The IndyMac fiasco: a three-day run of federal incompetence

On Day 3 of the financial hostage drama otherwise known as IndyMac Federal, someone needs to say it: The government's takeover of IndyMac has been a stunning display of cluelessness and incompetence and has given bank customers every reason to feel anxious and angry.

If there is financial unease and anxiousness in America today, it is partly the FDIC's fault.

For the third day in a row, the federal government this morning appeared unprepared to deal with bank customers who simply want their money. Frazzled, anxious and angry Californians -- many of them elderly -- are waiting on blazing sidewalks for the third day in a row, while security guards block the doors to the bank's branches. An elderly woman fainted while waiting in line in Pasadena. Depositors were threatened with arrest yesterday in Encino. This is how the government treats its customers?

In exactly which manual of customer service does it say the following: When your customers arrive at your place of business, do not open the doors and invite them inside. Instead, guard the doors and tell your customers to wait for hours in the sweltering heat outside. If they grow restless, threaten them with arrest.

I'm not suggesting the government cover uninsured deposits. I'm suggesting it treat its customers with respect.

This is more than a matter of inept customer service. Images of anxious depositors unable to get access to their money are powerful, and scary; they cause even more financial anxiety. The FDIC is responsible for those images, and that anxiety, because the FDIC is keeping these people waiting in line. In Santa Monica this morning, about 15 people, many of them elderly, were waiting on the sidewalk outside an IndyMac branch. I asked a security guard why he couldn't just invite them inside the bank. He said the bank's air conditioning system could not handle the crowd. I suggest the FDIC dip into its $50-billion fund, drive over to Home Depot, and buy some fans.

I know of children in Los Angeles who run lemonade stands that have better business sense than the FDIC has displayed this week.

The FDIC has 4,500 employees. It needs to put a few hundred of them on airplanes today to come to California and run this bank. Invite the customers inside, turn up the air conditioning and keep the branches open around the clock until there are no more lines. That's right, invite your customers in off the street. Pretend for a moment that you care about them.

Do not tell them to go to your website. Do not tell them, as the president did yesterday, to "take a deep breath." They are not behaving irrationally. Theirs is a rational response to government incompetence. It's their money and they want it. Greet them politely, ask them what they want, and give it to them.

-- Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo: Los Angeles Times

Comments

[Some Guy]

Right on!

[J.W.]

BINGO!!!!!!

[Mark_Pasadena]

It may not be possible to accommodate everyone inside the bank, but at the very least call a party rental place and rent plastic chairs and canopies. Then call Arrowhead water to deliver cases of water bottles.

All this can be accomplished for a couple of thousand dollars...peanuts compared to the billions in losses at IndyMac.

Let see, there's even a party rental place a couple of blocks from IndyMac headquarters in Pasadena:

http://www.dolphinpartyrentals.com/contactus/

[Bobsuruncle]

Well Said!!!!

[RichW]

In fairness, what business is designed to deal with an inordinate amount of their customers at the same time ? Imagine all of the LA Times subscribers showing up at the LA Times building at once.

Furthermore, as our friend CalculatedRisk pointed out earlier, why are these people there ? One point of FDIC insurance is exactly this; to prevent "bank runs". Are these people not aware that their money is just as available tomorrow as it is today ? Are they aware (for most accounts) they can simply write a check to themselves and deposit it at another bank ? (Or for that matter use it to open an account elsewhere).

I think the bigger problem here is massive ignorance of what the FDIC is, how it works, and why it exists in the first place.

[NoHo]

Right on!

[Bob]

Now take a deep breath, Peter. Take your medication. Everything is good. Everything is good.

;-)

[firesale]

Good for you, Peter. Tell it like it is.

I understand that the bank run on IndyMac
involved mostly uninsured accounts.
Many depositors took a big penalty hit and
lost interest to pull CD's extended beyond the
FDIC protection limits.

The FDIC could have stopped the run by
temporarly raising the protection limits for
IndyMac. They chose not to. If our tax
money can bail out Bear Sterns and pay
for worthless shares of Fannie and Freddie
then we could have held up the roof at
IndyMac.

