Goldline International, Glenn Beck, And Bank Crises: Common Threads

California officials have opened an investigation into Goldline, the stalwart Glenn Beck Show advertiser, favorite of Mick Huckabee and other apocalyptic types. ABC's Nightline picked right up on it and did a report tonight (video above).

This idea of buying gold in tough financial times isn't new. What is new is the high-profile pimping of it on cable news. Not only in ads, but as part of the message like Glenn Beck's "God, Gold and Guns". Using typical scare tactics, Beck recommends buying gold as a hedge against the government's ultimate financial armageddon.

Goldline's business is simple: They buy and sell precious metals, specializing in numismatic gold coins. Investigators are looking specifically at whether Goldline International misrepresents pricing policies on its collectible coins, inflating them when they're purchased and deflating them when they're sold.

Goldline's management team should know about financial armageddon. They were right in the center of one in 1986, when some of them worked for Valley State Bank's Collateral Loan Division.

Valley State Bank

Two of Goldline's executive team -- Mark Albarian and Joel Gabrelow -- were officers of Valley State Bank's Collateral Loan Division from 1984-1986. Gabrelow was also Vice President of Numismatic Lending at West Coast Bank.

That time frame is, of course, when Savings and Loan Associations melted down across the country in a foreshadowing of the 2008 banking crisis. While Valley State Bank and West Coast Bank were not S&Ls, they did loan funds based on the value of numismatic coins. A 1987 article from the Los Angeles Times concerning an employee who embezzled a large amount of money from this division also has a description of their lending practices:

Unlike many banks, Valley State regularly lends money to investors who buy rare coins or metals such as gold, platinum and silver. Either the bank or another institution holds the metals as collateral until the 180-day loan is paid off.

The writer understates how rare it was for any bank to use numismatic value of rare coins or metals as loan collateral. Of course, in order to loan on numismatic value, the bank had to have "experts" in valuing rare coins. The article continues with this:

The bank continues to lend money in precious metals, the bank chairman said. "We have no problem with the lending part of the business. It's a growth area of the bank," he said.

Valley State Bank, which has six branches, has had its share of financial problems. It lost $1.7 million in 1985, its worst performance since opening in 1979. In 1983 and 1984 the bank lost a total of $976,035.

Ultimately, the bank was acquired in 1987 after being placed into receivership by the FDIC. Albarian and Gabrelow moved on. Instead of staying on the lending side of the business, they set about making a market for those precious metals and numismatic coins they'd let Valley State Bank use as collateral for loans by starting up a business to buy and sell those assets.

In a 1987 article, the demise of Valley State Bank is laid bare. The story reads like it was written in 2007.

In many ways Valley State's failure was symptomatic of the deregulation of the banking industry. Banks now have greater freedom to expand into new businesses. With that freedom has come an avalanche of failures: 601 banks have failed in the United States this decade. Valley State was the seventh bank in California to fail this year.

See if this story sounds familiar:

By the time Huppert arrived as president in 1983, Valley State had started expanding, and it was having a hard time meeting costs. He faced two choices: cut back or try to grow in a hurry. "I had no choice," Huppert recalled. "I found myself with an Encino branch of $6 million in deposits and about $2 million in loans. That doesn't even pay for the lights."

The bank went on a lending binge. As the loan portfolio grew--from $36.6 million in 1983 to $96 million in two years--so did the bad loans.

And along comes our coin experts to make some loans!

Huppert also steered the bank into the precious metals business, lending to consumers who purchased gold, silver and platinum. Valley State worked with telemarketing firms who sold customers on precious metals and then recommended they take out a loan with Valley State.

At least two of the telemarketing firms are under investigation by the state of Minnesota, which has a reputation for strict securities regulations. A number of customers have also filed suits against Valley State, claiming they were misled in their purchases.

And, in a finale of fraud, there's this:

The FDIC has said that Valley State broke federal truth-in-lending laws by failing to disclose all of its fees to precious metals customers. And, in an internal report, the FDIC also said that Valley State had only a fraction of the metals it was supposed to be holding for customers in its vaults. Diana Sherwood, former head of Valley State's precious metals division, denied the charge.

As if that weren't enough, Valley State Bank also loaned $800,000 to Ferdinand Marcos' ex-mistress Dovie Beams de Villagran and her husband Sergio, who bilked banks out of $18 million in bad loans between 1984-1985.

Oh, and the first Valley State Bank president, O. Monroe Marlowe, scammed elderly folks out of $3 million dollars. Nice crowd of people, eh?

So what?

This whole 'guns, God and gold' line is a scam, and it follows straight down the lines of the scams in the S&L days. Here are two guys tied straight into one of the few banks that collateralized precious metals and numismatic coins to make stretchy loans in order to boost their balance sheet and deposits. They built the pyramid, then when it crashed, they stepped outside of it and capitalized on investors' need to liquidate the coins they'd used as collateral.

They stepped out and made a market, and I'm willing to bet that market included bank customers who had borrowed against their coins and metals at one time or another.

Is it illegal? No. I'll leave their pricing schemes to the federal and state investigators and courts to decide. But to have Glenn Beck and Fox News commentators (and former Presidential candidates) shill using scary music and apocalyptic language to sell viewers on investing? That may be. And if it's not, it's certainly immoral.

It's the same scheme and the same people every time. In the 80s it was Savings and Loans as well as deregulated banks. In 2007, the party started in the 1980s led to where we are today.

The only difference is the so-called 'guardians of liberty' like Glenn Beck, Mike Huckabee, and Fred Thompson hawking their toxic snake oil day after day after day to unsuspecting Fox-drunk viewers.

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