How to Help Eastern Livestock’s Victims
Feb 07, 2011
Editorial opinion: USDA should be required to cover Eastern Livestock’s bad checks at least enough to offset the agency’s failure to fulfill its legislatively-mandated oversight of the company’s bonding requirements.
It looks like it will take Congressional action to get that done. USDA shows no signs of following up on early promises to make special credit available to those victimized the Eastern’s failure to pay for cattle.
I don’t think the government should be responsible for subsidizing producers’ mistakes. But, if P&S were a private entity that had promised to police bonding, and had dropped the ball this badly, it would be liable. I suppose the government isn’t legally liable because it’s the government. But it is morally liable. When you promise to do something, whether that is pay for a load of cattle or oversee bonding regulations, and don’t, you should pay up.
That’s just my idea, but I think it’s only fair. Those people trusted P&S.
Short of something like that, things look pretty dim for the hundreds of producers, truckers and auction markets holding worthless Eastern checks.
Two of Eastern’s hardest hit victims—Jim Odle of Superior Livestock and John Queen, a former NCBA president and an owner of Southeast Livestock exchange—were among speakers at NCBA’s Live Cattle Marketing Committee last week in Denver.
Both suggested that those left with hot checks when Fifth Third Bank shut Eastern down should take action against the bank.
“That’s where your money is,” one committee member said. “Eastern’s broke.
They think the bank’s officers knew for a long time that the country’s largest cattle buying firm was in trouble and they suspect bank officials timed the legal action to coincide with the biggest cattle marketing week of the year in order to “trap as much money as possible” in their bank.
By forcing Eastern into bankruptcy, Fifth Third got first claim on all assets—leaving people holding hot checks with no recourse but the company’s bond.
One of the committee members suggested that the best chance cattlemen and others holding hot checks might have of getting anything meaningful might be a class action suit against the bank, forcing officers to testify about the factors impacting the timing of their decisions.
Beyond that, the committee and NCBA itself, in the final board meeting, renewed the call for USDA to treat the bankruptcy as a “disaster” and make low interest loans available to the victims.
One committee member from the Southeast told your reporter that some of his neighbors had delivered their whole calf crop to Eastern and were holding nothing but worthless paper.
“Their bankers are saying ‘let’s hold off on more loans until we get this sorted out.’"
The trouble is, it looks like even when things are “sorted out,” those folks will be very little better off unless something happens. They’ve been defrauded, and there seems little chance they’ll ever get all their money back. A loan—no matter how low the interest—is a far cry from fair payment—especially for the typical cattle producer in his 60s.
But it would be better than nothing, I suppose. The directive adopted by the committee and full board says that USDA said shortly after Eastern’s problems became public that it would work to make low interest funds available to the victims, but has not yet done so. NCBA directed staff to “work aggressively with members of Congress and appropriate federal agencies to immediately make funds available at low interest or no interest….”
The association also wants congressional investigation of the P&SA’s auditing procedures on auctions and dealers.
That’s all fine. It just isn’t enough.
I’m not sure of all the math here, but Van Dewey of Rabo Agri-Finance pointed out to the committee that Eastern’s purported $2 billion in annual sales amounted to $2.9 million per day. Had their bond been enough to cover 2 days’ business, it would have been nearly $6 million rather than the $875,000 it actually was.
Given the fact that they were apparently floating checks for 10 days or more before the crash, that $6 million probably would still contribute a mere pittance to the victims, but it would at least be a larger pittance.
Your reporter is not big on government interference. But this was as much a “man-made disaster” as any of the “natural disasters” USDA typically recognizes. In this case, at least part of it was because the government wasn’t doing what it was supposed to do; what all those producers and truckers trusted it to do.