FDIC gone wild

A little follow-up on the FDIC seizure of IndyMac:

1) Check out the sniping between Chucky Schumer and OTS:
"Although this institution was already in distress, I am troubled by any interference in the regulatory process," said OTS Director John Reich in a statement Friday.

Schumer shot back. He said that lax enforcement by OTS was a primary cause of the problems at IndyMac, as well as those of the nation's housing market and economy.

"IndyMac's troubles ... were caused by practices that began and persisted over the last several years, not by anything that happened in the last few days," Schumer said. "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. Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs."

I'm no fan of Chucky, but he's right on this one. The Office of Thrift Supervision has been appallingly lax in thrift supervision.

2) The FDIC says it will lose $4 to $8 billion on IndyMac. According to the FDIC's 2007 report, it has about $50 billion of total reserves. So we're going to lose 8% to 16% of the FDIC's total reserves on one bank. And this as FDIC head Sheila Bair has been talking about, and staffing up for, a wave of bank failures. What happens when the $50 billion runs out? You guessed it: the taxpayers step in, we add the bank bailouts to the national debt, the dollar goes down, and oil goes up. $8 gasoline, anyone?

3) Given the precarious state of the FDIC's own finances, and the fact that it is losing $4 to $8 billion on IndyMac, why is it paying out a "50% advance dividend for uninsured deposits"? That's a half-billion dollars the FDIC is throwing away, apparently purely discretionarily. Too bad the taxpayers, who will likely have to bail out the FDIC, don't have any say in this largess.

4) You thought Senate banking committee chair Chris Dodd's (D-Countrywide) corrupt and incestuous relationship with the banking industry he's supposed to oversee was limited to getting tens of thousands of dollars in reduced mortgage costs from Angelo Mozilo? Nope, he's also the recipient of at least $4,600 in campaign contributions from failed IndyMac CEO Michael Perry and apparent wife Nancy Perry.

You're starting to get the picture here, right? Lenders like Michael Perry and Angelo Mozilo made bad loans that would never be paid off, bribed the legislators and regulators, sold millions (Perry) or hundreds of millions (Mozilo) of dollars of stock before the companies crashed, and then left investors and taxpayers holding the bag. And Chris Dodd is still in the Senate and his Countrywide bailout bill is still getting the support of a majority of Senators.

And Countrywide and IndyMac are small potatoes compared to Fannie Mae and Freddie Mac, the two giant GSEs that used implicit taxpayer backing to generate excess profits and become personal enrichment vehicles for politicians and party hacks like Franklin Raines and Jim Johnson. They are now apparently insolvent and Washington is scrambling to decide how to bail them out.

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