Remember growing up, there was always one kid that had to have his way? If the ball game wasn’t going his way, he would threaten to storm off, and take the ball with him. It put the other kids in a tough spot; work with the kid, or cancel the game and go home.

It is sad to say but those behaviors are playing out today and not on the playground but in our local banking industry, and what’s at stake is not a ball game, but the region’s prospects of recovery.

Let me share with you what we are seeing.

Starting a few years ago, local banks went on a loan-approval spree, doing deals with real-estate developers at record levels and approving real estate loans at record numbers. Developers courted bankers and bankers excitedly approved loans, buying into the developers’ visions of great profits.

For a period, it seemed as if every developer in town had unfettered access to capital from community banks, and these banks started feeling good about the loans and the anticipation of big profit.

What the banks found, of course, was that Shakespeare was right: All that glitters is not gold.

The mood of those bankers is a great deal more somber today, and many of those golden fields of investment opportunity are now fallow. The builders, hamstrung by the current economic conditions, are handing the keys back to the banks. The banks, in turn, wholly ill equipped to own property, are posting these properties and projects as losses on the books.

Yesterday, we met with a local banker who is holding a portfolio of troubled real-estate projects. We wanted to discuss the possibility of buying some of these properties and moving the projects forward. We thought the bank would be very receptive to moving these real estate loses off the books.

As my partner Jeff and I found, this banker - and many like him - is filled with anger.

On one hand, we understand the anger. This CEO, like thousands across the country, was enamored with the prospects of an upswing in the economy, but paid little heed to the possibility of a downturn. Now the bank’s balance sheet looks as red as a slaughterhouse floor, and many of the bankers - our guy included - don’t know how to fix it.

Compounding the problem are the regulators peering over banks’ shoulders, telling the banks to get the house in order, or face federal action.

I don’t know if our banker experienced the tough-love of the FDIC, but I can project that his world is certainly different than it was a few years ago. He most likely has employees expressing concern about their jobs, and investors and customers pinging him about the long-term stability of the bank.

Regardless, you, the CEO of a small north end bank, must now defend yourself from all quarters - customers, the board, federal regulators and employees.

To make matters worse, company stock is so low it seems like your life’s work is in shambles and perfectly timed with horrible synchronicity with the sunset of your career. At the end of the day, you are simply angry. Angry with your borrowers, angry with your customers and angry that you let this all happen.

Who knew that lending $150,000 to a builder to buy lots would end with a 50 percent write down?

This anger is what we witnessed in our meeting. It is that anger that we hope does not cloud a turn-around for the Puget Sound’s real-estate market.

If you are the banker in this scenario, it’s time to get past the anger and view this as an opportunity. There are buyers who want to take property off your hands and treating these buyers as potential problems solvers can make a world of difference.

Our advice - don’t put yourself in a situation where the phone stops ringing. You don’t have to take the first offer and if you don’t like a potential buyers price say no, but leave room for negotiation. Don’t take the ball and leave the game.

Today we’re straying from our usual local investment topics and looking at our distant neighbors to the west, the Chinese.

Last week, a great article ran in the Wall Street Journal, China Inc.’s Top Deal Maker Provokes a Backlash Abroad. I started thinking about the idea and benefits of cheap labor and China’s changing role in our global marketplace and thought it was a good opportunity to share my thoughts.

Today I’d like to breakdown my thoughts on the emerging commerce leader, look back at the country’s business decisions and talk about the role of the U.S. in helping China country build its strong foundation.

There’s no denying it – China is on a roll. The country’s low-cost manufacturing is a powerful force in our global economy. As a result, its export business is huge. Behind the scenes though, there are more problems than America investors realize. In the eyes of the Chinese government, the U.S. is considered the role model for global commerce.

Yet, from the outside looking in, we see the Chinese as rich, powerful and an unstoppable force. However, the truth behind the Chinese engine of commerce is that it is unsustainable. China has limited natural resources. This includes raw materials like steel, gold, silver, copper and other natural resources that are simply undersupplied in China.

The country’s biggest advantage is abundance of cheap labor. That cheap labor will soon cost more as the Chinese workforce becomes more educated, opening themselves up to better and more career opportunities.

Today, China is on a massive and urgent land grab to buy into companies that own limited natural resources. Time is of the essence for the Chinese government as the country needs to acquire companies that can supply natural resources now, while it has the financial capacity to do so.

The Chinese government is in the midst of doing just that. In 2008, China invested billions of dollars in natural resource companies and is doing so at an even faster pace in 2009.

