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

[MattJ]

I still don't understand why anyone is getting anything back from uninsured deposits if this is going to cost FDIC 4-8 billion dollars.

[anon]

#1 Someone already put it best: "imagine all of your customers going to the LA times building at the same time." This is exactly what happened.

#2 You have news reporters hyping the event instead of reporting the facts. They were here collecting peoples reactions and proliferating misleading information.

#3 The "Feds" have been trying to keep everyone as calm as possible and things running smoothly both inside and outside (customers and employees). But as you can imagine this isn't always easy.

#4 FDIC Did look for and find rental supplies to help people be more comfortable.

#5 People don't understand what the bank is now, nor how the FDIC works. What ever happened to "buyer beware?" If you had $500,000 wouldn't you make sure you KNOW exactly what could happen if your bank was to close? I know I would ask questions. Having worked in a bank myself, I can tell you that most people won't know how FDIC works more than the brief introduction to the bank explained.

#6 Stop adding to the hype and madness. If the bank wouldn't have had crazy amounts of customers closing their accounts it would still be IMB and not IMB Federal Bank. That's the reason they stepped in, to help people save their money, not lose it.

#7 Finally, Anything over $100,000 for personal accounts is not covered unless its a retirement account in which it's covered up to $250,000. There are exceptions to these rules which are available at the FDIC website.

If you have a $200,00 personal account you can cash out $150,000 and get a voucher for $50,000. When the bank is sold back to the private sector the capital gained from the sale will be given to those with those vouchers, divided evenly (more or less, i don't know the exact details).

But because this is now a federal bank, your assets are protected by 53 billion dollars.

Finally, anyone who says people who work for IMB haven't been courteous to customers have no idea what they're talking about. The bank branches have been staffed with many additional employees as well as with much more equipment to help as many customers as possible everyday.

But of course, it's much easier to believe the hype than the truth. After all, the truth doesn't sell as well, right?

P.S. I'd like to see a kid running a lemonade stand run this bank for a day :P

[sheila]

well, in straight-up capitalism, the only reason to "be nice" to customers is because you want something out of them - current or future business for example. otherwise, if there's no benefit, the overtime and A/C are unnecessary overhead that cut into the bottom line.

any kind of benefit to IndyMac is entirely impossible, here, since every person in line is there to completely close their account, curse the name "IndyMac" and make life harder on the company. so, from a purely "free market" approach, your idea is a net loss to shareholders

exhibiting empathy for human suffering or being nice just for the sake of being nice is usually called "socialism" on this blog, and we can't have that...

no bailouts for IndyMac sidewalk dwellers! i deposit responsibly and don't want my tax dollars wasted on air conditioning and overtime for irresponsible, greedy over-depositors!

sound familiar?

[TakeFive]

I think the mistake is that the FDIC was TOO accommodating. They should have closed the doors and said "Your money is safe. There will be NO run on this bank. Appointments will be scheduled".

Instead, they tried make this a trouble free, normal experience. But Phil Gramm is right - we've become too much a nation of whiners.

Try working in customer service sometime and see how exercised people get when they don't receive immediate resolution of their problem or overnight delivery of some replacement part.

You know what? Your money's insured. Stop bitching.

Another thing. Switch off TMZ or Access Hollywood or whatever other mush you fill your head with and pay attention to the news. How long have we discussed the financial institutions on this blog (and many others)?

Anyone with tens or hundreds of thousands of dollars parked somewhere should have at least a passing interest in the status of the institution. It’s almost like you’d have to go out of your way to avoid hearing about this situation.

[RichW]

"massive ignorance = RichW
It's apparent that you don't have money invested in this bank."

Interesting. You believe people who don't invest uninsured money in faltering banks are ignorant ? With that logic, I'm sure you are running to Downey right now with $1,000,000 to deposit...

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

It is what it is...

[Frank F]

Another heckuva job from the Bush administration, which has succeeded in placing a fox in charge of every henhouse.

[MyLessThanPrimeBeef]

I believe the problem is that they recently transferred all the FEMA people from New Orleans to FDIC.

They delayed in opening the branch offices because the ex-FEMA guys thought it would be better to herd all the customers to the Rose Bowl and house them there until they could truck in money from Fort Knox.

Unfortunately, the stadium was not available, for Hank 'I cry sheep three times' Paulson has his fleet of helicopters there, getting ready for Operation This-Is-Not-A-Bailout.

