Senate Democrats — led by senators Elizabeth Warren of Massachusetts and Vermont Independent Bernie Sanders — hope to defeat Steven Mnuchin, President-elect Donald Trump’s nominee for Treasury Secretary, by focusing on his alleged role in the 2008 collapse of California’s IndyMac bank.
Warren has launched a web page on the official United States Senate website that calls Mnuchin, “the foreclosure king” because, as she and left-wing activists charge, he threw thousands of homeowners onto the street after he bought IndyMac. Mnuchin’s Senate confirmation hearing begins Thursday.
But The Daily Caller News Foundation’s Investigative Group (TheDCNF) has uncovered extensive evidence that the person who triggered IndyMac’s financial crisis, which led to one of the largest bank failures in American history, was Senate Minority Leader Chuck Schumer of New York.
Schumer started a $100 million-a-day run on the bank after he gave reporters a letter on June 26, 2008, addressed to federal regulators saying he was “concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers.”
The letter spooked depositors who in the next 11 days withdrew a record $1.3 billion from the bank.
News reports filed at the time squarely place the blame the bank’s failure on Schumer. The Los Angeles Times, for example, reported July 2, 2008, that “the letter stunned some Wall Street analysts, who said Schumer was in effect sealing the lender’s fate by raising the prospect of its failure.”
Schumer’s action was so irresponsible that the federal Office of Thrift Supervision explicitly blamed Schumer for IndyMac’s collapse, saying in a July 11, 2008, press release that “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.”
OTS director John D. Reich went further saying, “When a member of the United States Senate makes such a public statement, it doesn’t take much to frighten the depositors of an institution,” according to the Washington Post. “It was an unprecedented act on the senator’s part and the result speaks for itself.”
Comptroller of the Currency John D. Hawke, who began his term during President Clinton’s tenure, said Schumer’s act was “incredibly stupid,” adding that “leaking his IndyMac letter to the press was reckless and grossly irresponsible. I don’t see how he can be trusted with confidential information in the future.”
Within two days of the Schumer letter, IndyMac filed an emergency notice with the Securities and Exchange Commission (SEC) about its condition declaring that “as a result of Sen. Schumer making his letters public and the resulting press coverage, we did experience elevated customer inquiries and withdrawals in our branch network last Friday and on Saturday of roughly $100 million.”
Within days, the bank was forced to lay off more than half of its 7,200 workforce and stopped issuing loans.
CNN Money estimated that about 10,000 customers had deposits that exceeded the FDIC guarantee of up $100,000. Regulators estimated customers lost $500 million.
The New York Times reported that “IndyMac’s customers, afraid their savings might disappear, stampeded tellers and demanded their money.”
Economist Jerry Bower told TheDCNF that “we know that Schumer’s letter destroyed that bank … [it was a] “nuclear bomb” [and] “a lot of people lost their jobs. Depositors were terrified. It was destructive of the local economy.” Bower estimated that IndyMac’s collapse cost taxpayers at least $4 billion.
When a bank is in trouble, the FDIC privately canvasses financial groups to find a buyer. But Schumer’s letter scared away prospective buyers.
The New York Times reported that “IndyMac was being shopped to potential investors this summer, but their interest disappeared after Mr. Schumer’s comments, said Timothy T. Ward, deputy director of examinations, supervision and consumer protection at the O.T.S.”
Bloomberg News noted that few investment groups other than one led by Mnuchin made offers, reporting that “in the fall of 2008, very few institutions or individuals were looking to go long on mortgages and mortgage-backed debt. Mnuchin was one.”
Then a New York-based private investor, Mnuchin’s winning offer was $800 million higher than the second highest bidder.
Schumer has never admitted he caused the bank’s collapse, blaming instead OTS and claiming “OTS ought to stop pointing false fingers of blame and start doing its job to protect the future of the banking system, so that there won’t be other IndyMacs.”
Warren and activists have doubled down on their claims, however, including their charge that Mnuchin got the bank cheaply and the new bank — now called One West — illegally threw homeowners onto the street.
But a July 2011 audit of OneWest by the FDIC Inspector General concluded that the first $2.5 billion in losses would be absorbed by Mnuchin’s group and added, “The FDIC competitively bid IndyMac assets” and the acquisition “represented the least cost transaction” to the U.S. government.
And if Mnuchin was greedy, so were his partners, including John Paulson, another liberal billionaire who gave $15 million to a left-wing housing activist group called the Committee for Responsible Lending. George Soros, another liberal billionaire, was also a Mnuchin partner in the deal.
OneWest was one of the nation’s first lenders to implement the Obama administration’s “Home Affordable Modification Program” (HAMP), according to an October 2010 national mortgage trade bulletin that said “OneWest becomes one of the first servicers to launch the (HAMP) program.”
And a July 2011 FDIC Inspector General report “determined that OneWest administered loan modifications in accordance with HAMP. OneWest appropriately solicited borrowers for and processed loan modifications more than 98 percent of the time.”
A September 2013 Treasury Department study of HAMP participation further showed that, “OneWest had the highest effectiveness in reaching 96% of delinquent borrowers and were first in the industry in which 94 percent rate of homeowners were able to convert their trial modifications to permanent modifications.”
A Schumer spokesman did not respond to TheDCNF’s request for comment.
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