Posted on 07/12/2008 3:08:39 PM PDT by upchuck
The $32 billion failure of U.S. mortgage lender IndyMac demonstrates just how differently the United States is governed than Canada. This from today’s Wall Street Journal:
Mr. Schumer quickly fired back.The director of the Office of Thrift Supervision, John Reich, blamed IndyMac’s failure on comments made in late June by Sen. Charles Schumer (D., N.Y.), who sent a letter to the regulator raising concerns about the bank’s solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion. Mr. Reich said Sen. Schumer gave the bank a “heart attack.”
“Would the institution have failed without the deposit run?” Mr. Reich asked reporters. “We’ll never know the answer to that question.”
“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Sen. Schumer said. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”
You might be asking yourself, why is a New York Senator asking a regulator to look into a California bank’s “solvency”? Sen. Shumer is a member of multiple committees, each of which gives him a call on the financial markets and banking sector: Banking, Housing and Urban Affairs & Finance are two of his key Senate committees. He also Chairs the Senate Subcommittees on Economic Policy (Banking).
Having established that he has an oversight interest in the banking world, just what is he doing writing letters that could be seen to encourage panic on the part of depositors? When his staff sat around and discussed what to do before the letter was issued, they would have discussed the obvious risks to IndyMac’s solvency if a key U.S. Senator was raising concerns about solvency. At the same time, others would have advocated that “he has to be ahead of the issue” and “on the record” before Indymac hits the wall.
It’s not like Americans haven’t lived through a year of warnings (see prior post “US subprime borrowers sink deeper into trouble” June 15-07) about the financial health of small to mid-sized U.S. financial institutions. Many Californians lined up last summer to get their savings out of Countrywide Financial (CFC), for example (see prior post “Has the run started at Countrywide?” August 18-07). Moreover, Sen. Shumer’s anger appeared to be directed at the Office for Thrift Supervision, as much as it was at IndyMac’s management. I’m not sure that five votes in New York State tilt on whether or not Sen. Shumer was “out in front” on this issue or not. His profile is so high, and his power to get projects passed for N.Y. so clear, that his Senate seat is likely in the bag for several terms to come.
Which makes it all the more interesting that he got into the details of this specific situation. It appears to me that he was just doing his job. Which is probably more than you can say, as an outsider, for the Office of Thrift Supervision [OTS].
If the SEC continues to be AWOL on most of its mandate, and the OTS can’t help its charges avoid insolvency, huge corners of the U.S. capital markets fall to those members of Congress who are prepared to take the baton.
You would not have known about IndyMac but for its failure. Many of those who ran to that bank to make withdrawals were likewise panicked by information not previously known to them.
It is illegal for anyone to cause a run on a bank. In fact, there are laws against causing a run on any insured financial institution and Schumer could be prosecuted for divulging inside information which caused a bank to fail. Schumer had no business making public pronouncements about potential insolvency of any bank. Such statements have been proven historically to be self-fulfilling prophesies.
I think some Republican Senators need to demand an Ethics Committee hearing, at a minimum, and also demand thsat Schumer be removed from the Banking Committee. It would also be nice if some IndyMac shareholders and depositors filed a class action lawsuit against Schumer.
Among other things, GLB tore down the old Glass-Steagall ‘’wall’’ between investment and commercial banking, with one result being that we now have an orgy of speculation by investment banks using commercial banks’ funds (i.e. your and my deposits).
Republican Banking Committee Members
Richard C. Shelby Ranking Member (R-AL)
Robert F. Bennett (R-UT)
Wayne Allard (R-CO)
Michael B. Enzi (R-WY)
Chuck Hagel (R-NE)
Jim Bunning (R-KY)
Mike Crapo (R-ID)
Elizabeth Dole (R-NC)
Mel Martinez (R-FL)
Bob Corker (R-TN)
http://banking.senate.gov/public/index.cfm?FuseAction=Information.Membership
They can be contacted through their links on the site.
That’s a good idea about a Justice investigation. We should try to get some Republicans in the Senate or House to write to the AG and request an investigation. IndyMac was based in Pasadena - I don’t know who the Congressperson is for that area, but he or she might have some questions for Mr. Schumer! God knows Barbara Boxer and Dianne Feinstein won’t care about this, even as thousands of their constituents lose their jobs.
You might be asking yourself, why is a New York Senator asking a regulator to look into a California bank’s “solvency”?
