California Attorney General Jerry Brown Likely to Ignore Request to Investigate Chuckie Schumer

This is probably a lost cause on the part of the former IndyMac Bank employees:

WASHINGTON (Reuters) - California's attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank's collapse by releasing confidential information.

At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company's ability to survive.

The FDIC took control of IndyMac on July 11 after depositors withdrew more than $1.3 billion over 11 days. It was the third-largest bank failure in U.S. history. At the time, OTS Director John Reich blamed Schumer's letter for causing the run on the bank.

In a letter to Attorney General Jerry Brown last week, 51 former IndyMac workers wrote: "From the day (Schumer's) letter was made public on June 26 until the closure of the bank, a run on the bank took place and the failure became inevitable."

Brown's spokeswoman Christine Gasparac said on Wednesday that his office was reviewing the letter and that a decision on whether to act on it could be made as early as next week.

Jerry Brown was a two-term governor of California who would like to be governor again. He's an ardent Democrat and lefty and I don't think there's any chance he'd start an investigation against a powerful Democrat like Chuckie Schumer. It's unlikely a prosecution would be successful, even without the political connection.

These People Need to Read This Blog

If these people had only read this post, they wouldn't be making this kind of news:

Police ordered angry customers lined up outside an IndyMac Bank branch to remain calm or face arrest Tuesday as they tried to pull their money on the second day of the failed institution's federal takeover.

At least three police squad cars showed up early Tuesday as tensions rose outside the San Fernando Valley branch of Pasadena-based IndyMac.

Federal regulators seized Pasadena-based IndyMac on Friday and reopened the bank Monday under the control of the Federal Deposit Insurance Corporation. Deposits to $100,000 are fully insured by the FDIC.

Worried customers with deposits in excess of insured limits flooded IndyMac Bank branches on Monday, demanding to withdraw as much money as they could or get answers about the fate of their funds.

When it was clear some wouldn't get in before closing, FDIC employees apparently took down names and told them to return Tuesday.

Other customers began lining up at 1:30 a.m. Tuesday, and by dawn, tensions escalated because people on the list were getting priority.

By 8 a.m., about 50 people on the list waited in one line and many more waited in another.

Five people were allowed in at a time.

Customers became infuriated, and police told them they could be arrested if they didn't remain calm.

Don't wait in line, people. It's dumb and it's not necessary.

Dumbest News Tease of the Day

I heard this plug for the KTLA Morning News (Channel 5 in L.A.):

Serious Anchor : Continuing converage of the IndyMac Bank takeover and what's next for customers...

Idiot IndyMac customer: It's reminiscent of the Depression!

Umm, no. During the Depression banks failed and nobody got a dime. There was no federal government bank insurance to step in and make the depositors whole. This is nothing like the Depression.

Don't Stand in Lines at IndyMac. It's a Waste of Time.

As a veteran of 18 years in the federally insured banking system and one failed Savings and Loan, I can tell you the scene today at IndyMac Bank headquarters in Pasadena is just ridiculous.

PASADENA, California (Reuters) - Hundreds of worried IndyMac Bancorp Inc customers descended on the company's branches on Monday to withdraw their money, after regulators seized what was once one of the largest mortgage lenders in the United States.

Regulators took over the Pasadena-based lender on Friday after a bank run in which customers -- panicked over IndyMac's survival prospects -- withdrew $1.3 billion over 11 business days, regulators said.

At a branch at IndyMac's headquarters, customers began arriving at 4 a.m., five hours before the doors opened. The Federal Deposit Insurance Corp now operates the thrift's 33 Southern California branches.

"I didn't think anything like this would happen," said retired teacher Charles Tengeri from Pasadena, who was first to emerge from the branch after withdrawing $171,000 -- about two-thirds of his life savings. "I withdrew as much as I could. I know it's going to take a little time."

The FDIC said the renamed IndyMac Federal Bank will cover insured deposits, mostly up to $100,000, and initially cover 50 percent of uninsured deposits.

"I have $360,000 in this bank, and I was misled by this bank," said Robert Clark, a Glendale resident. "I gave the names of my mother, my sister and my brother on the account so I thought I would be insured. I don't know what to do. I really don't know what to do."

John Bovenzi, an FDIC official working as IndyMac Federal's chief executive, talked with customers as they waited for the doors to open, assuring one that "this bank is as safe and as sound as any bank in the country right now."

