Media Feed Hysteria over Indymac Failure

     “Stocks plummet.” “Massive bank failures.” “Banks in deep trouble.” If you had been watching ABC’s “Good Morning America” or CBS’s “Early Show” July 15, this is what you would have heard.


     The recently-failed Indymac Bank represented less than 0.2 percent of total banking assets, but the media are claiming it’s an indication of many more bank failures to come.


     “[N]ot even reassurance from the government that their money is safe could calm nerves,” said ABC’s Bianna Golodryga. “Not after seeing those compelling video of those Indymac customers stressed.” That “compelling video” was aired by ABC before and after this comment by Golodryga.


     “Good Morning America” spoke with Doug Kass, president of Seabreeze Partners, who said that “the real issue facing that sector is one of confidence.” Yet it is difficult for depositors to have confidence when the media have been constantly hysterical over the situation since Indymac failed.


     That phrase “bank failure” could spark fear in any depositor, except that the FDIC will insure every single penny of $100,000 deposits. That fact didn’t do much to calm the frenzy, however. “Rumors on Wall Street of another Indymac scenario caused stocks in regional banks to plummet,” said Golodryga.


     The same warnings came on CBS’s “Early Show,” with the same dramatic reaction. “Most of the big banks in this country were not in the danger zone in any way, shape, or form,” said Richard Bove, a financial analyst. CBS correspondent Bill Whitaker responded to that reassuring comment saying, “Small comfort for those who thought their money was safe and now aren’t sure who they can trust.”


     CBS’s Maggie Rodriguez then spoke with Sheila Bair, the chairman of the FDIC. Between Rodriguez’s interruptions, Bair did manage to get across some important information.


     “I would also like to say the banking system as a whole is absolutely safe. In listening to the segment that ran before this interview, I heard words like ‘massive bank failures’ and ‘banks in deep trouble.’ Those are not factually accurate statements. Overwhelmingly, banks are safe and sound in this country,” said Bair.


     She also put things into perspective. “Indymac was one of 8,500 depository institutions that we insure. It represents less than 0.2 percent of total banking assets.” Rodriguez interrupted saying, “Well but Sheila, let me interrupt because analysts say that as many as 150 of the nation’s 7,500 banks nationwide could collapse in the next 12 to 18 months. Is that not true?”


     Bair responded, “Well, I don’t make predictions.” Rodriguez persisted: “Well, but if analysts say that and that could happen, how can we feel secure?”


     Bair repeated her remarks about national and historical context.


     “We have 8,500 banks. To put this in context, during the S & L debacle, there were over 2,000 banks that were closed over a period of time. The peak was 534 closures in ’87. We’ve had five bank closings this year. I won’t say that banks don’t have challenges right now; they do. But historically, we’re operating at fairly low levels. And all I ask is, is that this, this closing and the current situation be put in appropriate context.”