Did Senator Chuck Schumer Cause Indymac Bank Failure?
Director of Office of Thrift Supervision Accuses
The controversy started on June 27th when Senator Chuck Schumer's office released a letter sent to various bank regulatory agencies calling into question Indymac Bank's viability and urging steps be taken to prevent the bank's collapse. The public disclosure of the letter from Chuck Schumer, who serves on both the Senate Finance Committee and the Senate Banking, Housing, and Urban Affairs Committee, resulted in an eleven day run on Indymac that resulted in the withdraw of more than $1.3 billion dollars.
John Reich, the director of the Office of Thrift Supervision, blamed the Indymac bank failure on the comments made in Senator Chuck Schumer's letter. Reich suggested that Schumer had given the bank a "heart attack."
Chuck Schumer fired back, laying the blame on bank regulators for turning a blind eye to Indymac's "fast and loose lending practices" until it was too late. Reich conceded that Indymac, which had been plagued by mortgage loan defaults, might have failed on its own without being helped along by Senator Chuck Schumer's public remarks.
Indymac used to specialize in alt-a style home loans, generally given to borrowers who cannot fully document their assets or income. Though most of these problem loans were sold off, some were still being carried on Indymac's books. Defaults continued to mount, further damaging Indymac's fiscal health.
The Federal Deposit Insurance Corp is now supervising Indymac's operations. It is estimated that the tax payers will have to cover between four and eight billion dollars in bad Indymac loans.
Whatever the ultimate cause of the collapse of Indymac, it is clear that the public disclosure of Chuck Schumer's letter was not helpful. Could Indymac have been saved had it not been for the Schumer letter and the subsequent run on Indymac? No doubt that question will be part of a political argument for some time to come.
Another question: Why did Senator Chuck Schumer make public his concerns about the health of Indymac to start with? Schumer should have known that such remarks by an important Senator would not be helpful for the fiscal health of Indymac. Was it just a stupid blunder on the part of the Senator?
Jerry Boyer, a commentator for CNBC, suggests a darker reason. Boyer notes that Indymac was under attack by a left wing organization called the Center for Responsible Lending. Around the time that Schumer was releasing his letter, the CRL publicly attacked Indymac for "unfair lending practices."
Boyer concludes, "A suspicious person might think that a network of lefty attack groups proficient in bank bashing and frequently funded by trial lawyers and short-sellers, coordinated their activities with a law firm on the hunt and a Senator who works closely with the network.
"On the other hand, maybe it is a coincidence that CRL and Sen. Schumer attacked the same bank in the same week. Maybe he didn't know about the CRL report, nor CRL about his letter. Maybe the community group didn't know about the trial-lawyer class action lawsuit which was launched against Indy a couple of weeks before all of this started."
Whatever the answer, it seems that Senator Chuck Schumer has some explaining to do.
Sources: Crisis Deepens as Big Bank Fails, Damian Paletta and David Enrich. The Wall Street Journal, July 12, 2008
How Chuck Schumer Caused the Second Largest Bank Failure in US History, Jeffrey Bowyer, CNBC, July 12th, 2008
Published by Mark Whittington
Mark R. Whittington is a writer residing in Houston, Texas. He is the author of The Last Moonwalker, Children of Apollo, Dark Sanction, and Nocturne. He has written numerous articles, some for the Washington... View profile
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15 Comments
Post a CommentIndymac would not have gone under if it weren't for the $1.3 Billion run. The stock price was so low because of illegal naked short selling and it's my guess that this donkey (Schumer) was in bed with them. Andrew's analogy from above is wrong. What can we do to make him pay. I'm thinking lawsuit. This moron hurt a lot of people with his irresponsilbe letter. And for what- so his hedge fund babies can support him in the next election and buy themselves a penis pump. Think about the people who are getting 50c on the dollar for their savings accounts that were over the insured limit. Think about us (the taxpayers), the shareholders, the FDIC, IMB employees, all the other depositors, and whoever else felt the pain. All so he could make his buddies some cash. Maybe they would have failed. Would it have been more responsible for a person in Schumer's position to not make a public letter. Instead, do something repsonsible and try to help protect the public behind the scenes.
