Why Did Indymac Collapse?

Real Estate Agent with ARDENT PROPERTIES



Senchuck_tv An important angle in the IndyMac failure that may get lost in ominous headlines tonight and tomorrow: federal regulators pointedly cited U.S. Sen. Charles Schumer, D-N.Y., in explaining the bank's failure. In simple language, federal regulators blamed Schumer for a run on the bank.

Here's from the press release issued by IndyMac's regulator, the Office of Thrift Supervision: "The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors' demands in the normal course of business and is therefore in an unsafe and unsound condition. 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.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."

Schumer's response? In an e-mail quoted by Bloomberg News, he says: "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 ... Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.''

Comments (4)

Jason Bhattacharya

The best comment that someone had in the discussion forum of that website was "Everyone in Washington knows that the most dangerous piece of real estate in the district -- is the land between Schumer and the Camera"

Think-- If Schumer had exercised discretion and not cost a run of $1,300,000,000 (1.3 BILLION) -- Then they might not have collapsed.  Since their ratios would not be as bad-- and the issue of liquidity might not come into play.



Jul 13, 2008 08:57 AM
AJ Heidmann ~ CRS
McEnearney Associates, Inc. - Alexandria, VA
YOUR Alexandria & Arlington, VA Real Estate Expert

Any time someone that has ready access to the media states anything sensational, this is a possible outcome.  Though I'm not sure IndyMac would have gone on its merry way even if Schumer hadn't piped in.   Just my personal opinion.

Jul 13, 2008 09:58 AM
Pete Jalbert
The Maui Real Estate Team, Inc. - Paia, HI

Questions on solvency by William Poole started this week's sell off on Fannie and Freddie. With market psychology the way it is right now, it is tough for anyone in authority to have a candid discussion on banking struggles. It is akin to yelling fire in a crowded theater. If Fannie and Freddie get worse, we likely won't hear any comments from related parties until they are announcing the bailout plans.

Jul 13, 2008 10:38 AM
Jeffrey Dolfinger
24/7 Realty Inc. - Poughkeepsie, NY
NRBA Member

There are more banks that will fail with or without the media.

Jul 13, 2008 04:30 PM