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Thread: weekend commentary - IndyMac Bank goes belly-up

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    Default weekend commentary - IndyMac Bank goes belly-up

    from

    (snip)"LOS ANGELES (July 11) - IndyMac Bank's assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. The bank is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said.

    The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands.

    IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said. "(snip)

    (snip)The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion."(snip)

    (snip)"The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.

    In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.

    In a statement Friday, Schumer said IndyMac's failure was due to long-standing practices by the bank, not recent events.

    "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 said. "Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs."

    The FDIC planned to reopen the bank on Monday as IndyMac Federal Bank, FSB.

    Deposits are insured up to $100,000 per depositor.

    As of March 31, IndyMac had total deposits of $19.06 billion.

    Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.

    Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.

    During a conference call with reporters, FDIC Chairman Sheila C. Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac's assets.

    "We anticipate trying to market the institution as a whole bank," Bair said. "How much money we derive from that will depend on who gets paid what."

    Holders of unsecured IndyMac debt may not fully recover their investment, Bair said.

    "Generally if a creditor is secured, they are at the top of the claims priority," she said. "If they are unsecured, they're pretty low on the claims priority and probably will take some type of haircut with this, but we have not had a chance to do a thorough analysis to know ... how extensive those losses will be."

    IndyMac spent the last two weeks trying to reassure customers that it was not near default.

    On Monday, IndyMac announced it had stopped accepting new loan submissions and planned to slash 3,800 jobs, or more than half of its work force - the largest employee cuts in company history."(snip)


    - the news blurb says that the IndyMac takeover will cost the FDIC somewhere between 4 and 8 billion in FDIC insurance payouts to IndyMac depositors. However, what the news blurb does NOT say is that FDIC's total available reserves prior to the IndyMac takeover only amount to some 50 billion dollars or so. As such, the FDIC could only handle perhaps 10 additional bank failures on the scale of IndyMac before becoming insolvent itself !!!

    - the news blurb says that unsecured creditors are likely to take a haircut. In plain terms, this means that IndyMac stockholders will take a huge decline in their stock price, and counterparties to IndyMac bonds / CDO's ( meaning other banks, FMN and FRE, institutional investors) are likely to be stiffed in the short term.

    - unlike financially troubled Bear Stearns, Countrywide, and some smaller troubled financial institutions, it was apparently not possible for a 'shotgun marriage' to be arranged in the case of IndyMac. In the absence of a 'shotgun marriage', where a different, larger financial institution acquires the troubled institution and takes over responsibility for all customer accounts, the only resources available to IndyMac customers are FDIC insurance funds - providing that the customer accounts were of a type that qualified for FDIC insurance. Per the news story, the FDIC is taking applications and considering extending FDIC payouts to non-insured accounts at a rate of 50 cents on the dollar ... but there is no guarantee the FDIC will actually do this.

    - whereas IndyMac (and many other banks in similar straits) had racked up a collection of foreclosed homes that are essentially unmarketable at any sort of price that could offset the bank's original investment, the FDIC itself now begins to rack up a collection of foreclosed banks that are essentially unmarketable at any sort of price that could offset the FDIC's obligations to insured bank customers.

    - per the news blurb, the FDIC is currently limiting the access of IndyMac customers to their deposited money ... via ATM transactions (subject to pre-existing $500 per day transaction limits or whatever) and via checking account transactions (subject to pre-existing checking account balance). There is no guarantee that the FDIC is going to allow customers to make unrestricted withdrawls from IndyMac savings accounts / unrestricted transfers from IndyMac savings accounts to checking accounts / unrestricted cashing in of IndyMac CD's prior to their maturity date etc. without forcing customers to wait until FDIC insurance claims are processed first. In other words, IndyMac now represents the first example of 'banking system liquidity problems' reaching all the way down to the retail bank customers !

    ~
    Last edited by Melonie; 07-11-2008 at 11:57 PM.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Hmmm. Makes me think maybe I should put my money into the Serta Savings Agency! Or at least, 10,000 people will have learned about the value of the Serta Savings Agency. I am sure they thought their money was safe and sound in a CD instead of those nasty icky stocks.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Murmurs and whispers are saying Wamu or Wachovia are next.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    ^^^ actually, Lehman Brothers tops the risk list ...

    (snip)"It’s a bad day to wear the label of “next Bear Stearns,” which means that it’s been a bad few days for Lehman Brothers Holdings Inc. (LEH: 14.43, -16.59%) — the fourth-largest U.S. securities firm has seen its shares battered as credit concerns moved to the forefront for investors and shares of government-sponsored housing giants Fannie Mae (FNM: 10.25, -22.35%) and Freddie Mac (FRE: 7.75, -3.12%) have tanked.

