First Major Bank Failed Today - Proof that Recession is Real?

L

LanceOregon

Moderator
Well, we finally had our first big bank fail today, and it thus had to be taken over by US Federal regulators. The bank was IndyMac Bank, which used to be a key national mortgage lender. They were an extremely big player in the California Real Estate market, which has been hit hard by the current Mortgage crisis.

According to the Federal Deposit Insurance Corporation, the failure will cost somewhere between $4 and $5 billion dollars to the Federal Deposit Insurance Fund. In addition, customers of the bank have up to $500 Million in funds in their accounts beyond the federal deposit insurance limit. Which means those folks have just lost a whopping half Billion dollars.

Is this not proof that the current economic times are bad? What affect will this have on our overall economy, if more and more major banks start to fail soon?

Do you believe that your bank is safe from going under due to this crisis? How can you be sure?

See this news story:

http://money.cnn.com/2008/07/11/news/companies/indymac_fdic/index.htm


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Even efforts to prop up the bank hurt it. Last month, Sen. Charles Schumer, D-N.Y., wrote a series of letters to regulators in Washington and California asking them to take steps to prevent the bank's "likely collapse." In response, about $100 million in customer deposits has been withdrawn from the bank, according to one of its filings.
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Oh, my! Thanks for the link! I was just finished editing my opinion about our national hobby of "helping" others (in this thread) and you hand me a wonderful example of how it actually damages us for some idiot to come in and try to save the day. There has been a lot of discussion about how the Left's co-dependency has endangered our RKBA but this collateral evidence is further argument for its damage in other parts of the political arena.
 
Is this not proof that the current economic times are bad? What affect will this have on our overall economy, if more and more major banks start to fail soon?
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Times are bad for sure. But 1929 bad? Not yet.

We're not technically in a recession until we have 2 consecutive quarters of negative growth. We're not there yet.

And, where's the evidence that the FDIC is unable to handle the current situation? :confused:
 
My mother lived through the Great Depression so she has actual first hand knowledge of REALLY how bad it can be. With that said in her opinion it is nowhere near that bad yet.
 
Confidence game?

As per form, peoples' reaction to questions such as this, is reflective of their general optimism/pessimism, and inherent faith (or lack thereof) in institutions.

Falling back on some scripted definition of "recession" will probably not accurately predict the coming calamities, if they are to come.

In retrospect, folks always say "how could we NOT see this coming?" and some smart guy will come up with a new index or definition (ex post facto) which would have predicted it. Legislation will be drafted to (ex post facto) which aims to prevent a recurrence of the situation. And onward to the next situation that no one could predict.

Regardless of the fundamentals, it seems like the statistic on peoples' confidence in the ultimate outcome is THE determining factor.

So, DN'T WRY, B HPY! :)
 
Indymac failed on sub-prime mortgages.
They made lousy loans.
Arguably these loans and the defaults that are occurring (let alone the write downs that have already occurred) are part of what is driving the credit crunch and its effect on the economy.
 
Every major bank in the US has a subprime lending unit. There were a lot of profits to be made in subprime markets. People forget that they are so profitable because they are risky.

Let a couple of other banks fail, and see a run on the banks. As soon as people think that it is riskier to leave your money in the bank than it is to keep it at home in the mattress, things are going to accelerate.
 
Due to the lag involved in collecting economic data (usually lagging a bit), there's really no way to tell whether we're officially in a recession until it's well underway. Anything less is about 90% anecdotal and speculative.

Comparing our current situation to 1929 just seems stupid to me. There was far more at work than high risk lenders having trouble- the Dust Bowl and unscrupulous local bankers (who skipped town with the money of their depositors, like happened to my great grandfather). While the FDIC hasn't done anything yet, people haven't been losing their FDIC insured deposits, which really would be the beginning of a Depression-like recurrence.

Recession != Depression. We've had recessions before in recent memory. We lived.
 
Economic problems are essentially confidence problems. Money only has value if people BELIEVE it has value. It doesn't matter if that money is paper currency, gold, or salt, as soon as people's confidence in that money is shaken, then you have a problem.
 
News reporting

I was struck by the newscasts yesterday:

Story 1 Price of oil hits new high, 147.00/ barrel (recession)

Story 2 Stock market drops 200 or so points (recession)

Story 3 All across America thousands wait in line to purchase new $400Apple cell phone (recession??)

None of the news readers seemed to notice the disparity...
 
I think the liberal press contributes to the decline of the stock market with the fixation on magnifying any negative news. The market reacts to how much confidence people have and a continuous flow of news focused on the negatives certainly helps move the market down.
 
It turns out now that the director of the Office of Thrift Supervision, John Reich, is blaming the senior United States Senator from New York, Charles Schumer, for facilitating IndyMac's collapse. Schumer wrote a letter to the Federal regulators 12 days ago questioning whether IndyMac was solvent.

Unfortunately, Schumer decided to make this letter public. In the next 11 days, a run on the bank started, with $1.3 Billion withdrawn from the bank, as customers panicked. Mr. Reich said that Schumer's letter gave the bank "a heart attack".

Is this a fair criticism of Senator Schumer?? Was his action reckless in making his letter public? Is this really a case of a liberal's dire predictions helping to make something come true?

This single bank failure alone is estimated that it will use up 10% of the of the FDIC's $53 billion deposit-insurance fund. That is all the money that is currently available for deposit insurance.

Here is a news story from the Wall Street Journal online with more info:

http://online.wsj.com/article/SB121581435073947103.html

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Seems a bit strong to put all the blame on Schumer but his public letter certainly could have had a significant effect on the 'run on the bank' after depositors read it.

To expect a publicity hound like Schumer to keep a letter like that from being a headline event is not reasonable. He cherishes any publicity he can get and/or generate (unless of course it's something negative).
 
Things are so bad for the banking business that right now the number of banks under construction in this area will increase the number of banking locations by only 30% in our area. There are at last count 7 under construction within 1 mile of my house. Sure sounds bad for the economy to me.
 
Seems a bit strong to put all the blame on Schumer but his public letter certainly could have had a significant effect on the 'run on the bank' after depositors read it.
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I agree; it was all of the little branch depositors who withdrew $1.3 billion in a 'run on the bank' that killed IndyMac. Why would Joe Average care if the Chaiman of the Economic Policy Subcommittee of the Senate Banking Committee said his bank was about to fail...

Banking requires confidence and Schumer publicly destroyed confidence in IndyMac.
 
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