Saturday, July 12, 2008

Thank You, FDR

My bank failed yesterday. OK, I shouldn't be too dramatic about it: Indymac, where I had a non-negligible portion of my savings temporarily stashed in a 120-day CD, was seized by the FDIC. Thanks to the Glass-Steagall Act of 1933, the full value of my deposit (which is less than $100K) is insured, and according to the message on the bank's website, I'll be able to access my account on Monday.

Two sets of questions:
1) Why did people rush to withdraw their funds after Sen. Chuck Schumer indicated in a letter that the bank might fail? I'm guessing that the premature withdrawers are not chiefly those few with deposits over the insured limit. Do these people not realize that their deposits are insured? Or do they know they're insured but have lost confidence in the government, post-Katrina/Iraq/everything the government has done the last seven years? Or is a herd behavior model the only way to understand this?

2) What was Schumer thinking? Did he not suspect that a senator saying that a bank could fail might cause a run on the bank? Did he want the bank to fail? I have the sneaking suspicion his letter is not entirely delinked from campaign money. Are the bank's competitors perhaps big sources of campaign funds for Schumer? I'd like to know, but am heading out the door to see WALL-E right now and don't have time to do my own research. From a very quick look, I see that top 5 Schumer contributing companies are Goldman Sachs, Citigroup, JP Morgan Chase, Credit Suisse First Boston, and Morgan Stanley.

1 comment:

Katie said...

I think that people knew their deposits were insured, but looked at the possible insolvency of IndyMac as a broader trend, with Fannie and Freddie in trouble. And probably lost faith in the ability of the FDIC to cover what could be widespread losses if a lot of banks go under.

Plus, I guess I'd blame it on the general skitteshness of markets, which has been ramping up lately...

All the more reason for Schumer to keep his mouth shut.