Regulators to Schumer on IndyMac: Please shut up

Sen. Charles E. Schumer publicly taunted bank regulators last week about IndyMac Bancorp's financial condition, which helped trigger a sudden outflow of deposits from the Pasadena thrift. Now the New York Democrat is getting some harsh blowback from one current and one former regulator.

Their message, distilled: Zip it, Chuck.

As noted here on Monday, Schumer sent letters to the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and the Federal Home Loan Bank of San Francisco, saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers."

IndyMac, which has suffered huge losses on defaulted mortgage loans, "could face a failure if prescriptive measures are not taken quickly," Schumer wrote.

Uh, wait a minute -- how could Schumer know that? And since when are regulators supposed to tell the public in advance that a particular institution has been earmarked for possible failure? All that would do is guarantee a collapse. If depositors are within FDIC insurance limits they have nothing to worry about, anyway.

That pretty much sums up the content of a letter to Schumer today from John M. Reich, director of the Office of Thrift Supervision.

"As a regulator of insured depository institutions, we do not publicly comment on the financial condition or supervisory activities related to open and operating institutions," Reich wrote. "We believe it is critically important to maintain the confidentiality of examination and supervision information."

He went on: "Dissemination of incomplete or erroneous information can erode public confidence, mislead depositors and investors, and cause unintended consequences, including depositor runs and panic stock trades. Rumors and innuendo cause damage to financial institutions that might not occur otherwise and these concerns drive our strict policy of privacy."

John D. Hawke, the U.S. comptroller of the currency (regulator of national banks) from 1998 to 2004, had more pointed words for Schumer in a story in the American Banker newspaper today.

"If Schumer continues to go public with letters raising questions about the condition of individual institutions, he will cause havoc in the banking system," Hawke said.

"Leaking his IndyMac letter to the press was reckless and grossly irresponsible. I don't see how he can be trusted with confidential information in the future. What this incredibly stupid conduct does is put at risk the willingness of regulators to share any information with the [congressional] oversight committees. After this, you'd be crazy to share information with Schumer."

The senator's office didn't respond to a request for comment today. On Monday, Schumer aide Brian Fallon offered this explanation for Schumer's action: "The home loan bank system has an obligation to lend responsibly and police its members. But it has not been doing its job. We have found the only way to get the home loan bank system to act appropriately and positively is to make public the concerns we've already expressed privately."

If that's Schumer's policy on the U.S. financial system's troubles overall, it's going to be a long, hot summer.

Photo: Sen. Charles Schumer. Mark Wilson/Getty Images

Comments

[Stephen Crouse]

I'm a mortgage broker in CT who has worked with Indymac since '99. They had an application platform which many thousands of brokers nationwide preferred over those of other lenders. It was very efficient and unique. Indymac had a small percentage of sub prime deals in their product mix compared to most other lenders. They were very strict in their U/W guidelines, something unknown by those who paint an evil brush stroke to all mortgage lenders.

They were drastically downsizing but were recovering until Schumer started firing away. Hopefully it will be learned why he picked out a relatively small lender in California to trash. Some others in their comments here, have suggested conflicts of interest.

Hopefully , we'll find out.

Steve Crouse

[TheBankDick]

To Martscan:

You missed the point.

Confidentiality and full disclosure to regulators allows the regulators to assist troubled institutions resolve their capital and liquidity problems without having to close them down. Usually thisd is done by getting another instutuion to assume some or all of the failing institution. Such negotiations occur under intense secrecy to prevent a run.

Schumer, whose legendary hubris is surpassed only by the national debt itself, just had to make another press release showing how important he was, "looking out for the people" and triggered a $1 billion + run on IndyMac by making the confidential information public. A $1 billion shift in the metrics like that kills rescue deals and, by midweek, no longer was a suitable merger was possible. Hence, he caused the closure.

So who should sue Schumer? How about the depositors who had in excess of $100,000 in deposits; there are about 10,000 of them (according to media reports). Their total loss wil be some part of $500 million (to be determined in the months and years to come - it takes that long to liquidate an institution and distribute assets).

