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Four small banks have already been closed this year and the FDIC is hiring more staff in preparation for more failures.
I guess these are "all his fault also"?
It's hardly the senator's fault ...
If telling the truth about the bank's financial situation caused a run on the bank, I'd say the situation reveals more about the lack of transparency of bank regulation than it does about the senator's comments.
The fact that the banks assets were almost all tied up in real estate shows there was a significant problem. Only a fool would think that the real estate market would never go through another bubble.
I think it is interesting that both this bank and Countrywide were founded by the same guy and both got burned for making bad choices in lending.
Maybe so, but...
there's a difference between organizing an orderly evacuation and shouting "Fire" in a crowded theater.
RE: shouting "Fire" in a crowded theater.
FDIC is hiring more staff in preparation for more failures.
Telling people that there will be more failures isn't shouting "fire" because it isn't naming a specific financial institution?
A run on ALL financial institutions?
Is it against the law to shout "Fire" when there is a Fire?
There are ways and there are ways.
IndyMac bank had been sent into freefall after comments by Democratic Senator Charles Schumer last month concerning the bank's health prompted a flood of withdrawals by panicked customers.
Schumer had sent letters to federal regulators, quoted in the Wall Street Journal, saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac."
The OTS's Reich said in the newspaper that Schumer's comments gave the bank "a heart attack."
Maybe a little discretion would have been preferable? Seems his "concern" triggered what he was supposedly worried about.
Just pretend there's no elephant in the room
Didn' t say that at all.
Say you are mountain climbing. You see that the rocks or snow above are precariously balanced and could come down in an avalanche with the slightest provocation. Would it be smart to shout a "warning" at the top of your lungs?
Very easy to understand. Easy to "misunderstand" too I guess.
I hadn't known about the Countrywide link.
What I'm reminded of there is that we've been through the S & L problem, and an earlier one with some CA banks in a less restrictive period. Shouldn't a learning curve kick in there, somewhere?
Just read a 50-yr-old piece by Galbraith on the Crash of '29- he shows that all of the several causes he knows of were known then, and there are written letters and memos warning of the most serious. Not a pretty picture.
BTW, wasn't Countrywide the biggest such company?
It's called creating a panic which causes a bank to fail
when it otherwise might not have done so. That can substantially increase the losses incurred, and it causes depositor losses which might not have otherwise occurred. We learned that lesson in 1929.
Every depositor suddenly demands their money. No bank can pay all of its depositors at the same time. If someone creates a panic, most banks will fail. It's that simple.
It is the Senator's fault that he created the panic. If he's not intelligent enough to know that, I have to wonder what he's doing in the Senate. I guess intelligence is not a requirement for office.
As far as the owners are concerned, if they are a big part of this loan fiasco, I hope they wind up penniless and in jail. That would be a good outcome.
Did Shumer do this?
RE: words have consequences..
and actions don't?
Don't lend money to people that can't pay it back.
Bank was already doomed.
Would have been delisted and sent to pink sheets for stock trading anyway, soon. Stock price must remain above a dollar to stay listed in the major exchanges.
I don't like Schumer. Think he'd make a great JOKER in a Batman flick. Can't blame him for this one though. Greenspan is to blame for setting u this mess back when he went too low on interest rates. Remember me ranting about it then a few years back? The results are coming in now.
Low interest rates did not cause the problem.
The problem apparently was caused by loaning money to speculators who got caught holding the bag. Loans to people who can not pay it back are a recipe for disaster. Congress ultimately created the problem by relaxing restraints on the banks who then proceeded to show us how stupid and/or dishonest, they can be.
Yes, that's what happens when...
...you make it too easy to get money, while rewarding those who worked and saved money with almost nothing for doing so. Easy money, easy go. Greenspan built the bubble so he'd look good while in office, saw the pop coming, resigned and dumped it in Bernanke's lap.
A review needed?
In case you hadn't noticed, the Fed does not make it
easy to get money. The Fed influences interest rates. Loaning decisions are made by banks. Those two things are separate activities. If you are arguing that the Fed should have been overseeing who gets loans, then you should be advocating for increasing the Fed's role in the banking system.
I found something written well before the Senator's letter:
This author thought the bank MIGHT be able to avoid failure, but he clearly outlined the MAJOR financial problems the bank faced. It was written well before the letter from the senator was leaded to the press:
No Holds Barred - IndyMac Smack Down, What About Financial Freedom?