As China continues to acquire natural resource companies, it also holds its capital in U.S. Treasury Bonds. Even now, China is the largest owner of U.S. government debt in the world. That might worry some of us, but we should also have pride in the fact that China sees us as a safe place to keep its money.

This same cycle of labor and development of education and commerce occurred in Southeast Asia in the 1980s and in Japan decades earlier.

In those areas, the cost of manufacturing products became more expensive due to a more educated workforce and eventually, manufacturers had to find another region of the world to build products. My generation can remember when “Made in Japan” meant cheap plastic toys that broke. However, merely one baby-boom generation later and now Japan is known for Sony, Nintendo and its leadership in robotics.

I believe a decade or more from now, we will worry about another country gaining prominence and power. I have no idea which country that will be. My bet would likely be somewhere in the Americas. The great worry in the minds of most is usually misplaced.

Economists, journalists and business leaders can signal our loss of influence as they have done so many times before as much as they want. My belief is that they will again be proven wrong and likely in the not-so-distant future.

It is going to be a long, hot summer here in Seattle, and unfortunately, I am not talking about the weather – I am talking about our local banks, and more generally, our local economy.

There is an old saying that bad loans are made in a good economy, and by all indications many of our community banks did just that, and now find themselves in fine predicament. Here, and across the country, we are hearing the tattoo of calculator keys as bank management teams try to find a way out of the mess they created.

On one side of the equation, these banks have loans on the street that are getting more and more surly especially among the banks whose execs were taking developers out to lunch the past three years. On the other hand, these bankers have regulators leaning over their shoulders, whispering in their ears that if they don’t get their house in order, fast, they need to hand over the keys.

On the development side, things are equally grim. What once were slam-dunk, ducat-clocking deals are now anchors, dragging developers and limited partners underwater.

Six months ago, we heard these developers quietly asking their bankers if they knew of potential partners who might like a piece of the action. Today those whispers have climbed in volume and frequency to, in some cases, screams for a lifeline to keep their projects going. For these developers, what was a financial haircut a few months ago today looks more like a beheading.

We saw banks announcing more losses in April then they did in January. We project that this trend will continue, and the losses will escalate through July and possibly get even worse in October. Those who don’t report significant blood loss will be from the banks whose chief credit officers were proactive and convinced their board of directors to take the losses sooner rather than later.

On the homebuilder front, things aren’t looking good either. Any builder who purchased land prior to 2005 is most likely underwater, and nothing can change that. They can turn to their banker and try to refinance their loans, but nothing can make a group of housing lots worth anything more than they actually are. The only way home developers can make money today is to snatch up distressed lots, build smaller houses and offer them at significant discount to other projects in the same area. In deference to filmmaker Paul Thomas Anderson, there will be blood.

For investors, there may be some immediate opportunities for those with the stomach for risk, and the ability to capitalize. While individual investors might do well by purchasing rental property or a deeply discounted condominium, we believe these folks could be the next victim of the recession. Carrying the note for a low-end $200,000 Belltown condo while waiting for the housing market to return could be a big drain.

Where we do think opportunities exist are in broken housing developments, deals in which investors can go to the banks – the ones dealing with the chanting regulators and mewling developers– and offer cash money to take the projects off their books. There is upside for investors who take possession, finish construction quickly and efficiently and market the properties at prices that entice renters to buy again.

The same approach works for multi-family as well. For investors or investor groups that can purchase distressed condominium structures and convert them to apartments, they could see attractive returns if done properly, while we wait for the economy to rebound whether that occurs tomorrow, or many years from now.

We are working on these strategies now for our Lakeside clients. We are speaking with borrowers who need capital and have strong security to offer in exchange. Our goal with these real-estate deals is to invest when we can produce an annualized return on investment over the life of the project of at least eight to 10 percent to our clients.

Later this month, you will hear more about a new approach we are employing around lending so investors have a choice of lending directly in a particular property or within a pool for a more diversified approach. Look for more information in the coming weeks.

We are also working on several opportunities to take equity positions on your behalf in high quality real estate opportunities. We may not have suffered the decline others experienced in that market but we certainly intend to reap the benefits of an eventual recovery.

Finally, the belt-and-suspender team here reminds me to tell you that we are not making an offer of any securities or investment opportunities with these communications, nor are we giving specific investment advice tailored to your situation; our goal is to simply offer our views of the local and national economy, and to keep you abreast of our work here at Lakeside.