I worked at Indymac Bank for a little over 4 years till July 2008 when - after the FDIC took management control of the Bank after a “run on the Bank” was (unfortunately) triggered by Senator Schumer’s leaked WSJ letter (discussed in a prior blog) - I resigned from my position as Chief Administrative Officer. My role had put me in charge of the “People” and “Expense/Cost” functions of the Company…but thankfully (I guess – given the massive blame game going on against anyone involved in the lending industry) I was not involved in any way with making loans.

Headquartered in Pasadena, my Indymac was a performance focused/driven but family friendly place which was discrimination free at the highest levels (certainly, no “discriminating” CEO would have ever hired me, given all the minority categories I fall into). All that mattered at work was “output” (i.e., what you got done) not politics. In fact, my Indymac experience included more “head” and “heart” than I’d personally expected to find in Corporate America (where I’ve been walking Executive hallways at “Fortune 1000” companies for about 12 years since I graduated from college).

I do believe fraud was a key contributing factor to the housing bubble that we have realized too late was both national and huge, and also believe we must find and punish those that perpetrated it because personal accountability is critical to the stable/smooth go forward functioning of the market. However based on my own personal experience at Indymac I have a strong instinct that the government is focusing its limited fraud resources in the wrong places, and working in bureaucratic and inefficient ways. In particular, I believe the government has an excessive focus and has over-allocated resources to search for fraud by senior management, but is not pursuing the most efficient ways (e.g., interviewing managers/employees of the firms they're investigating) to quickly find/punish any such “bad managers”. On the other side, the effort to investigate/prosecute perpetrators of individual fraud (i.e., at the transaction level) is woefully under-resourced (See this article on mortgage fraud and note the FBI was only able to investigate 2.6% of the over 46,000 suspicious activity reports submitted in 2007: http://www.consumeraffairs.com/news04/2008/05/mortgage_fraud_fbi.html).

What makes me think this? Well, I can tell you I didn’t see anything that looked or felt like fraud around me at Indymac (except where expected, in individual situations which were addressed appropriately consistent with company policy and existing laws/regulations). I say this as a member of Indymac’s Executive Committee (comprised of roughly the top 25 managers at the company) since late 2006, prior to which I was the CEO’s Chief of Staff (in which role I attended most of his meetings and reviewed most of his emails and other communications).

You’d think as a key member of management, I would have been interviewed after the FDIC took control of Indymac. It certainly looks like they are investing significant resources in investigating Indymac. For example, during the 48 hours after the FDIC takeover of Indymac, millions of pieces of paper were taken from Indymac’s Corporate Offices for review/investigation. I walked into my office on July 12th, the day after the FDIC took over Indymac, to find my office (and my Assistant’s filing cabinets) stripped of every piece of paper I had accumulated over the course of my 4 years at Indymac (and I can tell you I am highly organized…so there was lots of it).

No-one really explained what was being investigated or why…just that conducting a detailed investigation was “standard protocol”. Given I had a lot of exposure to top management’s activities in the years preceding the companies’ failure I thought I would try to help, so mentioned to one of the top FDIC managers that they were welcome to interview me as I had spent a lot of time with the CEO (who was no longer at the Bank as part of the government takeover) and had read a lot (perhaps even most) of his communications for roughly a 2 year period (from fall 2004 to fall 2006). He nodded, but nothing happened.

To cut a long story short, I decided shortly thereafter to resign from the company...as the "head" and "heart" of the company was gone and I just couldn’t sit and watch the FDIC create a massive loss by fire-selling the company’s assets into the worst market for mortgage assets in 80 years. Before departing the company about a week later (with no ‘golden parachute’ or severance, I should note), I repeated my offer one more time. To this day, no one from the FDIC or any other governmental organization has called me to take me up on my offer.

So my hypothesis – based on my own personal experience – is that people’s ire and the government’s dollars are misdirected in the fraud category. I believe it is unlikely there was widespread fraud at the top levels of the (recently or currently distressed) financial institutions…and that in fact mortgage fraud was largely perpetrated at lower levels within companies and by individuals outside the financial institutions who were independent. As a result, I believe the government should speed up/resolve the management blame game by interviewing all the executives (remaining and departed) at the various distressed financial institutions. This process would take weeks, not years….and would be more effective at identifying management fraud than reviewing millions if not billions of pieces of paper. Then shift the resources currently deployed to read/review the millions of pages collected from these companies largely over to investigating and prosecuting individual fraud.

I was trying last night to have a mellow evening at home after a full day of work. The full day of work was quite an experience after spending 3 blissful months ‘Exploring my Zen’ (as I like to call it) following the collapse of Indymac during the Summer. So here I was…cuddling with my 2 freshly bathed (and good smelling) Great Dane’s Lara and Tank…watching TV. But what I saw on CNN shocked me.

It looked (from the multiple clips they showed) like many people (definitely way more than a handful) at Palin/McCain rallies were screaming rascist comments and the crowd was supporting them. This included statements like “Obama bin Ladin”, “Mohammed Husein Obama”, “Them Commies”…etc.

