Feds cite Schumer in collapse of IndyMac

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.''

Your thoughts? Comments? Use the comment button below.
E-mail story tips to peter.viles@latimes.com.
Photo Credit: www.schumer.senate.gov; Note: This replaces an earlier photo showing Sen. Schumer with his New York colleague, Sen. Hillary Clinton; many readers found the choice of the photo inappropriate.

Comments

[Kwang M Yi]

In response to deflationary threat earlier, it was Bernanke who argued for outrageously cheap credit that resulted in frenzy boom in real estate. Not Greenspan, but rather Bernanke with an approval of his idiot boss in the White House that created the whole problem America experiences today.

[orbry]

Good job 2-buck-chuck!!

If IMB had any chance of coming out of this in one piece, you snatched it away.

[BC]

re: Lance's comment, yes it's call fractional reserve. Be that as it may, Schumer's comment may have sped up the inevitable, but that's it.

The stock dropped roughly 95% in the last year BEFORE his comments, so apparently investors got the point and saw the writing on the wall. Don't give Schumer's words more power than they are worth - everyone who was paying attention knew this was coming for IndyMac, except for IndyMac (apparently). Welcome to reality.

[Clay]

Assigning blame for this situation's easy.
What's the situation? On 7/11/08 the FDIC took control of IndyMac leaving bank customers with deposits above $100K unleveraged.

Why? Because IndyMac doesn't have enough liquid assets.

Why is that? In the last couple of week, $1.3 billion was withdrawn.

How did that happen? Costumer grew concern because of a PUBLIC letter written by a senator.

For those deflecting blame from Schumer, tell those current customers how much money was leaving the bank through unreplaced withdrawals the two weeks before June 26th, or the two weeks before that...and so on. Was it equal to $1.3 billion or more? I truly doubt that.

[Deb Biswas]

Peter Viles, You can not and should not blame Senator Charles Schumer, for blowing the whistle and also putting him together with Hillary Clinton....what was motive dude ?
You wanted another Enron to happen and blame the whistle blower. Shame on you and your sense of journalism . Please wise up.

[Simon]

Schumer is on the Senate Banking Committee, so it's inconceivable that he wasn't aware of the effect that his comments would have.

Just what his motivation was for making them remains to be seen, but it certainly wasn't concern for concern for customers of the bank -- starting a run benefits no-one, except perhaps someone who gets to buy it on the cheap later on...

[Mary C.]

According to a release by IndyMac itself on July 1, the bank run prompted by Schumer's comments amounted to one-half of one percent of all deposits. That's not much of a bank run. If the "bank run" got worse after that, it would have to have been caused by IndyMac announcing the massive layoffs, the cessation of lending, and the massive drop in its stock price, which happened a few days ago and days after Schumer's letter. I know if I were saving with IndyMac, the latter news would have made me run to the bank, not Charles Schumer's "concern." That itself wasn't news, just how bad it was. Also, if IndyMac had any prospects at all of surviving, would it not have been taken over just like Countrywide was by B of A? The blame-Schumer game is just an opportunity to score points in an election year and pass the blame.

[Charles]

Schumer makes a public comment which had the effect of destroying any chance Indymac had in weathering this crisis. 1.3 billion $$$ withdraws will surely destroy a small bank. But what does Schumer care - he's too busy raking in the $$$ back east while trying to come to grips with the coming middle east war. Watch him transform into a hawk for a month or so!

[govguy]

Regardless of the blame game, I am not pleased that the LA Times chose to use a photo of Schumer with Senator Clinton. I find that to be a breach of journalistic ethics and I am on the verge of cancelling my subscription to the Times unless this issue is addressed. The Times has access to many pictures of Schumer on his own.

Yellow Journalism? Maybe. I expect a response.

[Jim O'Brien]

The majority of our Congressmorons lack common sense. Voters should wake up and replace them.

[Jack]

One misinformed user noted: "Hey, Schumer is from New York. What's so strange about him commenting on the solvency of a Bank in Pasadena?"

Schumer is chair of the Senate's Joint Economic Committee and sits on both the Senate Committee on Banking, Housing, and Urban Affairs and the Committee on Finance. So it's perfectly within his purview to write to the OCC as he did. Unlike the Bush Administration, Schumer was watching ailing banks and alerting regulators to problems.

Another misinformed user noted: "It seems like there are a lot of uninformed [sic] comments being posted here... Schumer created a run on the bank with his inappropriate comments."

If you'd read anything in the news about this matter, you'd know regulators were already circling IndyMac and the stock had tanked long before Schumer wrote to the OTS. Wall Street has been warning for months that IndyMac was teetering on the edge of collapse.

[Tired of their idiocy.]

I think it should be possible to sue politicians for political malpractice. That is clearly what Chucky is guilty of here. Furthermore, we need to be protected from him before he runs his mouth causing another calamity. Of course, in typical liberal fashion, deriding the OTS for pointing out the OBVIOUS cause of the bank run, Chuckles proceeds to point his finger back in blame. Where is Nancy Pelosi's do nothing, 9% approval Congress? Doing everything it can to stand in the way of fixing the countries problems. AND THEY THINK THEY ARE GOING TO WIN IN NOVEMBER?

