Schumer triggers Indymac failure....why?

In late June this summer, about 2 weeks before the “failure” (i.e., inability to continue to be in business without third party support) of my ethical and well run employer Indymac Bank, I – then a Senior Executive at the Company - read in horror a letter that New York Senator Charles Schumer had sent to two key regulatory bodies - the Office of Thrift Supervision (Indymac’s primary regulator) and the FDIC - and that his office had “leaked” to the Wall Street Journal. We had been fighting hard to adapt/save our business and as many jobs as possible for 12 hard months since the capital markets froze up in the summer of 2007....and this Schumer letter looked like a possible death warrant for our business. "When it rains, it really pours", I thought.

Within hours the letter was all over other media outlets. It (the letter) essentially made public this New York Senator’s concerns about the financial condition of Indymac (a California Thrift), and triggered a “run on the Bank” which ultimately (2 tough and painful weeks later) led to the company’s takeover by the government.

The truth is that financial services companies survive and operate based on “confidence”, and no Bank in the country (or really the world) can survive a run on the Bank. In fact, Runs on Banks were virtually unheard of in modern times until….recently they have become quite widespread (more on why in a future post), and have been the “triggering mechanism” for most if not all of the financial institution failures you have read about in the media (in the US and abroad).

At the time it happened, me and those around me wondered what a US Senator who was also a longtime member of the Senate Banking Committee was doing taking such a public action which he knew (or should have known) could (and probably would) result in the failure of a (regulated) US Bank. Not to mention the question of why a New York Senator was so focused on a (relatively small) California Thrift….when there was plenty to worry about right in his own backyard i.e., on Wall Street.

But too many lives and jobs were at stake…and we got totally consumed first trying to fight this huge “fire” (to try to save the company)….and when the "fire" consumed the company, trying to deal with the aftermath of this disaster on our jobs and lives, and the jobs and lives of those around us.

Then, today, I saw the below article in the news…and it brought the events of the summer right back.

Wasn’t it irresponsible of Senator Schumer to basically trigger Indymac's failure? Why raise a public concern about any financial institution, knowing the possible consequences of such an action? And why Indymac instead of Washington Mutual or Wachovia or some Wall Street firm....all of whom really ultimately faced very similar problems?

Here are some articles on this issue:

Article 1:
Schumer Ripped IndyMac as Democratic Donors Probed Books
New York Sen. Charles Schumer's public criticism of IndyMac Bancorp last summer, which critics say helped spark a run on deposits that took under the troubled thrift, came while IndyMac's assets were being eyed by investors who are major donors to the Democratic Senate campaign committee the senator chairs.

http://online.wsj.com/article/SB122428567636046459.html?mod=rss_Politics_And_Policy

Article 2:
The OTS press release on Indymac...the day it was taken over by the government:

http://www.ots.treas.gov/index.cfm?p=PressReleases&ContentRecord_id=37f10b00-1e0b-8562-ebdd-d5d38f67934c&ContentType_id=4c12f337-b5b6-4c87-b45c-838958422bf3&MonthDisplay=7&YearDisplay=2008

And here is an excerpt from the release: “The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.