Friday, July 11, 2008

The collapse of Indymac Bank : Bad Omen?

Today evening the FDIC took over the beleaguered Los Angeles, California based Indymac Bank.
The rumors had been circulating for over 6 months - it was a disaster waiting to happen. But the final straw came when Chuck Schumer, D-NY went public with his comments on the bank's liquidity crisis and its ability to survive the housing crisis. Over $1.3b was withdrawn from the bank in the last few days. Indymac tried to offset this by increasing its interest rate on deposits to 4.55%, but apparently it just wasn't enough.

Schumer should be answerable for his irresponsible act of taking his comments public.

FDIC says over this weekend, people can use ATM to withdraw their money but can't use telephone banking or online banking. Ridiculous!! It is discriminatory against people not local to Los Angeles area (or where ever Indymac bank branches don't exist).

As I write this, the indymacbank.com website is down.

Most of the customers with deposits in the bank are safe because it is FDIC insured for deposits up to $100,000. Overall, 96% of the deposits in the bank are FDIC insured. The bigger problem is going to be more of the impact on the psyche this event is going to happen.

What does it mean for the overall economy? Monday would be another bloodbath in the stock market. Secondly, the world's faith in the US economy will take a beating, and as the world's investors move to withdraw their investments in the US dollar, the value of the US Dollar would fall. This in turn will increase the price of oil. Gas will become more expensive, and inflation will increase. Overall, it will hurt the American people.

Let us now keep the crystal ball away and keep our fingers crossed. Lights, camera, action ...

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