How about the DIF? Rather than selling part or all of IndyMac back into industry, the FDIC had to go in and close it. The impact on the $53 billion DIF? Estimated to be something on the order of $5 billion (give or take a billion) - or about one tenth of the DIF funds available. And we have a lot more banks to close coming up.

Unfortunately, senators get some sort of immunity from suits for actions taken while in office, so a lawsuit actually wouldn't go forward. Pity. In one moment of poor judgement, Schumer cost thousands of employees their jobs, thousands of depositors millions of their dollars, and the DIF approximately one tenth of its reserves.

And you think the Senate's ethics panel shouldn't censure him? In China, they'd execute him for what he did.

So let's review the facts: there was no report that IndyMac was under criminal investigation, so Congress could inquire as to its condition. Under conditions of confidentiality, Schumer was briefed. When he didn't see enough activity in the media, he put it there. That started the run, which collapsed any chance for a resolution, which forced the bank's closure.

Thanks, Chuck. At least you could publicly apologize to all those you hurt...

[IndyMacMikeNYC]

I just learned on the news this morning about IndyMacs takeover by the feds.

I voted for Senator Schumer in past elections and I have my current mortgage with IMB....well had. This whole thing has me wanting to start a campaign to flood this guy's office with phone calls, letters, etc expressing my extreme displeasure with his actions.

Granted, Jennifer makes some relevant points in her post. However, the bottom line is that there are protocols for this type of information to be shared and he didn't follow them. If this happened with every institution that may be having trouble, think of the outcome....We all might as well go out now and buy fireproofed mattresses.

I'm really shocked by what I feel are his reckless actions that have not only added to the current panic of the economic state of this country, but has also directly impacted others who were dependent on IMB to survive.

I hope this isn't any posturing on his part for a cabinet or other higher level position within the potentially new administration.

In the meantime, I'm trying to find out what this means for me as an individual being a NYer with an IMB backed mortgage.

Schumer, if I could have my vote back, I'd definitely take it back from you.

[paul]

Good news for democrats=bad news for the US.

If you haven't figured this out:

the democrats WANT economic calamity, as the economy is percieved as one of the key strenghts of the democratic party.

caveat:
63% americans believe weare in a recession...we aren't.
56% of americans believed Saddam Hussien had something to do with 9/11...he didn't.

just as the WH slow walked us into Iraq, the democrats are slow walking us into an econmic crisis. We aren't there yet, and the more we do now, the less the impact later. unfortunately, the democrats LOVE where we are now, and will do nothing to help, and everything to hurt.

If you fell things are bad now, what plan of action have the democrats offerred. Not the punishing of indivuduals, the actual means of getting out of the impending mess.

[Shona M. Brogden-Stirbl]

My Fellow Consumers (formerly known as Americans),

"Government is not reason, it is not eloquence, it is force; like fire, a troublesome servant and a fearful master. Never for a moment should it be left to irresponsible action." George Washington

http://houstonconservative.com/2008/07/chuck-schumer-causes-indymac-bank.html

[HEADLINE] Chuck Schumer Causes IndyMac Bank Failure
Time for Chuck Schumer to be investigated for interfering in the supervisory activities of the Office of Thrift Supervision (OTS).

[Keith]

Jenny and the other Schumer defenders are koolaid drinking apologists for someone who at BEST is irresponsible. If anyone has tracked or followed Schumer, it's obvious that he's a megalomaniac, and even worse, like most poiticians (particulary senators), an ignorant megalomaniac. He should be kicked out of the senate. He's not fit to be dogcatcher

[Carlo]

Schumer is a crook an needs to be investigated by the FBI over this. All banks in the USA are houses of cards. The government allows them to lend out more capital then they have, expanding the money supply and robbing from the rest of us. The government knows that a run on any US bank will cause it to fail. Schumer deliberately caused a run on Indymac and deliberately caused its failure. 1.3 billion dollars were withdrawn within a week. Schumer alleged the FDIC would not be able to cover the losses so even those with under $100,000 took their money out and this sealed the banks fate. It is obvious Schumer is working for other bankers and was told to do this. The government needs to investigate what Schumer knows and who is controlling him.