The holding company of IMB down-streamed $88 million of capital to the subsidiary bank in the first quarter, allowing the bank to remain ?well capitalized.? It?s a matter of not if, but when something happens here that will dramatically alter the face of IndyMac. Could IndyMac fail? Possibly, not likely. I?d expect that IndyMac is either sold, recapitalized by a foreign investor or it sells good old Financial Freedom. As much as IMB won?t come out and admit it, I am sure that the OTS is all over them considering the amount of ?non?-prime/Alt-A loans that it still carries on its books in one fashion or another. For those of you who put the short position on IMB awhile back (ahem, DM - I was right), it might be time to put your profits in your pocket. It looks like the Undertaker maybe on the top rope looking to put IMB down for the count.
There are a couple of obvious points.
First, this probably an analyst writing to a small audience. He obviously does not have the power or the audience to create a panic. The Senator clearly did have such an audience, and did create a panic.
Second, note that the writer said "Could IndyMac fail? Possibly, not likely. I?d expect that IndyMac is either sold, recapitalized by a foreign investor or it sells good old Financial Freedom." Those are not words that are likely to create a panic. The writer expects the situation to be managed to minimize losses to the public. Of course, after Schumer sparked a panic with his foolish words, the bank did indeed fail with huge costs to its depositors and to the public.
Let me pose a related question.
What if there was a new virus afoot in a city where the strong possibility exists that the virus will infect large numbers of people in the city.
How should the situation be handled? Should the responsible authorities be left to manage the situation and attempt to minimize the threat to the public, or should a politician, without consulting the responsible authorities, release a statement to the press which tells everyone to run for their lives?
Not sure that's a comparable situation ...
In any event, the answer depends on the details. Also, I should add that I don't have any real opinion about the senator. I just don't think there is enough reliable information available to jump to the conclusion that the mess is his fault. He did not create the underlying problems at the bank.
You may have more factual information about this than I do, but I don't recall any links to substantial information thus far. There are various reports of uncertain reliability regarding exactly what happened regarding the letter that the senator wrote. My understanding is that the senator wrote a letter to the Office of Thrift Supervision questioning the viability of the bank. I don't think I've seen any information regarding when that letter was actually sent. At some point in the process the letter was leaked to the press. I have seen reports from people who may or may not have adequate facts suggesting that the leak came from the senator's office but not any actual statement from a knowledgeable party regarding who actually leaked the letter or whether the senator was actually involved in the leak. That leaves a whole lot of room for ambiguity regarding who is responsible for what.
In this case, I see nothing wrong with a decision on the part of the senator to communicate his concern with the OTS. Depending on the severity of the situation at the bank and the appropriateness of the OTS's response to the senator it may or may not have been appropriate for the senator to make his concerns public. Of course if the leak came from a source other than the senator's office then the blame for any fallout clearly rests with the source of the leak rather than the senator. Also, even if the leak was inappropriate, it is not clear that it made any long term difference. The bank was in serious trouble even before the letter was released. Did the letter finally push the bank to a tipping point? Probably. Would the bank have ended up collapsing without the letter? I don't know, but it should not have been a surprise if it had collapsed.
Also, given the potentially sensitive nature of the letter, I'm surprised that nobody seems to be blaming the press for publicizing the letter. After all, they also are supposed to exercise some judgment in the choices they make.
I suppose this also indirectly answers the question you posed about an epidemic. The answer is 'it depends'. BTW: the potential problem is not at all theoretical from a public health perspective. There are some rather irresponsible people who have been using bogus science to scare people about vaccine safety. They should be held responsible for the deaths they will cause if people stop using childhood vaccines.
I think the situation is very comparable.
I am interpreting your answer as you cannot say it is OK for the politician to make a statement that is likely to create panic in the case of a health crisis. I will go further. I will say that such a statement would indeed be a very bad and irresponsible thing.
One things politicians are very skilled at is denying responsibility. They never want to be held accountable for their actions. As you point out, in this case the Senator is doing his best to obscure his responsibility, but the news story says that he is seen by the bank regulators as responsible. Those folks are usually pretty restrained when it comes to leveling charges. That adds weight to the charge. If politicians cannot be held responsible for their irresponsible actions, why should other citizens be held responsible?
That's not quite what I said ....
As you point out, in this case the Senator is doing his best to obscure his responsibility
That strikes me as a rather creative interpretation of what I wrote. Or perhaps you have some data to support the statement? None of the reports I have seen suggest that the senator is trying to obscure anything. It appears, though, that the senator does disagree with the bank regulators. That's not surprising. I am surprised that you don't think the bank regulators would engage in blamecasting.
