As I'm sure everybody already knows yesterday the US experienced the second largest bank failure in our history as IndyMac was seized by the FDIC and OTS.  One of the first public statements by the OTS was to blame Chuck Schumer a member of the Senate banking committee a letter he sent to them with concerns about the financial stability of the bank, causing a run, which caused the bank to go under.

"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 [that] ... expressed concerns about IndyMac's viability," the agency said.

Schumer immediately responded:

"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," said Schumer, a Democrat from New York. "OTS should start doing its job to prevent future IndyMac's.

Lately, I've found it hard to agree with much of what Senators or Congressmen have done, but I've squarely in Schumer's court on this one.  The OTS and FDIC have been completely asleep at the wheel throughout this crisis putting bank depositors and US tax payers in harms way.  IndyMac has very clearly been an insolvent institution for some time and the only way they have been able to survive is by substantially increasing their deposit base the last year through offering someone the highest rates in the nation. Like a gambling addict that's found themselves substantially in the hole (due to massive bad loans), they continued to take loans (deposits) in order to try and gamble their way out of the crisis.  The FDIC and OTS are there to prevent this type of behavior that creates massive risks to the entire system, not support it. Where have the damn regulators been?

Of course the OTS made the standard claim:

"This institution failed today due to a liquidity crisis," OTS Director John Reich said.

Again, this is a bunch of bull, seriously everytime I here the regulators, politicians or journalists referring to these types of situations as liquidity crisis it makes me sick.  It's not a liquidity crisis, it's a solvency crisis.  Even by the FDIC's own admission the closure requires $4-8B of their funds.  Doesn't that imply IndyMac's liabilities are far and away in excess of their assets, yes that's the definition of being insolvent, not illiquid. 

Guess who's going to end up footing the bill for all of this, yes the US tax payer and the longer the regulators stand around twiddling their thumbs letting the risk takers continue to try and gamble their way out of problems the higher that bill is going to be and the greater the risk for a true financial collapse.  While the regulators are now trying to cover their own asses I actually applaud Schumer for forcing some action, whatever his intentions might have been.