Post hoc ergo propter hoc.
If Shumer found out, someone knew to tell him. Which means its likely more than one person knew. Which means its likely a whole bunch of people knew. People who knew about high finance, stuff like that. Whom do you figure such people are most likely to tell? Joe Sixpack who has his pathetic life savings in the bank, or somebody who might be in a position to be more grateful for timely advice?
Boy, thats a toughy…
Indymac’s stock fell from $31.33 to $1.08 (a 97% loss) in the year ending June 24. They lost $3 billion in market capitalization in the 12 months prior to Schumer’s letter. Do you honestly think that a company that lost $3 billion in one year was about to turn around, if not for a senator saying it was on the “brink of failure”?
The company was shooting blood out its ass like a Saturn V rocket, and there are people who think that someone who observed that fact and said so in public was the one who caused its ultimate failure?
I sure hope he doesn’t say anything about WaMu; he’ll probably cause that one to fail, too.
Why would losing market capitalization cause them to fail? It would certainly hurt their ability to raise capital, but that would in no way cause them to fail. It is a loss for stockholders, not the company.
I haven’t done a very close examination of their actual finances, however, I will note that the company actually lost $184 million in 1Q’08, $509 million in 4Q’07, and $203 million in 3Q’07. Prior to that they had positive earnings. Primarily contributing to these net losses of $896 million were $499 million from provision for loan losses and $548 million was for losses on their mortgage backed securities. The majority of these losses would be considered unrealized or non-cash. These were basically either adding to a reserve for potential loan losses or taking mark-to-market losses on securities classified as available for sale. Therefore, these could potentially reverse in future periods and did not necessarily affect their capital or liquidity.
Further, based on their 3/31/08 capital ratios, the company was considered to be well-capitalized by the office of thrift supervision, its regulatory body.
When examining their financials, they appear troubled but not in the dire situation that you paint by simply looking at the stock price.
Again, almost no bank can survive a run on deposits that was sparked by this letter.
Here is the original WSJ article from 6/27:
IndyMac Shares Drop-off Causes Alarm - WSJ. Their one quote:
It’s been widely recognized that the current shaky situation with banks, not-quite-banks, and mortgages is largely due to a failure to regulate.
The picture proves only that Sam’s authoritative source for blaming Schumer was present at the creation of the problem, cheering it on.
IOW, it impeaches his credibility. It means that I have no reason to take his words seriously now.
Good enough.
I frankly don’t care. Once you’ve created a city full of houses of cards, blaming the guy who sneezes at the wrong moment is a dodge.
To change metaphors, who cares about that one particular tree when half the forest looks like it could topple anytime? If you think IndyMac will turn out to be an isolated case, I’ve got some beachfront property in North Dakota I’d like to sell you.
Clearly their stockholders and potential stockholders strongly disagreed.
Sadly, financial panics are hardly unknown, and rational thought plays little part in them.
Actually, I don’t understand the NYT’s position that federal regulators somehow failed here. I don’t believe they actually set up the regulations in the first place and I don’t think they have the power to change them here.
OK, but who was panicking? Small individual investors like you and me had mostly never heard of IndyMac before Schumer’s comments, and the bigger boys are presumably capable of reading a balance sheet. So if IndyMac’s fundamentals were decent pre-Schumer, why the panic, and who was panicking? And if there was already a panic on that had caused IndyMac to lose 97% of its share value, it’s kinda silly to blame Schumer for the last 3%.
That’s what regulators do, though. Congress writes laws. Regulators write regulations, and enforce the laws and regulations.
The Glass Steagall Act was passed after the depression to prevent bank failure. It was high on regulation of banks and kept them from risky adventures. Banks and financial institutions were subject to separate regulation.Gramm slipped a bill through to dismantle the act. Some people actually believe regulation is the enemy of business. Corporations have to be regulated to insure the health of the economy. They will do anything to make short term money. Whole industries ,like mortgage and banking are put in jeopardy when regulations are slashed. But just think of all the money that these corporations made before the bottom dropped out though.
If I ever get a tattoo this will be it.
Fallacy of the excluded middle. The fact that it had problems does not mean those problems were bad enough to cause or provoke a panic.
Secondly, Schumer may have personally caused an unreasonable panic which killed a recovery and the bank. His letter should never have gone public, and that lone was a greivous lapse in judgement.
I’m not certain of the exact relationship of this particular Bank, but as I understand it, the regulators did not have much say over it, a situation which goes back a long way. That is, it’s
It looks like a mercy killing to me.
The bank collapsed because of a panic by depositors not investors. Schumer’s letter caused depositors to start withdrawing at a rate that the bank could not bear.
Have we drifted into some alternate universe here?
It may have been, but we’re talking about a bank whose shares had already lost 97% of their year-ago value. At worst, Schumer’s remarks were the straw that broke the camel’s back, and the problem is really the overall health of the herd anyway.
He introduced a whole different set of problems. They had problems with loan losses reserves and mortgage backed securities. They did not have a problem with a deposit run on the bank. It is unknown whether they would have survived their other issues.
Here is a quote from the head of the OTS.
Well, since you refuse to acknowledge any possibilty that, although demonstrated reasonably well by others, doesn’t fit your worldview, I guess there’s nothing to say except to also throw out a metaphor: You’re blaming the guy who sold the gun on the shooting instead of the guy who pulled the trigger. Hell, you’re blaming the guy who wrote the law that said the guy could sell the gun.
Okay; the more I read about this, the more confused I get. They had $18 billion in deposits and $32 billion in assets. But the assets were mortgages which were complete lies – the $32 billion would be based on the assumption that mortgages would default at a small historical rate. In reality, everyone who took out an ALT-A or Option ARM mortgage between 2004 and 2007 is eventually going to walk, do a short sale, or somehow get the balance reduced by scattering some of groo’s money around.
In other news from before Schumer’s letter, IndyMac cut 2400 jobs in January, eliminated its dividend in February, and by mid-June they had a half dozen class-action lawsuits filed on behalf of the stockholders. Yes, market cap does not directly relate to customers’ deposits on hand, but deposits aren’t ever actually there. “Well, your money’s in Joe’s house; that’s right next to yours. And in the Kennedy House, and Mrs. Macklin’s house, and, and a hundred others.” IndyMac had peoples’ deposits, but they were assets in the form of a portfolio of mortgages that were, to put it mildly, rather more risky than historical norms. In one of the many articles I’ve skimmed, I think the requirement is that banks have at least 1% of peoples’ deposits as cash on hand. That alone is enough for me to want to run down to my bank, but yes, if you judge that their having $180 million on hand means that they were capitalized, then yes. There was no trouble in IndyMac, and no one ever needed to know, because even if it failed quietly, everyone would get their first $100K back. Even if they couldn’t sell their malignant mortgages, the FDIC (in the form of a hose hooked up to groo’s wallet) would make them whole.
The thing that bugs me is, why does it seem that people are saying that it was Schumer’s job to hide the truth from the public? If the Senate Finance Committee is supposed to keep people from knowing the sad state of our financial institutions, is there some other sub-committee whose job it is to represent the citizens’ interests?
Let’s put it this way: if guns had previously been scarce, and this guy had been responsible for their new abundance - then yes, I’d be blaming the guy responsible for their sudden abundance for the resulting increase in gun crimes.
But if you wanted to go on thinking that there were more killings because, all of a sudden, a lot of people coincidentally started making bad decisions about the use of guns at the same time, there’d be little I could do about your delusion.