[Adam]

The OTC was right, Schumer is wrong here. There are rules on the books like this for a reason that Schumer (I happen to live in the area he represents and did vote for him, but this was just DUMB) just doesn't get. This is something you forward to the OTC, but you don't air the laundry when so much is at stake.

[Mikes]

Another question, does Shumer own stocks in Banks that would benifit from the failure of IndyMac? If he knowingly caused a bank to fail while benifiing from that failure Shumar may be guilty of stock manipulation. An SEC lawyer would have to look into this, but taking advantage of insider knowledge of a future stock collapse has sent many a stock broker to jail.

[JAY BECKER]

WE SHOULD MOVE TO IMPEACH SHUMER-- HE DOESNT DESERVE A POSITION WHERE PRIVACY AND SECURITY ARE AT STAKE. HE IS ANOTHER LIBERAL IIDIOT INTERESTED IN DEFEAT OF OUR DEMOCRACY..

JAY BECKER AKRON OH

[Colleen]

LOL, that is some comment Jay especially looking back over the last 7 years of this administration. You are a hoot. Schumer is one of the good guys actually working for the people.

[Pete de Leon]

A lot of people who get most of their information from the media are understandbly upset by the closure of a Southern California-based financial institution. As an Indymac Bank (IMB) employee, whether you believe it or not, I can tell you that our bank's failure was not due to some inappropriate or criminal behavior on the part of any officers and/or employees of the bank. IMB made mortgage loans based on the existing rules that both our regulators and Wall Street in general said we could do. The truth is IMB created opportunities to a lot of Americans to own a piece of the American dream, and we the employees of IMB will always be proud of that.

No amount of care and dilligence that we at IMB have been putting together these past several months to make IMB safe and sound, is sufficient to halt the fear and panic that ensued after the unfortunate disclosure of Sen Schumer's letters to the media. Its a lot of water under the bridge, but a question in the minds of thousands of fellow employees that have lost their jobs, has yet to be answered. What did the taxpayers of this country get in return by the action of a respected and high ranking member of the United States Senate in naming and singling Indymac Bank as a bank that is doomed to fail?

[Gary]

Senator Schummer should resign and be investigated for violating federal banking law!

It violates Federal law for a public official or bank official to make public statements about a bank's solvency

This is what caused the run on the banks in the Great Depression. Rumors.

[Billy]

I'm going to post a quote from a movie. Tell me if this doesn't seem similar to the present situation.

Cosmo: Posit: People think a bank might be financially shaky.
Martin Bishop: Consequence: People start to withdraw their money.
Cosmo: Result: Pretty soon it is financially shaky.
Martin Bishop: Conclusion: You can make banks fail.

[Greg Brady]

Classic run on the bank. Anyone seen "It's a Wonderful Life." Schumer is old man Potter who wanted and got IndyMac's failure for his own nefarious purposes.

[Vlad]

"Let's let the PROFESSIONAL BANK REGULATORS do the bank regulating"

I want to puke reading these words. Are we referring to the same “PROFESSIONAL REGULATORS” that drove the economy into the ground? Or to those who looked the other way while the short sales of the Bear Stearns shares were under way? Or, perhaps, those who opened up the national treasury for pirates from the Wall Street?
All that these so called “PROFESSIONAL REGULATOR” can do really well is to rob the country and make fools out of you! I think PROFESSIONAL GANGSTER is more appropriate!

[Bronx Boy]

HELP!!! I live in a state filled with brain dead idiots who continue to re-elect the Schmuckster and The Witch in the Pants Suit to represent us in Washington. (Part of the problem is the NYS GOP continues to run no-name crash-test dummies against them.)

This guy has always been a sniveling, slimy little rat. Why should we be surprised?

I can only fantasize that he gets ousted from the U.S. Senate, but I won't hold my breath.

Schmuckie Shumer is an embarrassment to the once great State of NY, and frankly, speaking as a fellow Jew, he's an embarrassment to the Hebrew race as well.

