How A Politician Can Help Bring Down A Bank
From the Wall Street Journal:
The director of the Office of Thrift Supervision, John Reich, blamed IndyMac’s failure on comments made in late June by Sen. Charles Schumer (D., N.Y.), who sent a letter to the regulator raising concerns about the bank’s solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion.
Mr. Reich said Sen. Schumer gave the bank a “heart attack.”
“Would the institution have failed without the deposit run?” Mr. Reich asked reporters. “We’ll never know the answer to that question.”
This demonstrates how one voice, or dumb politician, can start a stampede when it comes to banking or real estate. IndyMac Bank suffered one of the biggest bank closures in US history.
In Vancouver the media works in harmony to turn bad news into good. Especially when it comes to real estate. As they get a lot of their profit from real estate ads, so don’t hold your breath you’ll get any warning until after the spiral begins.
The announcement of a tightening on 40 year mortgages is a good sign there is trouble ahead. The Bank of Montreal said on Friday that it will stop offering 40-year mortgages… 3 months ahead of the rule change. Considering that 63% of home buyers take these mortgages, just to be able to afford the payments, it will have an immediate impact on home sales and prices.
Say good-bye to liar loans (no proof of a borrower’s ability to repay) and hello to a max of 45% for a borrower’s debt-service ratio.
This is not good news in Vancouver, where people fork over 70% of their income for the privilege of living in a “hot” housing market.
July 13th, 2008 at 8:02 am
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July 14th, 2008 at 7:11 am
[...] the bank??s solvency. In the following 11 days, spooked depositors withdrew a total of 1.3 billion.http://thesecretsofvancouver.com/wordpress/how-a-politician-can-help-bring-down-a-bank/real-estateSchumer: Don&39t blame me for IndyMac failure – CNN.comSen. Charles schumer said Sunday the Bush [...]
July 14th, 2008 at 8:29 am
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July 14th, 2008 at 10:45 am
I disagree that Shumer’s comments were the cause of the run on the bank. The job of Congress is to provide oversight and to make sure federally-regulated institutions operate within standards. IndyMac specialized in high-risk, sub-prime mortgages and “lyar loans,” and that is why they went under. There will be more bank failures in the coming months, and they will be the result of a complete and utter lack of government oversight over the past six years, as well as greed on the part of the housing industry.
It is the media’s job to report the truth, not corporate spin designed to make a few at the top rich, and the rest of us “sitting ducks.”