Monday, July 14, 2008

IndyMac Bancorp Seisure

Near-panic, if that is a word, seems appropriate for the last few days.

The federal government's seizure of savings and loan IndyMac Bancorp on Friday is not shocking. It reopened today as IndyMac Federal Bank, FSB, as investors wait in line to withdraw their funds.. Their business model of providing home loans without employment verification, etc., had assumed increasing home values. If the borrower reneges, IndyMac takes the "appreciated property" and resells it. Achilles heel: declining home values.

It did not help when Senator Schumer (D-NY), a member of the Senate Banking Committee, said in late-June that IndyMac "could face failure if prescriptive measures are not taken quickly." There are some things certain people should not say in public. A statement by a Senator leading to a bank run would be one of those.

IndyMac is one, albeit a large one, of a number of banks failures in the past 12-18 months. It will certainly not be the last during this mortgage crisis.

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