The FDIC is hoping to sell IndyMac within 90 days. Among IndyMac's assets are a rapidly deteriorating mortgage loan book, the 33 branches, and the Financial Freedom unit that makes "reverse" mortgages for older Americans.

If you had less than $100,000 in the bank, your funds are safer today than they were on Friday and there's no reason to run down there and make a panic withdrawal. If you had more than $100,000, depending on how the accounts were vested you might have some money in the uninsured category, which means you'll only get 50% of the uninsured amounts if you panic and pull it out now with some of the rest coming later (you hope). Either way, you're not going to get any more than that, and if you had it in a product with a good rate, it makes no sense to pull it out. IndyMac Bank went from shaky to incredibly solvent over the weekend, so relax, folks.

I saw some of this in 1985 when S&Ls were failing all around us and my company took a dive too thank to real estate fraud. Nobody lost a dime of deposits at Beverly Hills Savings (we were pretty scrupulous about making sure large accounts were vested correctly to get maximum insurance coverage), but even accounts that could have been considered uninsured were covered in full by the Feds. It might be different this time with IndyMac, but either way, it makes no sense to stand in long lines to withdraw money that's perfectly safe.

Unfortunately, the images we see today will only spark panic in depositors at other institutions, and as rumors circulate, we could see wholesale runs on other companies thus hastening their collapse.

My advice as a former banker - make sure what you have in the bank is fully insured and then stop worrying. If you bank goes the way of the banking dinosaurs your money will still be there when the dust settles. This isn't the 1930's anymore.

150 More Banks May Fail

Following the collapse of IndyMac Bank there's a report that 150 more banks may fail in the next few years:

As home prices continue to decline and loan defaults mount, U.S. regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation's banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

This reminds me an awful lot of the mid-1980's when I was in the middle of the S&L crisis. Institutions were failing every other day and the ones that didn't fail were merging. We could be in for a similar time in the banking industry.

My experience with a takeover by the Feds was mentioned in this post.

Of course, if Chuckie Schumer writes any more letters, who knows how many banks will fail:

"At a news conference Sunday, the New York Democrat deflected blame cast upon him by regulators for causing a run on the bank that saw depositors withdraw more than $1.3 billion during the 11 days after Schumer released a letter about the possible risks of IndyMac failing."

IndyMac Bank Seized by the Feds

UPDATE: Don't stand in line, people, it's dumb.

Another purveyor of problem mortgages goes swirling down the drain:

The federal government said it took control of troubled IndyMac Bank today, in what regulators called the second-largest bank failure in U.S. history.

The Office of Thrift Supervision in Washington, the chief regulator of Pasadena-based IndyMac, said it transferred control of the $32-billion bank to the Federal Deposit Insurance Corp.

The FDIC will reopen the bank on Monday as IndyMac Federal Bank, the OTS said.

"Depositors will have no access to banking services online and by telephone this weekend, but will continue to have access to their funds this weekend by ATM, through other debit card transactions and by writing checks," the OTS said. "Online banking and phone banking services will be available again on Monday."

IndyMac's failure had been widely expected in recent days, as its stock has plummeted to mere pennies a share and some nervous depositors have been pulling their funds.

The bank has been reeling from losses on defaulted mortgages made at the height of the housing boom.

"The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors' demands in the normal course of business and is therefore in an unsafe and unsound condition," the agency said in a statement.

IndyMac's failure is second only to the 1984 failure of Continental Illinois Bank, which had assets of $40 billion at the time.

Boy, this brings back some memories. In 1985 I was an Assistant Vice President with Beverly Hills Savings. Our corporate offices were in Mission Viejo, CA, and at about 4pm on Tuesday, April 16th I saw a strange sight coming out of our underground parking garage. Men with briefcases were coming up the stairs two-by-two like animals off the ark. They were federal regulators seizing our institution.

That occurred during the heart of the Savings and Loan meltdown, and because our loan problems were in the $1 billion+ dollar neighborhood and so many S&Ls were tanking, the government couldn't afford to just shut us down and pay off the depositors. Instead they created a special management consignment program that put our S&L under the management of another one (which failed a couple of years later). By all rights I should have been out of a job that day, but because of the management consignment program and an eventual sale to a bank in Michigan, I was there another 10 years until the company was finally sold to a California S&L.

Good times....good times.