CNBC's Burnett Gives Schumer Free Pass on IndyMac Bank Run
Perhaps bank runs are caused by stars aligning, or maybe they appear out of thin air. They certainly aren’t caused by powerful politicians publicly questioning a bank’s security, according to CNBC’s Erin Burnett.
Burnett, host of “Street Signs,” disputed a claim by MSNBC “Morning Joe” host Joe Scarborough that a letter to regulators from Sen. Charles Schumer, D-N.Y., caused a run on the distressed bank IndyMac, which eventually led to its failure and takeover by the Federal Deposit Insurance Corp.
“I don’t think Chuck Schumer caused a run on the bank,” Burnett said on “Morning Joe” July 24. “This is the new world of banking. Companies, banks come out and they say, and they say, ‘Oh my gosh – our stock’s down 20 percent. It’s being manipulated. Please come in and help us government. Oh my gosh, there’s a run on our bank – let’s blame it on a senator.’”
On June 26, Schumer sent letters to the Office of Thrift Supervision , the Federal Deposit Insurance Corp. and the Federal Home Loan Bank of San Francisco .
“I am concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers,” Schumer wrote. “[The bank] could face a failure if prescriptive measures are not taken quickly.”
Burnett insisted Schumer, who is a member of two influential banking committees – the Senate Finance Committee and the Committee on Banking, Housing, and Urban Affairs – isn’t “powerful” enough to trigger panic about a stressed bank.
“Come on, Chuck Schumer wishes he was powerful enough as being able to cause a run on a bank,” Burnett added. “IndyMac had serious problems and a lot of investors had recognized that. I don’t like the finger-pointing is all I’m saying.”
Perhaps the timing was coincidental, but the run on IndyMac occurred after Schumer’s letter was reported in the media. The federal government’s Office of Thrift Supervision (OTS) placed the blame on Schumer in a July 11 press release.
“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 release stated. “The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.”
“This institution failed today due to a liquidity crisis,” OTS director John Reich said in the release. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
The Wall Street Journal editorial board agreed with the OTS’s diagnosis.
“But Mr. Schumer was not content merely to share his profound concern with regulators,” a July 15 WSJ editorial said. “He also leaked the June 26 letter to the press – which is more like shouting ‘fire’ in a crowded bank than dialing 911.”
Schumer absolved himself of fault in the ultimate failure of IndyMac in a news conference on July 13.
“IndyMac was one of the most poorly run and reckless of all the banks,” Schumer said. “It was a spin-off from the old Countrywide, and like Countrywide, it did all kinds of profligate activities that it never should have. Both IndyMac and Countrywide helped cause the housing crisis we’re now in.”
Immediately following IndyMac’s demise, the media latched on to the bank’s fall and interpreted it as a sign of a coming financial apocalypse in many instances.
