IndyMac : Whodunnit???

For God's sake, let us sit upon the ground/
And tell sad stories of the death of Kings

"The Life and Death of King Richard II",
William Shakespeare

This is a developing story, so view it as incomplete and soon to be updated.

The question is whether Senator Charles Schumer (D-NY) caused IndyMac bank's failure or whether it was inevitable and Sen. Schumer might have given people much-needed information of a regulatory failure - albeit a little recklessly.


The "Schumer dunnit" thesis is everywhere on the Internet, so I refer you to the Internet to find it. Was the Senator a little reckless? Well, let's put it this way: He handled the thing in a way regulators usually don't - and we see why not.

Look at this Wikipedia article I reference above. You'll find the counter-argument in words at the bottom of the paragraph labeled "Decline".

But what does it all mean?

Let's just add the numbers, shall we?

Here's what I think it means:

$18 billion (Deposits) X 37% (% Brokered Deposits  - CDs and such) = Approx. $6 Billion (Brokered Deposits)

Now, the Indymac "death roll":

June 30, IndyMac is no longered allowed to gather Brokered Deposits (Forget why - you want to read more? No, so trust me.). So as $6 billion in CDs and the like mature at about a $500 million a month, IndyMac loses about $500 million a month in deposits!

But why would that have happened?

Turns out that IndyMac was forced to own not only its own crap mortgages, but also its own crap Mortgage-Backed Securities. When Moody's and S&P downgraded those securities, IndyMac found itself in a sudden capital crisis. They fell below "well capitalized" at the stroke of a pen and when they did, they were screwed.

Did it help that depositors withdrew about $1.3 billion of $18 billion after Schumer released his letter of frustration? No.

But it looks like Indymac was about to be cut off from a source of deposits on which it was totally dependent. IndyMac was a dead duck.

The safety or our banking system rests on the quality of the debt underneath it. When huge banks like IndyMac and WaMu injected huge, goopy loads of junk down there, they destabilized themselves and, possibly, the system itself.

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