IndyMac Bankcorp was doing just fine until someone talked. And that someone was none other than New York Senator Chuck Schumer.
In today’s increasingly interconnected society, it has become painfully apparent that words can hurt far more than sticks and stones—and the demise of IndyMac serves as a tragic testament.
Just two weeks ago, the Pasadena, Calif., thrift had about $32 million in assets, making it one of the largest savings and loans in the country. Its sudden collapse triggered by a $1.3 billion withdrawal by spooked depositors marks the second largest bank failure in US history. The Federal Deposit Insurance Corps. is predicted to lose between $4 and $8 billion of their $53 billion deposit-insurance fund to cover the losses sustained by the sudden bank failure.
This amount, however, is in no way all encompassing of the financial losses sustained this week: 10,000 people who collectively deposited $1 billion above FDIC insurance limits will lose half of their uninsured funds. Hundreds of others are still lining up outside of IndyMac branches in California, hoping to withdraw as much of their money as they can.
So how does Mr. Schumer factor into this mess? Well, to put it bluntly, he created it.
On June 27th, the Democrat Senator sent a letter to IndyMac questioning the viability of the bank and raising concerns over its solvency. Why Mr. Schumer felt obligated to write said letter is a mystery—all signs indicated that the bank was doing fine, and in fact was not even cited on the FDIC watchlist.
Yet Mr. Schumer not only wrote the unwarranted letter, he was careless—and thoughtless enough to allow it to be leaked to the press. And his words—as he smugly knew they would—carried a lot of effect. As Jerry Bowyer of Kudlow & Co. stated in a CNBC article on Saturday:
“When a senior senator who is in a number of influential posts regarding oversight of bank regulators directly attacks the confidence of a depository institution, it matters.”
The director of the Office of Thrift Supervision, John Reich, who blames IndyMac’s failure squarely on Mr. Schumer, remarked that the Senator gave the bank a “Heart Attack.”
The Los Angeles Times published a segment of a letter written by Mr. Reich aimed at Mr. Schumer, which states:
“As a regulator of insured depository institutions, we do not publicly comment on the financial condition or supervisory activities related to open and operating institutions…We believe it is critically important to maintain the confidentiality of examination and supervision information.”
One thing is for certain: Mr. Schumer should never have meddled—especially in so public a fashion. His words have triggered a mass hysteria which has proven both devastating and irreversible. The Senator ought to understand that as person of supreme responsibly, he ought to wield his words with caution. Rather than leaking his letter to the public, Mr. Schumer should have relayed his concerns—unfounded as they might have been—as discretely and specifically as possible. And only to those he knows would be equally discrete.
His blatant indiscretion and haphazard projections of financial doom will cost the victims of IndyMac’s collapse staggering amounts of money. And for that he needs to be held accountable.
Mr. Schumer first needs to step down from his seat on the Senate Sub-Committee on Financial Institutions. He has clearly shown that he has neither the integrity, nor the judgment, to occupy such a trusted position.
And Mr. Schumer should then dip into his own very ample bank account to hold harmless those whose life savings his loose lips lost. Even for an oleaginous well-heeled, blow-dried, booth-tanned U.S. Senator, actions should have consequences. It’s time for Mr. Schumer to personally pay for the price for his cruel and costly blunder.