Could this really be going on in America, without bipartisan public denunciation? As I recall, McCain actually defended the people attending their rallies during the final presidential debate. Is this new, or do these conversations go on in this rough tone more regularly? I sure hope I see McCain or Palin step up and call this nastiness what it is – unacceptable in America.

On a broader note: We take things like equal protection under the law and non-discrimination so much for granted at least all the places I’ve lived in America which includes Universities (New Jersey), Cities (Los Angeles, Chicago), Companies (McKinsey, Indymac, and many Fortune 1000 clients served while at McKinsey), or just plain walking around (anywhere….from San Francisco to Michigan to Oregon to Dallas to Seattle to Arizona…the list goes on).

But none of these “now so obvious” modern principles of equality so clearly embodied in the US constitution came naturally to Americans, or really to most societies around the world. They (for the most part) had to be inflicted on the majority by the righteous/enlightened minority or the founders of the modern day states.

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.

One of the fundamental reforms that is nowhere to be seen on the horizon…that I believe is absolutely critical to addressing one of the key root causes of the current crisis of confidence in the global financial markets is the lack of any significant education on the topic of personal finances and money management in middle/high school and college curriculums worldwide, including in the US.

So here’s my idea Mr. Paulson and (hopefully future) President Obama: add a mandatory requirement that every middle school, high school, and college student in America get a basic education in how to think about personal finances (budgeting, money management, borrowing, net worth, financial ethics etc.). The long term benefits of such an addition to educational standards in the US and other countries would be invaluable.

I am regularly amazed by how little formal or informal education any of us receive (unless we have very diligent and focused parents with good personal financial habits…a rarity) on the topic of money. Yet, understanding money and making/managing it (in whatever quantities “work” for each individual) is critical for the achievement of personal success and happiness.

I find myself quite uncomfortable with the near consensus I see in America today (as reflected in the media and recent policy coming out of the House and Senate) on the belief that "the war" on terror is going poorly, and the answer to this problem is for America and the world to pull out and leave the Middle East to solve it's own civil and societal issues.

My two main contentions/concerns are as follows:

1. I feel everyone is missing the forest (the real war), as they are focused on the trees (Iraq, and sometimes Afghanistan). The war, and I do believe, we are in the midst of "the third world war" is much broader than just the conflicts in these 2 countries....and I fear "pulling out" of Iraq, may reflect a broader pull back on any sustained attack or defence against the root cause of the war....which I believe is largely, if not fully, unaddressed today (more than 5 years after 9/11).

2. The real war we have is not a physical war at all. It is a virtual or mental war....a war of beliefs and values (largely Islamic beliefs and values on key issues, but broadly religious fundamentalism and the violation of basic human rights using religious beliefs/edicts as a justification).

This real war is the ultimate untraditional war. Yet, the world has largely responded to it with traditional tactics....i.e., physical attack and defence. Hundreds of billions of dollars have been spent already, on physical conflicts in both Afghanistan and Iraq. Imagine what this money could achieve if appropriately redirected into fighting the real war....the war of beliefs.

I think it's time to take a step back, somehow firmly but fairly extricate ourselves out of Iraq over time (I know this in itself is a huge issue, but I'll leave my thoughts on Iraq specifically for a separate discussion. I will say I think it's key despite all the past mistakes....to leave Iraq a much better and more peaceful place than it was and is), redefine and understand the real war against terror, and get cracking using more "untraditional" means such as economic policy, incentives, education, TV and the internet, opportunity and basic common sense and logic....to help the muslim world adopt a more moderate version of their religion (as has happened with other religions, including Christianity over the past few hundred years).

It won't be easy for people to ignore the actual words from the Quran that are used by some to justify killing, discrimination against women, and other inhumane and backward practises....but this is religion....and muslims must adopt moderating changes themselves after debate and discussion....if they are to retain their pride....which is paramount when you are talking about religion and culture.

Is there a math in relationships? Does there need to be an equal exchange of value (financial, emotional, social, spiritual....real or perceived) for any relationship to work long term? I don't know. I think there's more math involved than most let on. Although I don't think the math is simple (or can be simiplified)...as humans are complex and so are those things that we care about.

I also think some relationships are 'sacred' (at least where I come from)...so the intangible value keeps those relationships always stable, real, and in equilibrium. Love to hear what others think....

Ultimately, I believe true 'liberation' and 'freedom' for the oppressed in the middle east (those that are denied opportunity and freedom....particularly youth, women and children) will have to be achieved by the people in the middle east for themselves.

Perhaps I am biased, being Indian (given our history of achieving freedom from the British through struggle). This freedom will be achieved on the ground over time with education, knowledge and a taste for how it feels to be able to determine one's own future. Check out this great article from last week's Wall Street Journal. To me, the media is the most important tool in helping bring information to people....so their own minds and hearts are changed. We should be spending billions on this....not mere millions. Look what TV, knowledge/information and opportunity have done for post-liberation India!!
Lastly, to clarify, I am talking about true internal change....not just a change in the broad, high level framework of government (which the US has facilitated in places like Iraq). The high level framework too is important...but not nearly enough in an of itself.Liberty TV

By KENNETH Y. TOMLINSON
May 6, 2006; Page A8

In recent weeks, we've heard a great deal in Washington about how we ought to be broadcasting to Iran. But it might be instructive to examine what U.S. international broadcasting is already doing.

