Today, a Wall Street Journal article about tougher times in America begins…
Just two weeks before IndyMac Bank failed, Cheryl Hodgson sold her house, temporarily parked $360,000 in proceeds in a nearby branch and rented an apartment while searching for a new home.
Since then, the 44-year-old police investigator has slept on the couch of her Mission Viejo rental, turning the lone bedroom over to her 13-year-old son Jacob. She has recouped two-thirds of the $360,000 that was in her IndyMac account and plans to move to Tennessee at the end of the year…
New York Senator Chuck Schumer’s actions leading up to collapse of the IndyMac bank were widely covered in the financial press.
The gist, back in July 2008:
IndyMac Bancorp Inc. became the second- biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.
The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank FSB, starting next week, the Office of Thrift Supervision said in an e-mail yesterday. The regulator blamed U.S. Senator Charles Schumer for creating a “liquidity crisis” after a letter on June 26, in which he expressed concern that the bank may fail.
During the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the OTS said.
“This institution failed due to a liquidity crisis,” OTS Director John Reich said in the statement. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
Schumer blamed IndyMac’s own actions and regulatory failures for the bank’s seizure.
“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Schumer, a New York Democrat, said in an e-mail yesterday. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”
Later, the Wall Street Journal found that some allies of Schumer had a strong incentive to see IndyMac fail:
Sen. Schumer, chairman of a Senate banking subcommittee, was criticized at the time for publicly raising questions about the bank’s solvency and regulators’ oversight of it. What wasn’t known then was that a group of potential investors, led by Los Angeles-based Oaktree Capital Management LP, had been inside the bank looking over its books. They had already decided not to invest in the bank, but were scouting assets that might become available if the bank failed and was taken over by the government.
Sen. Schumer’s office said recently he didn’t know anything about Oaktree’s possible interest in IndyMac until after the bank failed. Oaktree Chairman Howard Marks said he never talked to the senator about IndyMac…
The group of investors led by Oaktree are big political contributors, predominantly to Democrats. They have donated more than $700,000 to Senate Democrats and the Democratic Senatorial Campaign Committee during the four years that Sen. Schumer has chaired the campaign committee.
Fortunately for Schumer, that article ran on page A3 of a Saturday edition, and did not become a big story. The New York press never seriously examined why a New York senator was so focused on the health of a California bank, why Schumer aired his fearful comments so publicly, or how the collapse of IndyMac aligned with the financial interests of donors to Schumer and the DSCC.
In March and April of this year, three Oaktree employees donated the legal maximum to Schumer’s personal reelection fund, a total of $12,000; since 2006, Oaktree employees have donated $116,000 to the Democratic Senatorial Campaign Committee.
IndyMac’s former chief administrative officer, Rayman Mathoda, found Schumer’s focus on her former employer strange and disconcerting:
At the time it happened, [I] and those around me wondered what a US Senator who was also a longtime member of the Senate Banking Committee was doing taking such a public action which he knew (or should have known) could (and probably would) result in the failure of a (regulated) US Bank. Not to mention the question of why a New York Senator was so focused on a (relatively small) California Thrift….when there was plenty to worry about right in his own backyard i.e., on Wall Street.
But too many lives and jobs were at stake…and we got totally consumed first trying to fight this huge “fire” (to try to save the company)….and when the “fire” consumed the company, trying to deal with the aftermath of this disaster on our jobs and lives, and the jobs and lives of those around us.
…Wasn’t it irresponsible of Senator Schumer to basically trigger Indymac’s failure? Why raise a public concern about any financial institution, knowing the possible consequences of such an action? And why Indymac instead of Washington Mutual or Wachovia or some Wall Street firm….all of whom really ultimately faced very similar problems?
There’s a great deal of disembodied anger at Wall Street in the public today. It is interesting how little of that anger or scrutiny is directed at the senator closest to Wall Street, whose actions, in this case, were strangely fortuitous to the bottom line of his donors.
UPDATE: BigGovernment.com found another big Schumer donor who had a strong incentive to see IndyMac fall:
At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.