[CaptHowdy]

I think it's time Bush gave Sheila Barr a "heckuva job Sheila!"

[bkl]

Don't try and buy a iPhone on the first day they are for sale. Wait a week; it will be a lot easier. Don't go to the bank the first day after the FDIC takes over. Wait a week; it will be a lot easier. If you don't want to stand in a long line outside in the sun, don't do it! It's not the FDIC's fault if people choose to stand in the sun for hours on end.

Remember, these people didn't worry about their money when IndyMac was in charge. Now they doubt the ability of the US Government to print money and pay its debts. Chill is the right word of advice for these people and for Peter.

[sunsetbeachguy]

Try California's strongest bank.

Farmers & Merchants out of Long Beach.

Be impressed.

[Jeff de la Rosa]

Well said!

Can we at least get those children with the lemonade stand to set-up at the Indymac branches?
Or will they be threatened with arrest too?

[Tombstone Realty]

First, I'm sure fire regulations prohibit bringing in people exceeding the fire code. I did see tents in some pictures as well.

The press has been kind of feeding the frenzy. I saw one reporter on CNN talk about how "crazy and tense it was getting", and behind him was a line of people just staring at the back of his head like he was a lawn ornament. Not one crazy in sight. Just people patiently waiting for their money.

There's no point in having a "run" on a bank that is *closed*. You just can't. The deposits are now guaranteed to be there (under 100,000 of course) because the FDIC stepped in to make sure that everyone who had money would at least get $100K out. The fact they are even guaranteeing 50% of amounts above that makes it seem that they still have a good portion of liquid assets on hand to give back.

Personnel shouldn't be an issue, either as the FDIC had asked the employees to stay on to handle the bank business. The FDIC people are too busy going through files to handle withdrawals.

People aren't trusting the *government*, and so there will be naturally some hysterical reaction. I can't blame em. I guess we should be thankful that people aren't running all the banks in town.

That being said, accounts are only guaranteed to 100,000. If people don't pay attention to the fine print, then yes, you will lose money if you withdraw it now. It states this on the door, on your savings account information. Even on the radio ads for various banks.

Just like the subprime debacle, people are just not paying attention. Except of course to the scary images in the papers and on TV.

[Dion]

If you want to pull out your money its your right to do so
Does one have to have a REASON?
Do not complicate what is a simple matter.
POWER TO THE PEOPLE! LOL!

[Depositors Robbed By Indymac, FDIC and OTS]

To the person who called depositors with uninsured funds ignorant, please think twice before you say it.

It is not us depositors who are ignorant. It is the OTS and FDIC that are ingnorant and incompetent in stopping bank employees from lying to customers or ensure they receive proper education on FDIC insurance.

Use my case as an example. On 7/8/08, I logged onto Indymac's secure webpage and asked an Indymac employee (using their live chat system)whether I should add more joint owners or beneficiaries. She told me the entire funds in my accounts were FDIC insured. I printed the chat page. I called Indyumac again on 7/9 and was again assured by another bank employee that all my funds were fully insured. Yet, I just found out from FDIC that some of my funds may not be fully insured. I don't know whether the bank employees lied to me or simply do not understand the FDIC rules. While waiting in line at the bank yesterday, I spoke to some other people who had similar experience. They were also told by Indymac employees that they were already fully insured by FDIC while parts of their funds were not.

We are just ordinary customers, how can we figure out our funds were not insured when the banks employees repeately assured us that they are? Are we at fault for believing in what our bankers tell us? Should every depositor call the FDIC before they open a new account or make a deposit? Can we have any more trust in our banks, the bank regulators and the U.S. banking system?

[alice B Toklas]

Why isn't this man, Alan Greenspan, in jail???

http://moneycentral.msn.com/content/P73977.asp

[RichW]

"To the person who called depositors with uninsured funds ignorant, please think twice before you say it."

Um that would be me. I use "ignorant" as a term which is synonymous with "unaware". It is not meant as an insult. Personally I think its sad that anybody lost savings if it was because they were unaware their funds were not fully insured. I don't feel one bit sorry for investors who were aware though, as its a risk they chose to take.

[Pioneer10]

Where was this screed againt Indymac's executives? Aren't they who caused the problem in the first place and they're probably lounging around in the coast mansions now off the hook.