[randyvw]

almost all of our banks are insolvent! if he had said the same of ANY bank, the result would be the same for that bank.....a senator has no business bringing down a bank. they are all in trouble. they owe more than they are worth, BIGTIME! got it? get it! goody.......if you got more than fdic insurance covers in any one bank, get it to another bank NOW, TODAY!

[Kurt Mudgeon]

When Senator Gramm said we're becoming a nation
of whiners, he didn't cause a run on the bank.

Why is it Republicans have to weight their
words more carefully than Democrats, and
those words get more media attention.

Gee, if I knew that I could reinvent energy.

[AdamF]

It is time to call for a special prosecutior to look into Schumer's financial dealings with IndyMac or its competitors. Does he materially benefit in any way from the collapse of this bank? Do any of Schumer's business or political cronies benefit from this?

The only way to find out is to investigate. Appoint a Special Prosecutor Now!

[ChrisMeihass]

Shumer needs a "muzzel-lock"...

the "tit for tat" response from....

2nd Amendment supporters (of which Schumer seems NOT)

[Tim Mac]

Puleeeze. To the posters who say the bank "deserved it"....
If Charles Shumer sent the same note out and instead used the name of YOUR bank, there'd be a picture of YOU looking through a locked door on the news today. There as very few banks not caught up in this crisis. bank runs, company failures happen because of PANIC. Shoot the SOB who yels FIRE in crowded theater.

[bob dog]

The most dangerous place to be in Washington is between Schumer and a camera. Does he do anything constructive at all?

[Granny]

Let's all remember that the Congress forced banks to make bad loans in the interest of "fairness." First, "redlining," the business practice of denying loans in certain neighborhoods because they were too risky, was equated with discrimination. Then banks were strongly encouraged to make loans to the "underprivileged." Another social experiment gone bad. This mess has been brewing for half a century. Senator Schumer, though he may or may not be evil, is not smart enough to understand this.

[ice weasel]

And of course, as well as citing Schumer the "feds" took responsibility for their lack of oversight in the Indymac case....

Oh, I guess not.

Strike two. Keep your personal politics out of it or at least have an original theory and present in an interesting manner.

Next time, I just delete this bookmark.

[DON BARAN]

SCHUMER IS A LEFT WING TROUBLE MAKER FROM LIBERAL NEW YORK..WHY HE KEEP BEING ELECTED IS BEYOND REASON...GET THE USELESS BUM OUT OF WASHINGTON BARAN

[J Schaefer]

Schumer should be asked to leave office. There are laws against behavior like this. This is another example of our leaders not acting responsibly. For too many decades this tyoe of behavior has been going on. It is time for responsible business leaders to be elected. Time to deal with the mess the folks in Washnington DC have created.

[Inland Empire]

Dang Pete the only picture of Schumer in the LA Times Library is with Hillary. I guess your post with this picture is that Hillary is connected to Schumer so what??. I'm lost please explain this and its connection to this article. A reader of your blog and not your editor however...

Interesting - I didn't make this statement. Pete do you check to see if things match up or not?

[Tombstone Realty]

I wonder whom OTS/Feds will blame for the failure of Lehman Bros? Or Fannie/Freddie.

Crazy Cramer?
The LA Times?
Ben Bernanke?

I never even heard of this letter - what I DO know is that just last week the Feds ordered IndyMac to stop doing mortgage loans and related products. Then they laid off half the staff. It's only been in the last two days where something like 2 billion was taken out of their system. So it can't be Schumer. It's Fear.

I think what should make the feds *really* nervous, is if people get the idea that if a bank *might* fail - get your money out now, don't wait. The chicken littles are looking pretty damn smart for carting their eggs away first. The smaller accounts, under 100K, know they are covered. It was the big fish that left.

Maybe if the Fed guaranteed *all* your money, people would be less likely to destabilize a bank, because they know they'd get it all back, even if the mortgage portion falls off a cliff.

It's a crisis of confidence in the whole system. Shutting the bank down on a Friday afternoon, after trading, was to prevent any spill over on Wall Street. This only makes traders more worried, not less.

Colbert wasn't really joking when he said that "truthiness" is what drives the world, not fact. And this is what Paulson et. al are up against.

[peteviles]

Inland Empire writes, "Dang Pete the only picture of Schumer in the LA Times Library is with Hillary. I guess your post with this picture is that Hillary is connected to Schumer so what??. I'm lost please explain this and its connection to this article. A reader of your blog and not your editor however... "

Fair point, Inland. Of course it wasn't the only picture of Schumer in the library, but it was one of the most recent and one of the first to come up in a search. On further review, I agree with your criticism, and I've swapped out the photo for a solo shot of Sen. Schumer.