- The Washington Times - Friday, July 18, 2008


Here’s hoping that Sen. Chuck Schumer, New York Democrat, learned the old lesson over the weekend about shouting “Fire!” in a crowded theater. The woes of the former IndyMac Bank, which until Friday July 11 was the nation’s seventh-largest mortgage originator, weren’t Mr. Schumer’s fault. Nor is he the person to blame for regulatory failures. But the run on this bank surely belongs to Mr. Schumer. Its post-panic name will bear the word “Federal” until its assets can be liquidated, but “Schumer Federal” could also work.

On July 11, New York’s senior senator released letters predicting that the bank “could face a collapse.” He was “concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers.” This release by Mr. Schumer, who is chairman of Congress’ Joint Economic Committee, triggered a panic. IndyMac then fulfilled Mr. Schumer’s prediction by collapsing. It was the largest failure of a regulated thrift in U.S. history.

The federal Office of Thrift Supervision immediately fired at Mr. Schumer. “Although this institution was already in distress, I am troubled by any interference in the regulatory process,” said OTS Director John Reich, noting that regulators and others in government privy to sensitive information not yet public should exercise rightful caution, so as not to appear to give leading remarks. Mr. Schumer returned the volley. “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,” he told reporters.

It’s important to note that Mr. Schumer was neither wrong about the precarious state of IndyMac, nor wrong about the regulatory failures. But he should not have taken this game of regulatory hardball public.

Mr. Schumer contends that OTS is “known as a weak regulator.” But if that is the case, a full public airing is called for. Mr. Schumer should not have pushed the bank out into traffic.



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