    As is wont for a firm seen by investors as vulnerable — and one that has nearly 15 percent of its outstanding share float in a short position — rumors have a way of emerging to tank stock prices. The latest false rumor emerged Thursday, with a rumor that bond giant PIMCO had ceased trading with Lehman.

    PIMCO manager Bill Gross quickly quashed the rumor, but the damage was done: Lehman closed off 12 percent $17.30 Thursday. Shares resumed their slide further on Friday, and were off 18.5 percent to $14.10 as of 11:01am EST.

    Friday’s slide, however, appears to be tied moreso to the same sort of credit concerns that have battered Fannie and Freddie; questions remain over Lehman’s large exposure to mortgages, and what that exposure will mean for capital at the firm.

    In a filing with the Securities and Exchange Commission late Thursday, Lehman said that its so-called Level 3 assets — those most difficult to value — actually rose relative to overall assets, from 6.1 percent in November of last year to 6.5 percent at the end of May of this year. The dollar value assigned to Level 3 assets fell slightly, from $42 billion to $41.3 billion; $20.6 billion of that total was in the form of MBS/ABS, Lehman said, the largest chunk of Level 3 assets valued.

    MBS and ABS assets remain dominant on Lehman’s overall book, valued at $72.5 billion of the company’s $248.7 billion in total assets at the end of May; the second-largest asset category is the firm’s corporate debt, by comparison, which represents $50 billion."(snip) from


    as to Wachovia, speculation is that they will submit to an arranged 'shotgun marriage' with JP Morgan Chase ... which will be financed in large part by JPM's ability to take tax write-offs against future profits for the next 20 years or so at the expense of US taxpayers !!!




    Or at least, 10,000 people will have learned about the value of the Serta Savings Agency. I am sure they thought their money was safe and sound in a CD
    Well, stashing money in your mattress involves different risks LOL. But after enduring the 9/11 aftermath, prolonged power failures etc., I learned the hard way that money in a bank account or unused credit limit on a credit card is NOT the same thing as a couple of thousand dollars worth of greenbacks in hand ! If power fails, if the interbank financial data network goes down, or in this case if your bank goes bankrupt, there is simply no way to immediately access your funds (or credit).

    But yes a whole lot of Americans have the mistaken impression that the FDIC is an impregnable backstop that will provide them with instant access to 100% of their money when an FDIC insured bank fails. Legally speaking, the FDIC is obligated to cover 100% of FULLY INSURED accounts ... which may or may not include money market accounts, CD's etc. depending on the specific structure. But even with fully insured accounts, there is no legal time limit for the FDIC to pay off that 100% to insured account holders.

    It's entirely possible, if and when the FDIC is overwhelmed with bank failures and insurance claims, that in order to avoid going bankrupt itself the FDIC may choose to pay off on insured accounts over a period of time i.e. 20% per year for 5 years. There is also no legal requirement that the FDIC must continue to pay interest on insured account deposits if the eventual 100% insurance payout is delayed. In theory this means that a depositor who bought a $10,000 FDIC insured 1 year CD at 4% interest from a 'high risk' bank like IndyMac, and who expected to withdraw $10,400 next July, could actually get paid $2000 immediately, another $2000 next July, and another $2000 in July of 2010, 2011 and 2012.

    ~
    Last edited by Melonie; 07-12-2008 at 08:28 AM.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Yea, they think the best idea is to merge banks into ever bigger behemoths that "can't fail."

    You know, like Freddie and Frannie (which quasibanks to begin with!)

    Keep this up and we will get to deal with three unregulated banks left in America.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    ^^^ actually, it could devolve all the way down to the US FED being the only 'solvent' bank left standing ... thanks to its ability to print an infinite supply of new money LOL !

    In reality, this is likely to go the way of all 'big corporation' consolidations ... winding up with a handful of huge banks mostly owned by foreigners !

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    The cynic in me says just wait for the calls in Congress to begin about all those "poor gulliable people" that were dumb enough to put more than 100 grand in an account and how, somehow "we have to make them whole"

    Just like with all those "Katrine victims" who couldn't be bothered to have flood insurance who now between their 100 grand plus "grants" Red cross and other charity payments, eventual partial settlements from their insurances companies that came after they had already cashed those "grant checks" and all that free "volunteer labor" they got now have houses that are easily worth 3 of 4 times what they had before.

    Or they are the same, but they have been living like rock stars the last few years.

    I work at Lowes, for example an appliance has the smallest scratch or dent on the back or some place you couldn't see anyway, maybe just the bix it comes in is longer "pristine" it in no way voids the warranty, you even offer them a discount, 10-25 % and you hear them sounding all high and mighty "I wouldn't have that thing in my house"

    But you know dam well that if they did it the first time they moved it and dented it the same way it would be fine with them.