Schumer should be forced to resign from his office for releasing confidential information, forreasons unknown, which caused the run and panic still haunting Indymac Bank customers and the banking industry. If Schumer is NOT censured for his actions then we now have a slippery slope where an influential person can bring down a company, bank, fund, business, etc., by going to the press and not correct channels. Schumer should have pushed bank regulators to audit and sanction Indymac which would probably have resulted in a forced merger with a sound bank, not a run and collapse. Our politicians are elected to protect and represent the best interests of Americans, not create panic, loss, and instill anger.
Chuck Shumer yelled fire in a crowded theater. He is not a hero. It was irresponsible to release the letter he had written to the financial authorities , and you wonder if his friends had shorts going. You think Shumer would do the same stupid thing to a bank in Nre York. They ought to put congress in barracks for six month stays, they are a pretty useless bunch on the whole.
I will not be so bold as to suggest that Schumer was eager to get this bank ,and the presumed scores of other banks, to begin collapsing before the election this fall so as to ensure greater democrat victories in our government. No I will not do that because I know there is not a partisan bone in his body.
Here is a link to an excellent article on the craziness of our society and the political maneuvering that takes place.
http://www.townhall.com/columnists/JerryBowyer/2008/07/15/how_chuck_schumer_set_off_a_bank_panic&Comments=true
Being the staunch democrat he is, perhaps he figured it expiedient to get the banks to fail before the election to ensure a greater democratic victories.
New York Times reported that hedge fund managers have a new champion in their effort to keep legally dodging the taxes the rest of us pay: none other than New York Senator Charles Schumer. Now you know who is Schumer's friend and why he caused the bank run on Indymac. He truly support hedge fund and private equity because they truly support him.
http://www.nytimes.com/2007/07/30/washington/30schumer.html?_r=1&oref=slogin
"Large Investor decided to pay a few bucks to a Senator in New York to force the issue."(Prospect Mortgage Backed By Sterling Fund--Private Equity Acquired The Mortgage Branches from Indymac before FDIC takeover)
http://www.housingwire.com/2008/07/03/regulators-to-schumer-weve-got-a-whole-bag-of-shhh-with-your-name-on-it/
"And do remember that there are many investment bankers located in New York, making them pretty influential constituents of Sen. Schumer."
http://www.pasadenastarnews.com/opinions/ci_9783402
"In a Sunday news conference, he said everythi
Schumer didn't cause IndyBank to fail. He put it out of its misery. Banks that engage in practices like these deserve to die. We keep hearing about the supposed glories of the free market, like it's God or has a brain of its own. Well, guess what? The free market is a dumb beast. And like any dumb beast it needs a regular cycle of discipline to make it behave or it tears through the fence and stomps all the chickens in the farmyard, which is us poor investors. The whole idea that it is un-American to speak the truth has gotten far too much credibility under this administration. Now we see it becoming commonplace...and the Good Old Boy Network is now called patriotism. It's a sickness. Aren't you people tired of being lied to and manipulated, or have you grown to appreciate the lies in favor of dealing with reality? Schumer told the truth. The bank was destined to fail. If it snaps others into place, he's done us all a great service. A true American.
Oh, btw, Schumer is a dildo!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Chuck Schumer is a dildo and an idiot. My wife is a financial services professional, and when I told her about IndyBank when it broke she went on-line to read about it (this was last week) and I heard her cussing about Schumer. She said he wrote a PUBLIC letter telling of needed investigations, and drove the run on the bank by his public pronouncement. He's a frickin' dildo and a pandering asshole. He would see this nation burnt to the ground if it aggrandized him personally. He's a dildo! He could have handled this thru PRIVATE gov't channels and accomplished the oversight role, but the public pronouncement was for his own face time on TV. Did I mention he's a dildo?
Yes it might have failed on it's own, but then again maybe not. When you are someone like Schumer or Ben Bernanke you should keep your statements as low-key as possible and let the capitalist system do it's job. These kinds of events are largely psychological in nature and in reality if left alone might have worked themselves out. BUT NO, due to Schumers BIG MOUTH we now are hearing that a bunch of small banks are in trouble and on the verge of calapse. Due to Schumers inability to work with in the confines of the system this whole thing could turn out to be a self fulfilling prophecy much worse than it would have been if he had just kept his mouth shut in the first place. Due I blame him for this debokle? You bet I do ! This isn't the first time he has stuck his big nose where it dosen't belong. If I had my why I like to see him resign and stay out of politics. They say the most dangerous spot in Washington D.C. is standing between Sen Schumer and a TV camera.