[martscan]

BankDick:

I get the point, loud and clear.

Rather than address the remarks I made in the first sentence of my critique of your prior comments, to wit: "First, it is my understanding that Sen. Schumer HAD brought the matter of IMB to regulators' attention PRIVATELY, but did not receive any feedback and, thusly, made it a point to go public with the express intent.........", you utterly ignore them and assume a didactic position by lecturing me on confidentiality and disclosure to regulators (I presume by banks). Could you not agree that my prior first sentence obviously evidenced my cognizance of exactly what you mention in your "point" rebuttal?

You go on to sarcastically describe Schumer's hubris as being of the stature of the national debt. Can we agree that you have been 'anti-Schumer', for lack of a better term, long before this flap? By extension, is it fair to presume, Mr. BankDick, that you are a Republican?

Are you aware of the price of IMB stock in the month prior to Schumer's revelations? In the 3 months prior? In the 6 months prior? Are you aware of ANY negative press concerning the financial state of IMB prior to Schumer's revelations? Would you agree, Mr. BankDick, that it is fair to suppose that most IMB depositors having in excess of $100K in the bank were aware of IMB's press coverage in the month before Schumer's revelations? You would agree, wouldn't you, that most stockholders of IMB were certainly aware of IMB's stock price in the month, the 3 months and 6 months prior to Schumer's revelations? Wouldn't it be fair to say, Mr. BankDick, that any reasonable person could safely assume that most depositors and stockholders of IMB were aware of IMB's deteriorating financial condition prior to Schumer's revelations? I'll take this answer as an unqualified 'yes'. Given all these conditions, isn't it fair to say that IMB was headed for insolvency and if, indeed, that is the case, isn't it fair to say that, barring the bank's successful attempt to rid their $500M+ portfolio of inferior quality Alt-A loans which they had been aggressively shopping with no takers in sight, and other attempts to shrink their balance sheet and meet mandated reserve ratios, that it was only a matter of time before the bank would be in receivership? You know perfectly well the answer to this question is a resounding YES! Ergo, did Schumer CAUSE the closure? NO. Did Schumer's actions speed the process? YES. As I have said, Schumer's only indiscretion was that he did not act SOONER. Had he brought public pressure, rightful humiliation in my view, on the reg agencies a year earlier, when IMB was in a better position, along with the industry, to peddle their junk...the bank could have been saved.

Mr. BankDick, please, stop with the law suit talk, its not only ludicrous on the face of it but it would have not get past the court house front door. A class action lawsuit brought by disgruntled depositors savvy enough to accumulate in excess of $100K, $200K in joint accounts, because the excess of $100K is not covered by the FDIC in a bank that the depositors knew for months was falling apart, against a United States Senator that did nothing but make the facts of the bank's financial condition known to the public...his employers, so to speak. Excuse me, I'm taking a laughing break.

And how about the DIF? Are you telling me an entity organized to perform a certain function is not allowed to perform that function under pain of mortal sin? So the DIF is out $5B, that is exactly why it was formed, isn't it? Yes or no, Mr. BankDick? Now member banks will get a dues assessment to bring it up to $53B...they should think ahead and raise it to $100B, they're going to need it.

Mr. BankDick, YOU don't seem to get the point. If any public official is culpable of misfeasance here it certainly is NOT a U.S. Senator..it is that, those, official(s) WITH THE EXPRESS RESPONSIBILITY OF REGULATING FINANCIAL INSTITUTIONS TO THE EXTENT THAT THE PUBLIC'S MONEY IS PROTECTED. The banking regulatory agencies DID NOT do this. What is so difficult to understand?

Mr. BankDick, on an emotional note, that you would allude to the execution of Sen. Schumer, however remote the simile, metaphor or comparison, I find reprehensible, disgusting, spiteful and indicative of your totally blind, authoritarian partisanship and contrary to everything which our country aspires to stand for. As an American, I am deeply offended by your remarks.

[Oscar BullFrog]

ummm, is it even possible to sue mucking-chuck for his reprehensible and intentional destruction?

i wonder why he didn't pick on a ny bank first ... oh, wait; nevermind.

