Whistling past the graveyard

Poor mortgage lending practices have bagged their biggest bank to date with IndyMac having been seized by federal regulators.

IndyMac Bank, a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators, in the third-largest bank failure in U.S. history.

This is a particularly ticklish time for bank failure scandals for the GOP, I would think, with a Bush in the White House and McCain running to replace him. McCain, of course, has uncomfortable links to the Lincoln Savings failure which led to the Keating Five Scandal of which McCain was a part. George W. Bush’s brother, Neil Bush was director of the Silverado Savings and Loan when it failed. His father, George H.W. Bush was Vice President at the time. Neil was accused of giving himself a loan from Silverado and committed breaches of his fiduciary duties involving multiple conflicts of interest. Silverado ultimately cost taxpayers $1.3 billion. (Neil ultimately paid $50,000 of that with the assistance of some Republican fund raisers.)

Normally that kind of stuff would be dimly remembered history. But, as they say, history doesn’t repeat, but sometimes it rhymes. IndyMac boomed in the first part of this decade, as investors were willing to fund loans on ever-looser terms, then hit hard times when the housing market began to turn down in late 2006.

Some commentators want to blame IndyMac’s failure on Sen. Schumer’s decision to ask the Office of Thrift Supervision about the solvency of the bank. However, as the Wall Street Journal reports:

IndyMac had been troubled for months, and investors were concerned about its possible downfall well before Sen. Schumer’s comments. It specialized in Alt-A loans, a type of mortgage that can often be offered to borrowers who don’t fully document their incomes or assets. The company sold most of the loans it originated, but continued to hold some on its books. As defaults piled up, IndyMac’s finances deteriorated.

But, maybe if Sen. Schumer had just clapped louder, Tinkerbell IndyMac would still be alive. If a Senator’s letter of inquiry to a regulator is enough to topple otherwise sound financial institutions, that is profoundly disturbing. Otherwise, blaming Sen. Schumer for the failure is like playing some deranged version of Sink the Bismarck (“Whoever sinks it, drinks it!”).

Update
Good related post from HoosierDeb at South Shore Progressive. McCain economic adviser, Phil “It’s All in Your Head, You Whiner” Gramm, was one of the instrumental players in undermining the foundations that were designed to prevent collapses like IndyMac.

Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.