I know from experience (on more than one
occasion) that bank employees as high
as branch manager do not know or do not
correctly explain FDIC law regarding ITF
or POD accounts. Many of these people
losing money are victims of bank misrepresentation
of FDIC insurance conditions.

To date, we have a government approving the
printing of about 750 billion more fiat dollars
to assist business interests in this mess and
we're letting the poor savers (what few are
left in America) swing for the designer mistakes
of highwaymen like Angelo Mozilo.

The situation at IndyMac is a national disgrace!

[Uncle Billy Went to Washington]

These images and stories are as you say, easily preventable. There are not thousands of people lined up at each branch -- it looks like dozens.

The people that run fdic are not high school droptouts. They appear to have law degrees plenty of experience.

http://www.fdic.gov/about/learn/board/board.html

So presuming they are not stupid, the only conclusion one can come to is that they want us to see these images. If the want us to see this, why?

...and if the images are not panic-inducing enough, announce that the fbi is launching an investigation into Indymac for good measure. I really don't mind they investigate, but why would the unnamed source choose to announce it right now?

[E]

this is just the beginning.

[the problemwithcaring]

So presuming they are not stupid, the only conclusion one can come to is that they want us to see these images. If the want us to see this, why?

Posted by: Uncle Billy Went to Washington

Well Dr, Housing Bubble might say that it is to give the smart money a chance to read the writing on the wall before there is blood in the streets...

[coakl]

Looks like Peter had a few dollars at Indymac.

In any event, your angry post ignores the obvious. The depositers panicked even though there was no reason to do so. With the FDIC in charge, there was no danger of bank assets flying away to the Bahamas.

Everything would be liquidated in an orderly manner, according to FDIC insurance limits. Thus it makes no difference whether you were in line on Monday or waited a month.

[Michael Snyder]

This from an administration who's answer to global warming is to ignore the e-mail notice from its' own EPA. The mentality is classic: "If we make it inconvenient enough folks will just go away."
If these idiots had simply opened the doors as usual and put on some extra help to handle the rush this "run" would be history. As it is they've done everything possible to increase anxiety within their costumer base. Such brilliance should be rewarded. Perhaps they'll be running WAMU next.

[Jacinto]

Almost all funds being withdrawn were funds protected under the $100k per person FDIC insurance. Why did so many people consider it necessary to withdraw those funds at this time and under these circumstances? I can’t figure it out.

A bank controlled by FDIC is not running out of cash to pay covered deposits. You don’t have to “get it while it lasts.” Nor is the bank closing anytime soon.

This has been a stunning display of ignorance and lack of self-control on the part of many people, and it is hard to blame employees for failing to anticipate the crowd and for the resulting lack of patience and courtesy. The customers deserved it. When people act hysterical they ought to expect an unpleasant reaction from others.

Yes it affects my family. We’re sitting on a high yield CD from IndyMac (under the limit) and we’re shaking our heads in disbelief at the scenes from the evening news.

[Wayne]

Peter Viles for Congress.

[crispy&cole]

Well said Peter!

[Stanley]

been to a public health clinic, the DMV, a "Parking Violations" office, the Federal Building?
What about what caused this in the first place,... the government sponsorship of housing, government micromanaging of interest rates, government housing "affordability" programs.
I'm shocked that anyone is shocked by government incompetence.

[Roger Ramjet]

Yep! That is pretty much it. Bush, Cheney, all those other cronies in the White House could truly care less. Their bags are full, they have theirs. Hey Bush, where is your "mission accomplished" ego now? I got an idea, get your buddy Brownie to figure it all out. Better yet, call your buddy Kennie Boy of Enron fame. Oh, I forgot, he died on a mountain top in Aspen......

