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.Now, Hot Air is attempting to lead the conservative media's charge to blame Chuck Schumer for the thrift's demise...
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.
In a written statement, the Office of Thrift Supervision, which regulated IndyMac, said “the immediate cause” of the failure was statements made by Sen. Charles Schumer, a New York Democrat. Mr. Schumer in late June publicly raised concerns about the bank’s solvency.
“Although this institution was already in distress, I am troubled by any interference in the regulatory process,” said OTS Director John Reich.
Putting fear into the minds of customers and potential partners certainly doesn't help any troubled institution. That's exactly what Schumer did, however it is over the top to say he was responsible. Furthermore, Schumer is not the important part of the story.
Indymac's problems, like those of every troubled lending institution, was the plethora of bad loans in their portfolio. IndyMac specialized in so called Alt A loans. Alt A was a sub group of loans found between prime and subprime. Alt A usually accounted for single digits percentage wise of the total market however that still gave IndyMac plenty of space to build its niche.
Alt A was second to go in the purging of the mortgage market. Sub prime began its rapid descent into oblivion in August of last year. A few months later Alt A began its slow decline. Today both sub sets are nearly non existent.
Of course, this news follows on the heels of the earlier news I covered about the impending doom of Fannie Mae and Freddie Mac. Indymac is not an especially large financial institution though this is the second largest failure in history behind Chicago's Continental Bank. What this should tell everyone is that the mortgage crisis is not over by a long shot.
In the last couple months, as the crisis receded from the front pages, replaced by the election and gas prices, there were many analysts that predicted the worst was behind us. Those reports are wrong, very wrong. IndyMac joins a long list of banks that have either suffered financial turmoil or at least shut down their mortgage operations in the aftermath of this crisis.
A friend of mine once suggested that the answer maybe the wholesale creation of a group of new banks. That seemed like a far out idea at the time, however it may appear that the current crop of banks will be saddled with so much of this bad debt that his idea may be the only way for the industry to move forward. The bad debt being carried may in fact be too great for any bank to recover.