The FDIC, by design, will not reveal which banks may or may not be
having problems or may or may not be under investigation because a
run on a bank is typically instigated by speculation, rumor, inuendo
or senator schumer. (i think the fine for revealing starts at about
$1 million.)

chuck schumer knew precisely what release of his letter would do, cause
a run on the bank. and schumer knew that that run would then cause the
destruction exactly as he planned. schumer incited the run against an
existing precarious situation at IndyMac; precarious, not insolvent -
until the muck-from-chuck incited that run.

there *IS* a newly-started investigation that the bear-stearns run was
instigated by a rumor - schumer learned fast.

[Juanita]

The man should not be allowed to continue in office and should be investigated. He guaranteed the failure of this bank and it can/will happen again if they don't make an example of him and put him out.
I find what he did not only harmful to this bank/the bank industry but, it undermines the confidence of any entity and in this environment I find it to be one step away from treasonous.

[david p.]

"And since when are regulators supposed to tell the public in advance that a particular institution has been earmarked for possible failure?"
Why would an institution be allowed to operate at near possible failure in the first place? We are talking about the simple responsibility of holding deposits for everyday folks here.
As soon as the rules and regulations are removed, undesirable elements creep in.

[Dagmar Solberg]

Me, I'm sad.

I'm an employee with the IMB bridge bank IndyMac Federal Bank. I'm just a phone room monkey, a little person in the trenches, right on the front lines of this crisis. I have a job, for now. I'm one of the lucky ones.
I've heard every story imaginable from mortgage loan borrowers. Now I listen to the consumer banking borrowers as I assist in answering their overloaded phone lines. I've looked a this issue from the inside, and from the outside. I've read the articles, watched the press conferences, listened to the mocking and laughing and crying and whining, and tried very hard to be educated and objective.

I am here in the middle of all this, a loyal worker for a company I adored, a company that placed high value on me as a person and a productive worker. I lament the downfall of what I think of as one of the few institutions that genuinely embraced diversity, creativity, and inventiveness.

At first I was furious with Senator Schumer, feeling he had indeed cried, "Fire!" in a crowded theater. I still do not discount his role as one of the contributing factors to IMB's collapse, but I feel that ultimately it is the human traits of Greed and Fear which were primarily instrumental.

It is Greed which drove the housing bubble, and motivated lenders to broaden their approval requirements. It is Greed which stimulated home-buyers to apply for loans with payments they could barely afford, purchasing homes that were beyond their means. Greed led to the refinancing of loans to use more and more home equity in order to spend more and more borrowed money - to keep up the appearance of affluence, perhaps, or to acquire more possessions.
It is Greed which drives predatory lending, but it also drives predatory borrowing. Greed kept consumers and banks turning over transactions at an ever-increasing rate.

The economy did not do what was expected. People weren't able to later flip their houses or loans for better terms. People lost equity as home prices plummeted - many of them had home equity lines of credit which got frozen, and cried out in fury that they would not be allowed to continue spending.
Interest rates went up, loan payments increased, and people who could barely afford to pay their initial payments were unable to pay the new higher payments. Some are still in the grip of Greed, and unwilling to cut other expenses in order to keep their mortgages current. Some are simply way overspending beyond their current means. Some were uneducated or uninformed innocents paying the consequences of their & others' actions.
I see many players in this crisis. Government officials, government agencies, private brokers, lenders, underwriters, real estate agents, attorneys, and citizens. Any individual can be driven by Greed to do shocking things.

Now we are looking at Fear. Fearful account-holders are pulling out their deposits in a panic, convinced they will lose everything. Fearful homeowners are desperately trying to renegotiate their loans. Fearful doom-sayers are predicting a terrible recession full of misery and chaos. Fear is driving people to make bank-runs not just in America, but world-wide. People's fear of banks is growing, as their fear of the government and fear of their neighbors.

I'm scared, too. I'm afraid of being laid off and having to struggle to find work again. I'm afraid of my workplace being purchased by another mortgage giant - one that won't be as good to me as my former employer. I'm afraid of what the future holds because it is so uncertain. And I'm one of many thousands of people who feel this way. Employees, their family members, and everyone directly effected by the fate of the IMB employees is afraid to some degree.

