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Shmucky Schumer -- Sen. Chuck Schumer and the IndyMac Failure Part 2 -- Two Articles

Schumer Deflects Blame To IndyMac, Regulator

How Chuck Schumer Caused the Second Largest Bank Failure in US History

Schumer Deflects Blame To IndyMac, Regulator

By Sarah Lueck
July 14, 2008
The Wall Street Journal

WASHINGTON-Sen. Charles Schumer, hit with criticism from a federal regulator that he contributed to the failure of IndyMac Bank, said he may have caused some depositors to withdraw their money but said he wasn't responsible for the bank's downfall.

Sen. Schumer, a New York Democrat and member of the Senate Banking Committee, said IndyMac's lending practices and lax federal regulation are to blame for the failure of the thrift on Friday.

He said he wrote letters to federal agencies in June, and then made them public, in order to increase pressure on the Office of Thrift Supervision and the Federal Housing Finance Board to conduct more aggressive oversight of IndyMac.

"I regret that depositors and investors lost money. But the blame falls with, first, IndyMac and, second, OTS," Sen. Schumer said in an interview. "Everything I wrote in my letter was publicly available. There was no new information there. It is what legislators are supposed to do."

The saga started in late June, when Sen. Schumer's letters to the FHFB, OTS and the Federal Deposit Insurance Corp. rang alarms that IndyMac "could face failure if prescriptive measures are not taken quickly." He noted the thrift's falling stock price, climbing delinquency rate and recent downgrading by analysts.

Sen. Schumer's office publicized the letter June 27, providing it to The Wall Street Journal and other publications. A June 28 story in IndyMac's hometown newspaper, the Pasadena Star-News, had a "very inflammatory headline," Sen. Schumer said. It read: "IndyMac appears close to collapse."

The story in the California newspaper mentioned Sen. Schumer's letters, as well as a shareholder lawsuit and other signs of trouble at IndyMac. The newspaper didn't immediately respond to a request for comment.

IndyMac on July 1, a Tuesday, said Mr. Schumer's statements caused "elevated customer inquiries and withdrawals" on June 27 and June 28 and that about $100 million had been withdrawn.

Traffic remained "somewhat elevated" on July 1, the bank reported, but was "substantially lower" than on June 28. Sen. Schumer pointed to that statement as evidence that withdrawals eventually calmed down, even after his letters. Then, on July 8, IndyMac announced it would cut staff and write far fewer loans.

But the Office of Thrift Supervision has been critical of Sen. Schumer for alarming IndyMac depositors, saying that in the 11 days following release of the letter, depositors withdrew more than $1.3 billion. OTS Director John Reich said Friday that Mr. Schumer sparked a deposit run that "pushed IndyMac over the edge." Publicizing the June 26 letters was "an unprecedented act," Mr. Reich told reporters Friday. He said Sen. Schumer should have privately addressed his concerns with regulators.

Sen. Schumer rejected that, saying that, while banking regulators do their work in private, lawmakers typically do theirs in public. Sen. Schumer, the head of Senate Democrats' re-election effort, threw in a political jab as well. "Clearly what was happened [sic] here was the OTS, having the second-biggest bank failure on their watch, sought to blame the messenger. In sum, it's sort of classically what this administration does. Blame the fire on the guy who called 911."

Sen. Schumer said he is planning to write to Treasury Secretary Henry Paulson to say "now is the time" for the OTS to be folded into another agency, the Office of the Comptroller of the Currency. Mr. Paulson already proposed such a change as part of a recent plan to overhaul financial regulation. The OTS declined to comment.

Sen. Schumer also wrote to Senate Banking Chairman Chris Dodd (D., Conn.) to request a hearing on IndyMac and the regulatory issues the bank's failure raises.

Sen. Schumer, the chairman of the Joint Economic Committee and a member of several other panels, produces a drumbeat of news releases, letters and reports. He has urged the FDIC to "crack down" on brokered deposits, called it "dumb" that a new environmental rule would require small-boat owners to pay pollution fees and urged that a national pony-jumping contest be moved from Kentucky to New York.

Sen. Schumer has also been one of the most vocal critics of bond rating firms, which gave triple-A ratings on thousands of mortgage-related investments before cutting ratings in 2007 and early 2008, spurring hundreds of billions of dollars of write-downs. At a recent hearing of the Senate Banking committee, he complained that Moody's Corp. and McGraw-Hill Cos.'s Standard & Poor's didn't send executives to testify who were more senior.

Last week, after the SEC came out with a report criticizing practices at rating firms, Sen. Schumer said the agency "should look at enforcement measures" to respond to the "searing abuse" found. In May, he also said that Moody's president, Brian Clarkson, was correct to resign over the crisis of confidence in ratings: "When Mr. Clarkson told me that Moody's had done nothing wrong throughout the mortgage crisis" last September, "it was obvious they needed a change in leadership."

--Damian Paletta and Aaron Lucchetti contributed to this article

How Chuck Schumer Caused the Second Largest Bank Failure in US History

By Jerry Bowyer
July 12, 2008

Federal officials aren't supposed to cause bank runs. In fact, much of the New Deal bank regulatory apparatus was set up for the purpose of eliminating such panics. When FDR was hit with a massive set of bank runs shortly after taking office, he gave an address in order to calm terrified depositors, assuring them that the banks would reopen shortly, and that everything would be fine.

But Chuck Schumer is no FDR. He doesn't stop bank runs; he starts them. Or, at least, has started one. The collapse of Indymac bank, the second largest bank failure in American history, began with a letter from the office of Senator Charles Schumer on June 27. He questioned the viability of the bank. 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. Not surprisingly, the director of the Office of Thrift Supervision concluded that the collapse of the bank immediately following the Senator's comments was not a coincidence. Director Reich concluded that Senator Schumer had 'given the bank a heart attack'.

Why? Why would a federal official with enormous power, destroy an institution on which tens of thousands of depositors (not all of whom are insured) and employees depend? Why would a New York Senator attack a Pasadena bank, acting as some sort of amateur, self-appointed, long-distance bank examiner?

Perhaps this might help answer the question: Indymac has been under attack from the hard left. The Center for Responsible Lending issued an attack on Indymac within a few days of Schumer's letter. CRL is part of a small army of left of center 'research' groups, community organizers, and public interest law firms who make their living accusing home lenders of racial redlining and predatory lending. On June 20th the Center accused Indymac of unfair practices regarding minority borrowers.

A suspicious person might think that a network of lefty attack groups proficient in bank bashing and frequently funded by trial lawyers and short-sellers, coordinated their activities with a law firm on the hunt and a Senator who works closely with the network.

On the other hand, maybe it is a coincidence that CRL and Sen. Schumer attacked the same bank in the same week. Maybe he didn't know about the CRL report, nor CRL about his letter. Maybe the community group didn't know about the trial-lawyer class action lawsuit which was launched against Indy a couple of weeks before all of this started.

Yeah, right.
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