It appears to me that we view 'responsibility' in this case rather differently. I believe that ultimate responsiblity for the crash needs to be placed with the bank managers (and possibly the regulators) who allowed the bank to get into serious trouble to begin with. I do not believe it is reasonable to hold the senator morally responsible for the crash unless he acted recklessly. It may or may not be the case that he did act recklessly (I have too little information to say) and even if he did, he his hardly the sole perpetrator in this mess.
Furthermore, although you are correct that it is not OK for a politician to make a statement intended to cause panic I do not know what relevance that has. Do you know what the senator's intent was? I don't. Do you know when the senator communicated his concerns to regulators? Or what their response to the senator was? Do you know who leaked the letter to the press? Or why? I don't know any of those things, but I do know that the charge you have been making against the senator depends on assumptions about those unknowns as well as assumptions about the senator's motives. Personally I'd rather give the senator the benefit of the doubt unless I have some facts demonstrating a problem.
Let's face it. If you had that virus threat in a crowded
city and a politician grandstanding to the media, it would not be that hard to make a judgement.
Senator Schumer's track record is well known. It is highly likely that he was engaged in trying to politically embarrass his political opponents. In doing so, he ignited a firestorm. I think the allegation that the regulators were "blamecasting" is beneath you. The Senator did a lot of damage, and the regulators are trying to negotiate a very tricky tightrope. It was, and is, time for them to send a message to people like the Senator to "shut up". What is needed right now is calm rather than shouts of "run for your lives." Once a panic begins, it is very difficult to stop it. Stories over the weekend have reflected this sentiment. The Senator is not alone, but his stupidity has caused a LOT of damage.
In an attempt to forstall excessive depth, here's a follow
up on the Senator's motives;
Sen. Charles Schumer said Sunday the Bush administration is trying to "blame the fire on the person who calls 911" by suggesting he had a role in one of the costliest U.S. bank failures.
OK, we have professional, nonpolitical regulators who are charged by Congress with regulating the banking system. However, the Senator takes this opportunity to blame his political opponents. His motives, it seems to me, are now crystal clear.
On the other hand, we have the regulators quoted in the same article;
The OTS pointed the finger directly at Schumer for the failure, accusing him of sparking a bank run by releasing a letter that "expressed concerns about IndyMac's viability.
So, we have the professional regulators saying that the Senator caused this failure, and we do know that it was his letter that was the cause. The debate centers on who released the letter that caused the damage. We can call the professionals liars, or we can blame the Senator.
I'm sure it will be years before we really know who ultimately caused this mess, but the immediate cause of this run on the bank is not quite so difficult to find.
So, what do we opt for? Do we hire people to do a management job for the good of the country, and then let them do their job? Do we encourage anarchy where no one is in charge, and everyone does what his or her interests dictate? In my opinion, the record is now clear. The Senator opted to pursue his political goals rather than act with restraint for the good of all.
what do you think of Bernanke and BSC?
Bear Stearns was trading at $30. Before the stock opened trading the next day Bernanke came out and said it was only worth $2 and he wanted JP Morgan to buy it for that. BSC stock tanked, but still held at $4. Finally, in spite of the Federal Reserve Chief's attack on it, the price climbed back to $10, which is where Bernanke relented and loaned money to JPM to buy it at that price. No, what Schumer did is nothing compared to what Bernanke did. Schumer pointed out the obvious AFTER the stock had already dropped and was near delisting, whereas Bernanke caused a stock price crash on Bear Stearns while it was still trading high. Those poor shareholders never had a chance, all of them eventually took AT LEAST a $20 loss of value on their stock, and some who were caught up in a Bernanke inspired panic sold out lower.
Bernanke and Paulson are killing the stock market because so many have gone to cash rather than face another day of unexpected finagling and manipulations by the Feds in the "free markets" of America.
I think you don't have the foggiest idea about
what you are talking about. There is too much misinformation in your post to have any opinion about it.
RE: too much misinformation
too much misinformation in your post to have any opinion about it.
But you have one?
I think you don't have the foggiest idea about what you are talking about.
don't get mad just because I'm right.
what did "authorities" do on the Titanic?
for all those passengers in "steerage"? Those who were "important" were made aware and those who weren't got a different treatment. Can't always depend on authorities. I see Schumer stating the obvious. When you have a major banking system whose share price has fallen in a year from $35 to under a dollar, the only ones that can blame Schumer for making an issue of it are those responsible for the 97% price drop, are those who are truly responsible for it and looking to divert attention. Schumer is nothing in this but an excuse to try and focus attention on him instead of where it belongs. In fact, at the point things had reaced, Schumer's probably the ONLY ONE who acted responsibly toward citizens in general. He was the watchman on the tower who cried out when he saw the danger, albeit a bit late.
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