    I see/hear this crap all the time

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    We have a home loan through IndyMac Bank.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    ^^^ well, I'm sure that somebody will still come looking for the monthly payments on your IndyMac mortgage. However, IndyMac depositors trying to get their money out in cash are having a bit of a problem ...




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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    And this little news tidbit is being kept out of mainstream news media ...

    (snip)"From Tom Petruno at the LA Times Money & Co. Blog: Feds to freeze IndyMac's home-equity credit lines. (hat tip Peter Viles)

    Petruno outlines several key points from the FDIC news conference today on the FDIC freezing HELOCs, interest on CDs, and more (relayed by Times staff writer Kathy M. Kristof) .

    For builders: Lines of credit to commercial construction contractors also will be frozen pending a review, but construction loans made to individual consumers won’t be affected. "(snip)

    (from a professional investor's BBS)

    In other words, the FDIC is making sure that IndyMac's 'subprime' customers cannot run up a larger 'tab' via tapping unused Home Equity Lines of Credit, remaining Credit Card limits etc. on top of ending interest payments on CD's etc. And the FDIC is cutting off commercial construction loan 'draws' at the knees, which in turn will result in half-finished new buildings and bankrupt construction contractors.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Any thoughts on the coming "bailout" of customers who where dumb enough to have more than 100 K per account.

    Lets see who in congress is from Ca. ?? Nancy Pelosi, Maxine Waters (LA) Barbara Boxer, Diane Feinstein.

    Do we need to add any more "oh it's not their fault" bleeding hearts?

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Quote Originally Posted by phonehome View Post
    Any thoughts on the coming "bailout" of customers who where dumb enough to have more than 100 K per account.

    Per depositor, not per account.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    despite it's 'limited' reserves, the FDIC has already offered to pony up 50 cents on the dollar insurance coverage for individuals who had MORE than $100,000 on deposit with IndyMac ! I think that the 'gov't must help the poor' explanation is going to be a bit stretched ... especially when the FDIC runs out of insurance money in a couple of months after another dozen IndyMac-esque bankrupt banks hit them up. But of course at that point the FDIC itself will go to Washington and lobby for a taxpayer funded bailout !

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Yes Melonie that is what I am saying. The same thing happened with FSLIC.

    I remember the rules they had. The DID cover 100K PER ACCOUNT, you had millionaires that had any number of "fully insured" 100K acct.s

    Even though all those S/L accounts were backed by FSLIC and only FSLIC and NOT by the "full faith and credit of the US goverment" when FSLIC ran out of money they did get "bailed out" by the goverment.

    Way too much middle of the night and you can't sleep C-SPAN back in the day.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    ^^^ back in the 1980's, the financial status of the US gov't and US dollar were much stronger internationally than they are today. Thus the US gov't was able to spend taxpayer money to 'bail out' FSLIC (and in turn rich and poor bank depositors alike) without affecting the standard of living of most Americans, without affecting the international purchasing power of the US dollar, and without affecting the credit rating of the US gov't internationally (i.e. foreign lenders were still willing to 'loan' America their money at an affordable interest rate once Reagan's international presence was established ). Arguably, these points are no longer true today.

    Thus as an incremental 'gov't bailout' of FDIC gets underway, this time around the side effects will probably be ...

    - a further devaluation of the US dollar internationally, resulting in even higher US dollar denominated prices for oil, food and imported goods, with associated negative effects on the US standard of living

    - a de-facto drop in the credit rating of the US gov't, as more and more dicey mortgage backed securities leave the balance sheets of privately owned banks and enter the balance sheet of the US gov't (via FDIC takeovers, as well as 'emergency lending' at the FED discount window), inexorably leading to higher interest rates being paid for future US treasuries in order to still attract foreign buyers ... and thus higher interest rates being set by the FED ... and thus higher interest rates being charged on every new loan, existing adjustable rate mortgage / credit card, with associated negative effects on the US standard of living

    - higher taxes on some segment of US taxpayers to pay for the direct cost of the 'bailout money' given to FDIC, as well as to pay for the higher interest rates necessary to sell future US treasuries to foreign buyers that allows the US gov't to continue to function ! I believe the current figure is that interest cost on US treasuries ( listed as 'debt service' ) now constitutes 9% of the federal budget ... this could rise significantly, with the expected effect on tax rates, and the associated negative effects on the US standard of living.

    ~
    Last edited by Melonie; 07-20-2008 at 04:02 AM.

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    Default Re: weekend commentary - IndyMac Bank goes belly-up

    Perfect Storm in the financial/economic sense.

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