CHESSNOID

2 Fridays ago, we saw people line up at IndyMac branches here in California after the FDIC took over the branches. Then last Friday, the FDIC took over two more chains, 1st National Bank of Nevada and First Heritage Bank N.A yesterday. I do wonder if this will become a regular Friday thing for the FDIC. I still remember last year when the United Kingdom had one of its banks called Northern Rock nationalized because it had a run on its deposit.

If you were an IndyMac customer and had over a $100,000 in their bank, you basically lost 50% of everything above that amount. The crazy thing is you’re not playing the stock market or blackjack in Vegas. This is simply money sitting in deposit at a big American institution:

But in the U.S., the uninsured depositors of IndyMac Bank found out too late that, well, rules are rules: If their savings exceeded the Federal Deposit Insurance Corp.’s limits, they were out of luck.

There’s a lot of second-guessing about how the FDIC handled Pasadena-based IndyMac’s failure two weeks ago — and specifically, about the effect on confidence in the banking system after the agency refused to cover the $1 billion of deposits that were above its insurance limit

If you had money in these 2 smaller banks, the FDIC said they will cover your money even if it is over the $100,000 limits. That doesn’t seem fair to these IndyMac customers.

Customers of two banks closed by federal regulators were assured that every penny of their money was protected, preventing lines of angry accountholders from forming Saturday.

The calm response was a stark contrast to the hundreds of angry customers who waited for hours earlier this month in Southern California to demand their money after IndyMac Bank’s assets were seized.

The 28 branches of the 1st National Bank of Nevada and First Heritage Bank N.A. — owned by Scottsdale, Ariz.-based First National Bank Holding Co. — were closed Friday by the FDIC.

But Mutual of Omaha Bank bought all of the two banks’ deposits, even those over the amount protected by FDIC insurance limits. IndyMac customers had to take a loss on whatever amount they had in the bank over the insurance limits.

The FDIC is said to keep a list of banks that are having problems. From what I read, IndyMac wasn’t on that list. That makes me wonder if we have many more banks that will surprise the majority of us.

In May, the FDIC reported that for the quarter ended March 31, the list had 90 companies with $26.3 billion in combined assets.

IndyMac, which by itself had $32 billion in assets at the end of March, was obviously not on the list, a fact confirmed by the FDIC after its failure. The FDIC says it was added in June.

Independent analysts knew the Pasadena thrift was highly troubled long before that.

“IndyMac started going to hell in the second half of last year,” when it lost the ability to sell mortgages it made to investors, says bank consultant Bert Ely.

Highline Financial is one of several companies that rate the safety of banks and thrifts. Its scale ranges from 99 (best) to zero (worst). Its IndyMac rating fell from 55 at the end of 2006 to 1 at the end of last year. In March, it was rated zero.

Bankrate.com gave IndyMac its lowest of five ratings in March.

Highline and Bankrate both use a rating system similar to the so-called CAMELS system used by federal regulators including the FDIC, which regulates banks, and the Office of Thrift Supervision, which regulates savings and loans. (Although they have separate primary regulators, the FDIC insures deposits in both banks and thrifts and backs up the OTS.)

The housing bust is still in full swing right now. Congress has passed a housing bail out that is suppose to help homeowners in trouble. Initially, president Bush said he was against this and would veto the bill, but he has now taken a different stance since the economy has tanked and the “unofficial” recession has become worse in the last 3-6 months.

Meeting in a rare weekend session, the Senate voted 72-13 in favor of the bill, which includes tax breaks for homeowners, a $300 billion program to refinance loans for struggling borrowers, and a dramatic rescue plan for embattled mortgage finance firms Fannie Mae and Freddie Mac. Other provisions include an increase in the federal debt limit to $10.6 trillion and long-sought reforms to the Federal Housing Administration.

“For Americans out there today with distressed mortgages and worried about their economic future, we hope this legislation could be the first piece of good news in a long time,” Senate Banking Chairman Christopher Dodd (D., Conn.), told reporters after the vote.

Treasury Secretary Henry Paulson said provisions in the bill dealing with Fannie and Freddie, including the creation of a new regulator, were especially important.

“These components are orders of magnitude more important to turning the corner on the housing correction,” Mr. Paulson said in a statement.

The vote completes congressional action on the legislation, which is the result of months of political wrangling and negotiations between the House and Senate, Treasury Department, and other federal regulators. The House voted 272-152 to pass the bill on Wednesday.

For the record, I am against this bailout. Both these elite boneheads, Bernanke and Paulson, have made piss poor decisions and have steered this economy into this severe recession. The housing bubble they created and the housing bust they denied have happened. I don’t think this bailout that is to be paid by taxpayer money is the solution. This will not solve the housing crisis. If you watch this video of one of our Republican senators asking Paulson, you can see his lack of confidence in this plan. This bailout will hurt more than it will help the US economy in the long run.

I think we need to listen to Ron Paul’s ideas about just getting rid of the Federal Reserve and scaling down the US Treasury. Both have contributed to moral hazard. This is a great video of Ron Paul explaining what needs to be done to help long term.