If you had money in IndyMac, a Pasadena, CA-based bank that collapsed over the weekend, there's good news and bad news. Bad news is: it's gone, baby, gone. Good news: Your tax dollars, in the form of $4 to $8 billion, will take care of that little problem.
IndyMac's doom had been long in coming: the stock price was tanking, lately seen below the $1 mark, and investors were yanking more than a hundred million a day from the company, which had gotten carried away with the handing out of mortgages during the housing boom. But it was the work of one man, with one stroke of his pen, that ended up finishing the company off... and costing all some pretty pennies...
IndyMac, which once employed 10,000, fell prey to a classic run on the bank, and regulators singled out Sen. Charles E. Schumer (D-N.Y.) as having helped to fuel massive withdrawals. On June 26, Schumer said in letters to the FDIC, the OTS and two other federal agencies that IndyMac might have "serious problems" with its loan holdings.
"I am concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers," he wrote. The bank "could face a failure if prescriptive measures are not taken quickly."
That public warning prompted depositors to pull $1.3 billion out of accounts between June 27 and Thursday.
"This institution failed today due to a liquidity crisis," John M. Reich, director of the OTS, said at a news conference Friday afternoon. "Although this institution was already in distress, the deposit run pushed IndyMac over the edge."
Schumer said in a statement that the cause of IndyMac's failure was "poor and loose lending practices" that should have been prevented by more active regulation. Later, a Schumer spokesman said: "Mr. Reich, a political appointee, should be spending less time playing politics and more time doing his job."
Later in the statement, Schumer said: "I have no problem playing poltiics with enough money to feed every starving child in this country, or maybe about half of the fat people in Tennessee. Now just try and defeat me in an electoral contest!"
But he may have been misquoted. IndyMac's failure is the largest since 1984. You can read more about this sotry at the LA Times website.