I watch all these arguments about the culpability of this regulatory body or that individual. I read articles about the economics and implications and etc. But I don't see any mention of the people whose individual lives hang in the balance. I wait in the eye of a hurricane, while the controversies and crises fume around me, baffled and sad.

[martscan]

Dagmar:

You are obviously much too intelligent to have been "just a phone room monkey", or this piece was written by a professional.

If you, indeed, wrote this, you will have no problem getting a better position that matches your intelligence and talents, provided you present yourself to employers that can recognize your potential.

I suggest you contact Tom Petruno at the Times Financial Section. Certainly, tell him I recommended him to you.

And, Dagmar, learn this: it is not only perfectly legal and acceptable, but absolutely morally incumbent upon you to yell "FIRE!" when, in fact, the theater IS on fire.

[Dagmar Solberg]

Well, thank you, Martscan.
I did indeed write that and am not a professional writer. However, you've given me something to consider...

I suppose my use of the phrase "phone room monkey" is a bit flippant, but it keeps me humble. Truth is, it's mentally challenging work, which I find rather exciting, even when it's at its most frustrating. I like negotiating, using lateral thinking to do problem solving, and I like those moments when I get to be someone's hero. Plus, I get (got?) decent pay and excellent benefits.

I have made my contingency plans and feel confident that I'll not be facing any significant period of unemployment.

I do see your point of view regarding "Fire!" - however (to shift metaphors) I believe we had adjusted our ballast and were poised for recovery when the senator tipped the balance with his outcry. To me, his seemingly heroic act served primarily to damage the delicate balance and destroy any chances of recovery the company had.

Let's say I am able to think the best of Schumer:
He's in a pretty tough position now, having risked his career, his credibility, and his position in relation to the country's financial institutions, in order to do something he thought was morally right. I'm guessing that if he did mean well, he did not foresee the full extent of what would result. Maybe he didn't realize he'd stir up mass panic. Perhaps it didn't occur to him that he might not be considered trustworthy with confidential information anymore. It may be the case that in his zeal to make his urgent point, he just didn't think it through all the way. Economics still confuses me, and perhaps the senator's understanding is also limited.

Hey, he's only human.

Still, being human also means being able to feel things such as fear and greed. Charles E. Schumer is not above these emotions.

[Joe]

This is absurd. I don't know how anyone could suggest that Schumer's actions were acceptable. Do you guys work for schumer? His comments instigated a run on indymac bank that ultimately led to its failure. Absent his comments the bank may have survived. Schumer's comments denied indymac bank that opportunity. Indymac's failure is expected to cost $9bln to the deposit insurance fund and thousands of jobs.

[Robert Baldwin]

I am not a banker, but the article gives one clear impression:

Schumer caused a bank run which either caused IndyMac to collapse or caused it to collapse faster and further than it would have otherwise.

If I understand it correctly, banks keep only about 10% of their deposits around as cash. The rest go out as loans (this being the purpose of a bank). A run on nearly any bank would thus cause it to fail.

On Schumer: "It may be the case that in his zeal to make his urgent point, he just didn't think it through all the way."
No. The guy's a senior U.S senator, not a car wash attendant. His staff can easily make confidential inquiries and find what the effects of such statements might be.
He could even pick up the phone himself and have a five minute conversation. Maybe that was just too much work.

[Frank Urban]

What Schumer did was recognize that the country's credit markets were unstable and he knew that if it blew duirng the summer/fall that Republicans would suffer greatly. He did this on purpose for political reasons. Just like the last election where he (for the Senate) and Emannual (for the house) used the war issue to win seats in both houses. Schumer voted for the war and then used the issue to win seats in both houses. By not backing the president (after he voted to fund the war) he cause the enemy to hold on and fight more violently. He caused an estimated 1000 more deaths of US forces. He really should be investigated and probably be put to death for abetting and aiding the enemy just to win seats in the 2006 election.