with the SEC show French initially owned 289,900 shares of Silver State stock. According to the most recent filings, French has sold all but 121,700 of the shares he held for net proceeds in excess of $1,700,000.