Friday afternoon's seizure of IndyMac Bank commenced an immediate flurry of finger-pointing that will likely continue for some time. As lawyer Gerry Comizio noted in a recent American Banker article on the event (paid subscription required), "With a failure of this size there's bound to be a lot of finger-pointing." Count on it.
Right out of the gate, the OTS put the blame squarely on Chuck Schumer's pointed little head, and offered up a fact sheet to show that the run on the core deposits of IndyMac that led to the liquidity crisis that was the immediate cause of the thrift's failure commenced immediately following Schumer's public leaking of his letter to the regulators about IndyMac. It will be hard to argue that Schumer's public statements and the ensuing run on the bank were not the immediate cause of the failure.
As to how IndyMac got to the point where it was vulnerable to the gentle ministrations of the always loud-mouthed Senator from New Yawwwk, that's a whole different story. Schumer's office issued a press release that blamed the failure on improper supervision by the OTS. There may be some truth to the accusation that IndyMac's undue reliance on Alt-A residential mortgage loans, and on brokered deposits to fund the same, will lead to a review of how and why IndyMac's financial condition deteriorated so rapidly under the fitful gaze of its primary regulator (and, to be fair to the OTS, under the gaze of its "backup" regulator, the FDIC). On the other hand, I recall several years ago reading many articles, and talking to clients in the residential mortgage business, about Alt-A lending being "not that risky," and certainly not as risky as subprime lending and other forms of "exotic" lending. It's not as if many of the finest "brains" on Wall Street weren't also caught flat-footed by the rapid deterioration of the credit markets. Regardless, the failure of IndyMac, the rescue-under-distress of Countrywide, and who-knows- what-future-failures, will be fuel for those who want to set fire to the OTS and see its ashes scattered to the four winds (including some rival regulators).
Not that any of the foregoing relieves Schumer from the fact that, as the French put it, he wears a chapeau d'âne. When recently criticized for causing the run on IndyMac with his "leaked" comments, he alleged that IndyMac's problems "were caused by IndyMac's management and no one else." (emphasis mine). Today, he's alleging that they're the fault of the OTS, too.
"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."
As they taught us in our trial tactics class in law school, our next question to Senator Schumer is " Were you lying when you said that no one other than IndyMac's management was responsible for its problems, or when you said that the OTS shares in the blame?" Reich gets a hat tip for at least admitting that his agency may have been less than perfect, even if his point was that he's a bigger man than Chuckie (not exactly a herculean task).
Mr. Reich responded that he was "willing to take the responsibility ... as the director for the good and bad things that happen here." "I wish the senator would take responsibility for his actions," Mr. Reich said.
Not a chance, John. Not a chance.
In times of crisis, what's required of those in charge are cool heads and steady hands. Instead, we get fingers pointing in all directions and "duck-and-cover" public posturing from our elected and appointed officials. Thus has it ever been and so it will always be, eh?
Things could be worse. Our elected leaders could be taking their cues from bloggers or, worse yet, blog commenters. After reading a recent string of mostly (but not entirely) inane comments about the IndyMac flap at an economics blog by folks with little demonstrated understanding of the banking system or the FDIC receivership process, I was struck by the pithy summation of one jaded reader who'd likely found most comments to be as useful as a screen door on a submarine and who proposed that we scrap our financial institutions and financial regulatory structure "and replace them with snark and anonymous blog comments." Bravo, whoever you are.
If you've been through this before (and those of you who have, you know that I'm correct), you know that we'll only fully understand this debacle looking back, but as soon as we do, we'll start rewriting history to support our preconceived notions of what should have been, even if it wasn't what actually occurred. In the interim, books will be written by all kinds of "experts" and "insiders," much money will be made parsing the nuances, and yet, somehow, some way, we'll muck through it.