Theory 1: Schumer is the head of the Senate Democratic Campaign Committee. If he can show that he can destroy a bank by circulating a letter questioning its solvency, then he might expect that will lead to more campaign contributions from fearful financial institutions.
Theory 2: He believes he can increase Democrat gains in November by causing one or more banks to go under, producing more economic turmoil
Possibility number three. A New York based bank swoops in to save the day and pick up the pieces. For pennies on the dollar I might add.
Maybe a bank from this list.
Chuck Schumer is Chairman of the Democratic Senatorial Campaign Committee. Take a look at some of the DSCC’s top donors so far :
Goldman Sachs $362,550
JPMorganChase $311,604
Morgan Stanley $169,450
Citigroup $146,250
Publicity.
On Friday, Mark Levin's producer put in a call to Schumer's office to try to get him on the show to answer questions. Larry Kudlow was all over Schumer on his show today. I expect Rush and Sean will be after him next week. His role has already been publicized in the Wall Street Journal and the NY Times (gasp).
Maybe after enough publicity, something real will be done.
Their rapidly declining stock price is available to all. I read several financial forums daily, and the condition of IMB has been the subject of much dire speculation, for several months.
Republicans need to stop circling the wagons because one of the main factors in this is the responsibility of Gramm. There's quite enough blame to go around, all the way back to the Clinton era. Clinton flunkies at Fannie Mae have a lot of explaining to do, too, not that they'll ever be called on the carpet.
There's another angle to this that I am working on and it's a lot more complicated. It involves ongoing efforts by the State of New York to assert regulatory authority over national banks. This would explain why Schumer went after IndyMac, and it also involves AG Andrew Cuomo going after Washiungton Mutual over its appraisal practices.
Is it S-h-i-t-h-e-a-d?
Fannie Mae is MUCH more at fault here than Phil Gramm. Stop reading the DNC talking points. The Gramm-Leach-Bliley legislation passed on an overwhelming, bipartisan vote. It was needed to help U.S. banks stay competitive with foreign banks, and to allow Citigroup to buy Travelers Insurance.
who was the senator that pulled a cya letter from his files when caught doing something? i can’t recall the details or who it was - but the senator was known for doing that
i am glad the announcement was held until after the market closed - friday was already a spooky day without adding this
i can understand why they were spooked when you add fannie mae and freddie mac to the mix - seems like monday will be a test of their stability
http://online.wsj.com/article/SB121577699220645703.html
After a week of near panic among shareholders of the two companies — and a stomach-churning day on Wall Street Friday — the next big test will come Monday when Freddie Mac is due to sell $3 billion of short-term debt. An unsuccessful sale could be a major blow to investor confidence. If the administration were to intervene, it could do so before markets opened that day, according to a person familiar with the deliberations.
but obama’s buddy will be ok
http://corner.nationalreview.com/post/?q=NWM3MDFkM2QwNzRjODk3NWZhZTc3OGIxNDQ4Nzc2NDc=
Investigators found that Fannie Mae had hidden a substantial amount of Johnson’s 1998 compensation from the public, reporting that it was between $6 million and $7 million when it fact it was $21 million.
A lot of people lost a lot of money from the tech bubble bursting and don't have my same feeling about it. The are angry and resentful, but they do not recognize that the Clinton administration stuck the pin in the tech bubble.
Now Schumer arguably caused a run on a large bank (or thrift), which may well lead to more runs on banks and then bank failures and taxpayer funded bailouts. He will not be blamed. George W. Bush will be blamed. Few will his role. Liberal academics will never cite him in their historical discussions of bank failures in 2008.
“Oh that’s nonsense, the bad business decisions led to the run on the bank.”
I would say Democrats in Congress are responsible and the voters should hold them accountable this fall.
I would also blame the Democrats in Congress for the floods this year, and the wildfires in California.
Close enough!
“I think some Republican Senators need to demand an Ethics Committee hearing, at a minimum, and also demand thsat Schumer be removed from the Banking Committee. It would also be nice if some IndyMac shareholders and depositors filed a class action lawsuit against Schumer.”
if difi got away with her military committee games (passing info to her husband’s partner), there is zero chance that this will go anywhere
can you envision pelosi’s botox’d face saying ‘culture of corruption’ and ‘for the children’?
“Maybe after enough publicity, something real will be done.”
the plan is to model this on the bcci scandal - too complex to be told in a 2 minute news story
It was Jay Rockefeller. It had something to do with the Bush Administration's tracking down terrorists - the heads of the Intelligence Committees had been informed and had concurred - but I don't remember the details.
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