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Friday, July 11, 2008

OTS Blames Chuck Schumer for IndyMac Failure

Everything was just hunky dory, you see, till mean old Chuck Schumer wrote a letter:
The closure followed a frenzied week during which IndyMac’s executives tried to bolster the ailing bank. IndyMac, based in Pasadena, Calif., stopped making new loans and announced layoffs of more than half of its 7,200 workers. But IndyMac’s customers, afraid their savings might disappear, stampeded tellers and demanded their money....

...The run on the bank came after a critical letter about the bank from Senator Charles E. Schumer, Democrat of New York. Federal regulators said on Friday that Mr. Schumer’s letter had prompted the collapse by causing the run and scaring away potential acquirers.

The senator made comments in his letter questioning the viability of the institution,” John M. Reich, director of the Office of Thrift Supervision, said in a phone call with reporters. “When a member of the United States Senate makes such a statement, it frightens depositors.”

In the days after Mr. Schumer’s letter was released on June 26, IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, the government said. Before Mr. Schumer’s letter, the bank had been receiving net inflows of money from depositors, Mr. Reich said.

Mr. Schumer, who has been critical of bank regulators for months, released a statement criticizing Mr. Reich’s agency.

“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. 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.”

For all the write-downs and bad news on Wall Street over the last year, only five local and regional banks have shut their doors. The handful that have failed have been a fraction of the size of IndyMac. IndyMac held $32 billion in assets as of late March, according to the government release.

It’s the biggest failure in 24 years,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. “You haven’t had a lot of failures of that size, yet.”
Hit that nail right on the head there, Chip. Not yet.

Y'know, here's a thought: maybe Chuck was writing letters and saying alarming things about the situation with IndyMac Bank because the situation was, you know, alarming.

And maybe because its ills (and their ramifications) were a perfect example of what the wholly under-regulated Wild West atmosphere of the mortgage industry hath wrought.

And maybe because he saw the bank for what it was: a dead canary...a huge, $32 billion dead canary covered in coal dust.

But yeah. If only he hadn't written that letter, all would still be swell.

1 comments: to “ OTS Blames Chuck Schumer for IndyMac Failure

  • John Leek
    July 15, 2008 8:08 AM  

    Get your commercial capturing skills ready.

    The DSCC is coming in and they don't have a good record of putting their ads online.

    http://cottonmouthblog.blogspot.com/2008/07/dscc-to-air-ads-in-support-of-ronnie.html

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