Is a Senator Responsible for the Collapse of IndyMac?

[Pangloss]

Yesterday one of the largest of the troubled high-risk mortgage lenders collapsed after depositors made a run on the bank to withdraw their money. Depositors with $100,000 or less get their money back from the FDIC. Any depositors with more than $100,000 in the bank will apparently get 50 cents on the dollar from the FDIC. All of this at taxpayer expense.

 

While no one disagrees that this was a troubled institution that may ultimately have collapsed anyway, some observers are saying that the immediate trigger for its demise can be directly attributed to Senator Chuck Schumer of New York.

 

Schumer says he was just doing his job, warning regulators that the bank faced possible collapse (as if they didn't know). But that isn't his job, everyone knew about IndyMac and it was being monitored closely. And even worse, Schumer did something else -- he released his warning to the press. The quote below isn't from right-wing pundits, it's from the Treasury Department's Office of Thrift Supervision, which monitors federal savings banks.

 

The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.

 

http://www.ots.treas.gov/docs/7/778029.html

 

Mike Armstrong of the Philadelphia Inquirer puts it succinctly:

 

I have no problem with Schumer’s writing a letter to the OTS, the Federal Deposit Insurance Corp. and two other agencies to express his concerns. But in publicly disclosing them, he crossed the line.

 

And if he doesn’t think so, then California Sens. Barbara Boxer and Dianne Feinstein should feel free to pick a New York bank and express their concerns over its financial condition.

 

The Wall Street Journal posted a similar editorial about it today.

http://online.wsj.com/article/SB121607771017452513.html?mod=djemEditorialPage

 

Why would he do it? Isn't it obvious? The lenders weren't collapsing fast enough. There wasn't enough panic. Gotta create some so people will vote Democrat in the fall. And if a few rich people get screwed in the process, well hey, who cares about the rich?

 

What a jerk.

[Phi for All]

Schumer effectively yelled "Fire!" in a crowded theater and should be dealt with similarly. If he had an ulterior motive that was politically based, then I say off with his head.

[doG]

Schumer says he was just doing his job, warning regulators that the bank faced possible collapse (as if they didn't know). But that isn't his job, everyone knew about IndyMac and it was being monitored closely.

 

Actually it could be his job to some extent as a member of the Senate Banking, Housing, and Urban Affairs committee and Chairman of the Housing, Transportation, and Community Development subcommittee. This bank is a major mortgage lender and he should have been following their status even if it wasn't technically his specific job to bring their performance to anyone's attention. I would think that it would be the job of someone on the Banking committee to bring it to someone's attention if they were aware of something that banking regulators needed to know.

 

And even worse, Schumer did something else -- he released his warning to the press.

 

This is not his job and he overstepped his position here. I would say his action here was directly responsible for the run on the bank and should disqualify him from serving on the above committees any further. He's effectively a career Senator that's been in office since 1981 and should have known better.

[bascule]

The cause aside, I'm a bit more worried we're having bank runs

[Pangloss]

The cause aside, I'm a bit more worried we're having bank runs

 

We shouldn't be having bank runs. The fact that we are says a great deal about the media and the current political climate of this country, and almost nothing about the economy.

 

I think it's ridiculous that we've gotten into the sub-prime mortgage mess. There were insufficient precautions taken, and the result is millions of Americans getting siren-called and then sucker-punched for the sole purpose of slight annual increases in corporate bottom-lines. I'm behind that "liberal" meme 1,010%.

 

But falsely scaring everyone about the safety of their life's savings for political gain is the lowest of the low. He's sucker-punching the rest of America just to make sure we all suffer as well.

 

Bring it all down! Burn baby burn! That'll teach 'em for voting Republican!

 

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CNBC's Jerry Bowyer weighs in:

How Chuck Schumer Caused the Second Largest Bank Failure in US History

 

Indymac has been under attack from the hard left. The Center for Responsible Lending issued an attack on Indymac within a few days of Schumer’s letter. CRL is part of a small army of left of center ‘research’ groups, community organizers, and public interest law firms who make their living accusing home lenders of racial redlining and predatory lending. On June 20th the Center accused Indymac of unfair practices regarding minority borrowers.

 

A suspicious person might think that a network of lefty attack groups proficient in bank bashing and frequently funded by trial lawyers and short-sellers, coordinated their activities with a law firm on the hunt and a Senator who works closely with the network.

 

On the other hand, maybe it is a coincidence that CRL and Sen. Schumer attacked the same bank in the same week. Maybe he didn’t know about the CRL report, nor CRL about his letter. Maybe the community group didn’t know about the trial-lawyer class action lawsuit which was launched against Indy a couple of weeks before all of this started.

 

Yeah, right.