FDIC insurance is pretty clear and it's easy to protect yourself: if you got more then $100,000 sitting in checking/savings account make sure it in's different banks. This actually makes sense even w/o FDIC insurance as banks fail as we see happening: spread your risk.

Frankly, the government's role in this simple give back money up to $100,000 for all the people at some point and then liquidate the rest and give back what's leftover. It's not providing frankly even good customer service at this early stage (i.e. it's really simple to take over a big bank in just 3 days right). It's like it's become unreasonalbe after the bank the consumer CHOSE to put money in collapses that it will take some time to sort it out (omg I had to wait a few days!)

[CD]

Could you ask the Governor of California to comment ?
Could you ask Feinstein and Boxer to make a comment?
Could you ask the honorable Jerry Brown to comment?
Are they in the Hamptons ? Are they in a spa ? 1789 !!!!

[LA]

How many bank employees, FDIC staff, and law enforcement officers do you suppose have ever seen a bank run, let alone managed or planned for one? Could they have done things differently? Sure. 20/20 hindsight. Cut them some slack. The customers could have done things differently too.

I'm grateful the cops showed restraint and didn't escalate the situation. Some of them have a knack for that.

[JenniferK]

Go Peter! You've hit the nail on the head.

I wonder if the politicians in Washington really understand how mad the public, both Democrat and Republican, are at their governments.

As more banks fail, the anger will continue to November, and build. I wonder how it will affect the election? Will Senator McCain's membership in the Keating 5, and his choice of Retired Senator Gramm (the architect of bank deregulation and a beneficiary of the Enron scandal) affect the vote?

Time will tell.

[Milla]

is it really that bad out there? being in a rush when you have to wait in line isn't going to move the line along any faster. there's also the phone and online banking. the people who have waited are getting the chance to make their withdrawals, aren't they?

[peteviles]

coakl wrote, "Looks like Peter had a few dollars at Indymac."

Thanks, coak. No, I had no cash in IndyMac. (Do have some in WAMU though, so I will have a first-row seat if anything happens there).

I wasn't tremendously sympathetic to the plight of IndyMac depositors until I talked to a few of them. One guy, for example, inherited a little over $200K when his mother died. He says he knew of the $100K limit on insured deposits, so he asked an IndyMac teller if he could split the money into three sub-100K accounts and be insured. Definitely, he says the teller told him. So he did. He knew IndyMac was in trouble, but believed his money was insured, and didn't want to pay a penalty for early withdrawal from a CD. He was in line on Monday morning, having learned over the weekend the teller was wrong and he had lost more than $50K.

And regardless of whether these people made good or bad choices, there's no excuse for making them stand on the sidewalk for hours.

[larry]

Let's see now, it's been a fiasco after the fed shut down Indymac on 7/11 forcing wary customers to line up in the steamy heat of the summer. The event should be recorded, dated and remembered in US history as
711, Schumer 2008

[Anonymous]

Seriously? Pete, you strike me as so level headed and reasonable most of the time. Of course, I'm guess I'm way off the mainstream given the comments posted here so far. I'm frankly stunned. This is a monumental effort for an organization like the FDIC to just come in on a moment's notice and take over a giant tanker of a bank like IndyMac. Have you ever worked at a bank (I haven't) or in any administrative capacity at a large organization (I have)?

And, I'm sorry, but these depositors in line ARE idiots. Forget that they had money in a bank that was teetering close to failure for months. The fact is that they will get no more money by waiting in line today than they will by going into their branch next week. The damage is done. Lining up will not save anything at this point. I can't help but say it again. I'm stunned by the truly uninformed attitude you and your commenters have taken regarding this issue. I mean, really, using the federal government as a scapegoat when there is no possible way that this could have happened without a hitch? Stunning.

[Michael Stone]

The previous post, that the branches ought to be open 24 hours, is spot on. First of all, instead of TV pictures of angry depositors standing and fainting in line, FDIC should have given them appointments, or at least restaurant-wireless-buzzers. There should have been a televised parade of armored trucks carrying money to IndyMac HQ. Upon arrival, there should have been 50 armed guards carrying bags and boxes of money past the cameras like it was the grand prize at a poker tournament. Bank customers should have been able to see money stacked six feet high behind the tellers. This is how you handle a bank failure.