Indymac fails, lots of blame to go around
July 12, 2008
Indymac bancorp becomes the second largest bank to fail in the last twenty years. The company was forced into receivership last week after depositors made a run on the bank and pulled out over one billion dollars worth of deposits in the past week. The company which is based in Southern California was one of the largest independent mortgage companies in the country and had assets over twenty eight billion dollars.
Indymac was a company that was devestated by the down turn in home prices. As one of the largest lenders in the country with a balance sheet that carried Alt-A loans, over forty percent of which were made to home owners in California, Arizona and Florida, the company simply did not have the capital to offset the required writedowns on its balance sheet. The mortgage lender had attempted to raise capital this year but found no investors willing to invest into the company as home values continued to decline.
The company came under fire last week when Senator Schumer out of N.Y. raised questions over the companies financial health. This was the equivalent of yelling fire in a theatre as customers began a run on the bank. The office of the OTS has criticized the Senator for bringing the issue in front of the public and could end up costing the FDIC up to eight billion dollars for insurance claims. There is speculation that the document was leaked purposely as the Senator is allegedly tied into a number of hedge funds. The sad part is the government has done little to help to stem the free fall of housing prices and now could be responsible for pushing a lender and bank out of business. One is left to wonder where the countries leadership has gone to?