Very recently, on a Persian-language satellite television broadcast from the United States, the people of Iran learned that Iran's oldest and largest student organization, Tahkim Vahdat, urged the government to suspend uranium enrichment and to cooperate with the international community by restricting nuclear development to peaceful uses. The group called the government's behavior "irrational and confrontational." Needless to say none of this appeared in Iran's government-controlled media; few rulers on earth exercise the degree of censorship enforced by the Iranian government.

Another program featured the story of Hossein Derakhshan, once jailed in Iran for starting an Internet blog. Upon his release, he managed to get to Canada where he now runs the most popular blog -- in Iran.

Or consider this exchange that occurred on our nightly Persian-language news and current affairs program on the Voice of America.

Moderator, Ms. Setareh Derakshesh: "Our guests today are Mr. Bijan Kian, a businessman associated with the American Council on Foreign Relations, and Dr. Abbas Maleki of Sharif University in Tehran, who is currently a Harvard Research Fellow in the United States. Dr. Maleki, how do you see the possibility of direct negotiations between Washington and Tehran on Iran's nuclear policies?"

Dr. Maleki: "From the beginning, direct talks have been part of Iran's agenda. From Iran's point of view, the nuclear issue is not a real problem. This is part of the overall process of development which is going on in all parts of our society, like nanotechnology, biotechnology, IT and so on . . ."

Mr. Kian: "It is amazing to hear about such claims as progress in nanotechnology in a country where there is widespread unemployment, poverty, drug addiction, prostitution, so many women's issues and, finally, political repression and coercion. The real dispute is not between our two countries. It is between the Iranian people and the government of the Islamic Republic . . ."

Dr. Maleki: "Well! Using polemic language and slogans talking about political coercion is very easy. Even in the U.S., that technologically speaking is the most advanced country in the world, you still have poverty everywhere, unemployment and so on. Tehran is so much cleaner than New York. You can go and check the trash-ridden streets of New York. Go and have a look at poor people there. . . . Just look at the war in Iraq and Afghanistan and now this atmosphere of war the U.S. government is creating about Iran . . ."

Ms. Derakshesh: "Dr. Maleki: The majority of the people in Iran live under the poverty line -- and Iran's prisons are filled with political prisoners . . ."

Dr. Maleki: "Excuse me! You are the moderator yet you are passing a wild judgment."

Ms. Derakshesh: "This is not my personal opinion, sir . . ."

Dr. Maleki: "Whose facts are these, where did you get them -- that there are political prisoners in Iran?"

Ms. Derakshesh: "These are facts reported by credible international human rights organizations."

Mr. Kian: "Whenever we talk about what is really going on in Iran, what we say will be branded as slogans by supporters by the regime. I have to emphasize that the American government is not in favor of war with Iran. Just look at what has been said by President Bush and his secretary of state."

* * *
In VOA and Radio Free Europe/Radio Liberty, the U.S. has a model illustrating how broadcasting news and information (i.e., the truth) can lead to the liberation of a people.

That certainly occurred in the former Soviet Union and Eastern Europe. Recognizing that fact, the U.S. Broadcasting Board of Governors moved to increase television and radio to Iran long before the current crisis in that country. In early 2003 we launched Farda, a round-the-clock, youth-oriented radio service to Iran. A few months later we began broadcasting daily Persian news and current affairs satellite television.

The television launch may have been modest -- $1.9 million for 30 minutes daily with repeats. But we have come to recognize that satellite television is to the future what shortwave radio was to the past.

That daily program today is an hour (with repeats), and by September, thanks to better than $9 million from the Bush administration and Congress, we will be broadcasting four original television hours -- with news, debates and call-in shows -- daily. Funds in a supplemental now before Congress could increase these broadcasts even more -- and strengthen our coverage.

Small satellite dishes are proliferating in Iran and there are strong indications that VOA's nightly programming is becoming a staple for large numbers of Iranians. Telephone polling (which tends to undercount audiences living under repressive regimes) show that better than one-in-five adult television viewers say they regularly watch VOA's satellite television programs.

As was the case with RFE/RL and VOA in the Cold War, it is important that our broadcasts are provocative -- and credible. Intense journalistic supervision is critical to achieving this goal. Truth does not lie half way between the views of Washington and Tehran. But talk and debate programs give Iranians a taste of freedom -- and enlightenment.

Ultimately, the future of Iran rests with the people of Iran. Just as in the Cold War when the people ultimately prevailed over their oppressors, it will be the people of Iran who will deliver their country from the tyrants who rule them now. To paraphrase Winston Churchill, we can give them the tools -- information the mullahs don't want them to hear and debate challenging the lies of mullah-sympathizers -- and the people of Iran can finish the job.

Mr. Tomlinson is chairman of the Broadcasting Board of Governors, which oversees U.S. international broadcasting.