An important angle in the $32 billion failure of U.S. mortgage lender IndyMac that may get lost in the headlines: federal regulators pointedly cited U.S. Sen. Charles Schumer, D-N.Y., in explaining the bank’s failure in July. In simple language, the federal regulators blamed Schumer for a run on the bank.
Here’s from the press release issued by the director of the Office of Thrift Supervision, John Reich, IndyMac’s regulator: “The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York.” The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.
“Would the institution have failed without the deposit run?” Mr. Reich asked reporters. “We’ll never know the answer to that question.”
Mr. Schumer quickly fired back.
“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Sen. Schumer said. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”
You might be asking yourself, why is a New York Senator asking a regulator to look into a California bank’s “solvency”? Sen. Shumer is a member of multiple committees, each of which gives him a call on the financial markets and banking sector: Banking, Housing and Urban Affairs & Finance are two of his key Senate committees. He also Chairs the Senate Subcommittees on Economic Policy (Banking).
Having established that he has an oversight interest in the banking world, just what is he doing writing letters that could be seen to encourage panic on the part of depositors?
The answers to the questions may have been answered in the October 18th edition of the Wall Street Journal which suggests something far more sinister. Senator Schumer not only served on the Senate Banking Committee giving him access to privileged information but he also was serving as Chairman of the Democratic Senate Campaign Committee. As chairman, he made fund raising calls to investment industry firms seeking donations to the committee. One such firm was Oak Tree Capital Management LP. Oak Tree and a group of investors has “made more than $700,000 in donations to Senate Democrats and the Democratic Senatorial Campaign Committee in the four years Senator Schumer has chaired the campaign committee.”
At the time Senator Schumer released his letter to the public, Oak Tree was engaged in an insiders examination of the books and assets of IndyMac Bank. The Journal reports that by mid-June they were not “interested in buying the bank, but were scouting assets that might become available if the bank failed and was taken over by the government,” an event made almost certain by the public release of his letter on June 26, 2008.
This is not the only area where Senator Shumer’s fingers have been in the middle of causing much of what is happening in today’s economic woes.
Even as Senator Schumer continues in his attempts to blame Wall Street’s recent economic upheavals on a lack of regulation by the Bush administration, he may have some inconvenient facts to confront.
Until the current credit crisis, Mr. Schumer had been a leading voice for deregulation: He has championed the repeal of a Great Depression-era law that prohibited commercial banks from underwriting securities; he has written an op-ed piece calling for the Sarbanes-Oxley Act to be “re-examined,” and he has opposed a bill that sought to reduce taxpayer risk in the event of a housing market slowdown by requiring Freddie Mac and Fannie Mae to sell their entire investment portfolios of about $1.5 trillion worth of mortgage assets.
Mr. Schumer’s opposition to regulation is beginning to come under scrutiny for the first time. “He is responsible as one of the leading senators in the banking committee for much of the problems that we’re facing today,” a fellow at the American Enterprise Institute, Peter Wallison, a former general counsel to the Treasury Department under President Reagan, said of Mr. Schumer. “He failed to regulate where there was an opportunity to reduce the taxpayers’ liability.”
Mr. Wallison was referring to a bill that was before the Senate Committee on Banking, Housing, and Urban Affairs in 2005. At issue was a Republican-supported provision that would have required Fannie Mae and Freddie Mac to sell off the $1.5 trillion in mortgage assets that the companies were holding as investments. The bill would have “considerably altered” the business models of the two companies by transforming them from “very large investment funds” into “conduits” that only bought mortgages, packaged them into securities, and sold them on the market, according to a Congressional Research Service report on the bill.
Mr. Schumer framed the debate not as one of regulation versus deregulation, but one of economic ideology: “We tend to believe there should be a little more government involvement,” he said. “And the folks on the other side of the aisle, with every good intention, agree there should be a little less.”
It is understandable that Senator Schumer would not want a full investigation of his part in these matters and neither Congress nor the main stream media seems interested in doing so. It might, however, be one reason for Schumer’s support of passage of the so-called “Fairness Doctrine” which would virtually silence one possible threat to exposing those involved in the economic collapse.
If all of the pieces of this puzzle that have been outlined here are accurate, and I have found no reason to think otherwise, Senator Charles Schumer should resign. Since that is unlikely, I would hope that either George Pataki or Rudy Giuliani would run against him as the Republican candidate.
Both of these gentlemen have the name recognition and a strong following and organization in New York already. Both would be good Senators, not just for New York, but for America. Let’s hope one of them chooses to take Senator Schumer on. This is one incumbent Senator that needs to be defeated!
I urge any reader to support any candidate running against Senator Schumer. Spread the word about his involvement in these matters. Contact his opponents and offer to help, even if you don’t live in New York. Write letters to news organizations. Donate money to his opponents. Help get him defeated! Chuck Schumer is not a patriot!