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 arenât caused by powerful politicians publicly questioning a bankâs security, according to CNBCâs Erin Burnett.
Burnett, host of âStreet Signs,â disputed a claim by MSNBC âMorning Joeâ 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.
âI donât think Chuck Schumer caused a run on the bank,â Burnett said on âMorning Joeâ July 24. âThis is the new world of banking. Companies, banks come out and they say, and they say, âOh my gosh â our stockâs down 20 percent. Itâs being manipulated. Please come in and help us government. Oh my gosh, thereâs a run on our bank â letâs blame it on a senator.ââ
âI am concerned that IndyMacâs financial deterioration poses significant risks to both taxpayers and borrowers,â Schumer wrote. â[The bank] could face a failure if prescriptive measures are not taken quickly.â
Burnett insisted Schumer, who is a member of two influential banking committees â the Senate Finance Committee and the Committee on Banking, Housing, and Urban Affairs â isnât âpowerfulâ enough to trigger panic about a stressed bank.
âCome on, Chuck Schumer wishes he was powerful enough as being able to cause a run on a bank,â Burnett added. âIndyMac had serious problems and a lot of investors had recognized that. I donât like the finger-pointing is all Iâm saying.â
Perhaps the timing was coincidental, but the run on IndyMac occurred after Schumerâs letter was reported in the media. The federal governmentâs Office of Thrift Supervision (OTS) placed the blame on Schumer in a July 11 press release.
âThe 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,â the release stated. âThe letter expressed concerns about IndyMacâs viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.â
âThis institution failed today due to a liquidity crisis,â OTS director John Reich said in the release. âAlthough this institution was already in distress, I am troubled by any interference in the regulatory process.â
The Wall Street Journal editorial board agreed with the OTSâs diagnosis.
âBut Mr. Schumer was not content merely to share his profound concern with regulators,â a July 15 WSJ editorial said. âHe also leaked the June 26 letter to the press â which is more like shouting âfireâ in a crowded bank than dialing 911.â
Schumer absolved himself of fault in the ultimate failure of IndyMac in a news conference on July 13.
âIndyMac was one of the most poorly run and reckless of all the banks,â Schumer said. âIt 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 weâre now in.â