[save your ammo]

"Furthermore, as our friend CalculatedRisk pointed out earlier, why are these people there ? One point of FDIC insurance is exactly this; to prevent "bank runs". Are these people not aware that their money is just as available tomorrow as it is today ? Are they aware (for most accounts) they can simply write a check to themselves and deposit it at another bank ? (Or for that matter use it to open an account elsewhere).
I think the bigger problem here is massive ignorance of what the FDIC is, how it works, and why it exists in the first place."

NOT REALLY!

I know from a couple of depositors caught up in this
mess that there is absolutely a reason for their standing
out there. It appears that perfectly protected POD
accounts with eligible additional beneficiaries (raising
limits over $100G) are all subject to review before
a sum more than $99,999. will appear in online
accounts. When you finally get into one of these
branches, you only become eligible for an immediate
50% of the money over the depositor 100G limit
until you bring back proof that the additional beneficiaries
are indeed "eligible" for the extra protection. This is
never established when accounts are open but
must be established to the FDIC's satisfaction when
the bank fails. That means many of these people
must secure long form birth and marriage certificates for
siblings, often from record clerks in other states,
together with additional info establishing relationships,
and present this all for review before they can have
access to their properly insured money.

This mess is anything but simple for those who
were foolish enough to believe in truth, justice,
and the American way.

[Laker]

I think this incompetence is of FDIC and its head/leader.
They could have made news conferences on national TV and put ads saying that the money is safe, state that the US government is behind it 100% up to the limits, and offer ability to withdraw by keeping the branches open extended hours.
I think the problem is that people are uninformed. They don't understand how the insurance works.
For example, I actually deposited money yesterday to Indymac using online transfer. YES I DEPOSITED and added to my balance so that i could enjoy the highest interest paid today in FDIC account that is liquid.

Thanks Indy.

[Fujishig]

For those blaming the customers, I'm not sure how you can totally fault the customer. Perhaps the Feds didn't realize that a run was coming (I think they did), but this is the third day of it now.

On the customer side, most of these people were ignorant about the 100K insured limit (and they should've known, I'm surprised how many people have over 100K in there but didn't bother to check on FDIC insurance), so I'm sure they're disgruntled and just want to get what they can. I thought I read in the Times today that the Feds decided to guarantee half of the uninsured money, so that may be why they go to the bank to get it out.

The Times article also stated that many people calculated how much insured money they were owed and were still missing thousands of dollars (checking their balances online), so they went to the bank to straighten things out.

[Laker]

Jacinto, how do you know that most funds withdrawn are under FDIC insurance?
Sorry it affects you. It does not affect me, I have fund there and i care less. To be honest, i have an account with them for more than two years, and i never visited even one branch. Never.
Everything is done from home with best convenience. No lines, just a chair, Air conditioned room, computer, and orange juice.
People please relax!

...and Peter, If you run for congress, you have my vote.

[boybluu]

massive ignorance = RichW

It's apparent that you don't have money invested in this bank.

It's also very apparent that your able to sit around blogging
all day, while others are taking care of business.

You speak of massive ignorance when people are are having there life saving reduced by half in some cases.

Why don't you put your money where your mouth is and give back what the "massive ignorance group" don't get back from the bank.

[furioso]

I appreciate the sentiment, Peter, but I think your missing something important: IndyMac no longer exists, its depositors are no longer "customers" and the feds are not really running a "business" subject to criticisms like this. The people in line are merely insured parties and the federal regulators inside are the guarantors, evaluators and disposers of assets - some insured, some not. I think they could justify keeping the doors closed for a week or two. I feel for depositors, but if you're waiting in line right now - well, you're not very bright. There's something comical and absurd about a run on a bank after the Feds have taken over.

[Laura]

Right on Peter,

I don't think Peter has money at Indymac. You don't have to be directly affected to be outraged at the government's behavior now, before, and later...

Most likely the people standing in line are not smart or even marginally smart, however there should be several representatives from the FDIC inviting these people inside the bank and EXPLAINING SLOWLY to them their situation. It's really idiotic that they are standing/sitting outside when they could be standing/sitting inside.
It's a large space, it's a bank, not a kiosk.

Whenever the government gets involved you have lines or takes over and doesn't get involved you get lines.....