July 11, 2008 – 9:41 am

In act eerily reminiscently of the great depression the FDIC seized IndyMac Bancorp today recording the third-largest bank failure in U.S. history.

After months of trouble and turmoil IndyMac finally broke under the weight of tighter credit, tumbling home prices and avalanching defaults. The bank’s final maneuver was one of double down desperation, offering unbeatable rates on taxpayer-insured deposits, rates it could not really afford, but in a credit crisis where all the choices are bad ones it was simply the only one left.

Having lost the ability to accept brokered deposits earlier this week, the bank desperately needed other sources of funding to keep its operations going. It had nothing to lose by offering the best rates on taxpayer-insured deposits, significantly higher than any other bank in the nation.

As word of the danger got out depositors rushed the bank and finally regulators moved in. Coinciding as it did with the anger and angst of financial markets recognization that their toxic mortgage dumping grounds Fannie Mae and Freddie Mac were in imminatate danger of implosion as well (without government intervention) brought out the blame gamers and finger pointers.

The director of the Office of Thrift Supervision, John Reich, blamed IndyMac’s failure on comments made in late June by Sen. Charles Schumer (D., N.Y.), who sent a letter to the regulator raising concerns about the bank’s solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion. Mr. Reich said Sen. Schumer gave the bank a “heart attack.”

Might as well blame the earth quake in China on the good Senators comments while you’re at it. The director of the Office of Thrift Supervision, John Reich, should have blamed IndyMac’s failure on it’s fees up front deal with the devil “Liar Loans” made to ever-less credit worthy borrowers that sent the banks profits skyward.

“Would the institution have failed without the deposit run?” Mr. Reich asked reporters. “We’ll never know the answer to that question.”

Sure we do.

Definitely YES!

The real question is “Would the institution have failed if federal regulators had done their job”? Well given that purpose of regulators is to regulate the very alt – A loans IndyMac got crushed on the answer to that question director of the Office of Thrift Supervision, John Reich is Definitely NO!

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