“The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank FSB, starting next week, the Office of Thrift Supervision said in an e-mail yesterday. The regulator blamed U.S. Senator Charles Schumer for creating a “liquidity crisis” after a letter on June 26, in which he expressed concern that the bank may fail,” according to Bloomberg.com.
What did Schumer (pictured above) have to say for himself?
“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Schumer, a New York Democrat, said in an e-mail yesterday. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.'”
And the story gets even worse: The failure will cost the federal deposit insurance program about $4 billion to $8 billion, the FDIC said. Some $1 billion of uninsured deposits are held by about 10,000 customers, the FDIC said. Those depositors will get an “advance dividend” equal to half the uninsured amount, according to the statement.
If Schumer knew that IndyMac was already in distress, his comments were especially irresponsible.
IndyMac is just the tip of the iceberg. The next domino to fall might be giant banker Wachovia. “Moody’s Investors Service on Thursday said it may cut its debt ratings on Wachovia Corp (WB.N: Quote, Profile, Research) after the bank said it expects a second-quarter loss of up to $2.8 billion,” according to Reuters. And Wachovia just hired a new CEO – after the last one quit as the bank was busy losing a ton of money.
And now Fannie Mae and Freddie Mac are also in trouble. “Shares of the government-chartered mortgage finance giants plummeted Thursday and are trading at levels last seen in the early 1990s. If the prices don’t recover, it will be harder for the two companies to raise more money through stock sales to compensate for losses from the housing bust. Investors are afraid their stakes will vanish if the government is forced to rescue the companie,” according to the Salt Lake Tribune.
All of this is bad news for the people of this country and even worse news for GOP presidential nominee John McCain. The public is going to blame President George W. Bush. And then they are going to vote for Barack Obama rather than hand the baton to another Republican. Will Obama pull us out of this mess? Probably not. But the public will want change at the top – not another lame Republican. And McCain does not inspire confidence. Frankly I find him disturbing.
Presidential politics aside, Senator Schumer ought to be ashamed of himself. But I doubt he is.
Bloomberg is often used as a biased political rag, dressed up as an economic magazine. Always err on the side of The Economist on any given issue. 😉
Sites like “Calculated Risk” serve up facts and challenging discussions on the economy and business. Here’s their link and subsequent discussions about the IndyMac situation. Please note that there is also a direct link to the actual IndyMac Bank’s Corporate Blog (IMB) that details out the correspondance between IndyMac and Schumer as well as to their stockholders.
http://calculatedrisk.blogspot.com/2008/06/indymac-schumer-caused-minor-bank-run.html
Here is another excellent source for FACTS and relevant news at the Daily Reckoning:
http://2cents.dailyreckoning.com/viewtopic.php?t=32082
IndyMac Bank Seized – 2nd Biggest Ever Bank Failure In USA
Blaming Schumer is like blaming shorts for falling stock prices.
With institutions like Indy Mac, which were always a house of cards, collapse was inevitable.
The question is how many hundreds of billions of dollars the government will spend to keep the financial system from imploding after years of cronyism, funny money and kleptocracy.
#3,
I think Schumer was grandstanding, but I agree that all of these lenders created their own problems. However we cannot just let them all go bankrupt. Our entire economy is at stake. I don’t think Schumer understands that.
Senator Charles E. Schumer sits on the Senate Finance, Banking, Housing and Urban Affairs, Judiciary and Rules Committees, Administrative Oversight and the Courts and Economic Policy Subcommittees. If anyone in this country should share and shoulder at least some of the blame, it is Chucky.
What we have here is a big fat whiner, Chucky Schumer, who creates an emotional run on a banks deposits, which forces the Feds to come in and take it over. The emotional crisis caused, to some degree, how much is arguable, and the collapse of a fairly large institution. How much it’s going to cost and when this will all turn around, no one knows. Many of the large investors will only get part of their money back.
Banking and the financial industry is based on mutual trust. That trust is both legal and emotional. I have faith that when I put my paycheck in the bank every month, that it will honor my checks to pay the bills, and relinquish cash on demand, so long as my account has funds deposited in it. I trust them to make sound investments, so that when I draw funds from my savings account, it will be there. When I buy a home and need to pay that off over time, the bank trusts me to pay it back. If the trust is broken then the legal reapers come after both of us.
Not only did Chucky spew forth some emotionally charged thoughts, but his position and influence, undoubtedly caused others to become unsettled with their trust in IndyMac, causing large investors to attempt to relive their angst by remove their speculative and uninsured investments. That left IndyMac with insufficient funding for continuing operations. This same type of panic caused Black Friday and to a large degree the Great Depression.
The intense clamoring for opening up home ownership to everyone, loosening rules, oversight and procedures, has led to this problem we now face. The lack in most companies of ethical employees, and management oversight in an unethical manner, led to the greed fest we have witnessed. Since the US has bailout protection built in to the system the overall risk is a shared one with the industry and the taxpayers.
The reality is there need to be more gatekeepers in the banking industry overall. Some of this should be self enforcing in the industry, when all this shakes out. The less taxpayers bail out the system the better off the long term outlook will be for all of us. Banks will learn to be responsible, like they used to be, more conservative in their exposure.
I would propose that all mortgages in distress be reevaluated when they become 60 days past due. Sane and sensible refinancing be offered to most applicants, with fixed rates and longer terms, if needed, to reduce payments to a level that was practical for the borrower. I would also like to see the type of loans limited, no more “stated” loans, no more no money down loans for those with less than stellar records.
Some loans would simply have to be defaulted, but many of the current problems stem from rising adjustable loans that never should have been written to begin with. This certainly won’t solve it all, but stemming the mortgage collapse will readjust a great deal of the speculative and emotional hedges that are currently driving the energy markets. If some of those funds go back into the banking industries they fled from, both markets will calm down at least a little.
BTW the picture is priceless, the self service sign is totaly on target!
This truly is a case of shooting the messenger. I’m not sure what Pedroza’s complaining about — its not like he’s Larry Kudlow or anything, and has a vested interest in pretending everything’s just a-ok on Wall Street.
#5 – clearly we need well-regulated markets — expecting them to “self-regulate” is asking too much of the industry.
DU
DU,
I don’t expect them to “regulate” themselves in the legal sense, as you read into my statements. What I mean is that those who intend to last the long haul will have higher standards than those who just wish to make risky money. They like the more conservative banks of old will produce higher quality products that are safer. Like it or not the old Home Savings and several others that were bought out, had higher standards for lending gave lower rates and still made money.
Thousands of people were put out of a job because of the run caused by Charles Schumer’s reckless mouth. Thousands more paid CD penalties because they bought into his hysteria (rather than recognizing that their funds were insured). Evidently this was the “prescriptive measure” Schumer had in mind. Like the OTS said, we’ll never know if IndyMac Bank would have survived or failed, absent the panic caused by Schumer. But at least the employees would’ve enjoyed months (or years) more employment and health insurance coverage, shareholders might have held out some hope of eventual recovery, and the customers who pulled their CDs prematurely would’ve been spared the penalty consequences of overreaction. Some public servant, that guy.