Word: indymac
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...success of IndyMac, though, shows that the government can accomplish its goal in a relatively short period of time. That's not the only evidence that the feds know how to hustle. Since the beginning of 2008, the government has seized 41 failed banks. In nearly all those cases, the FDIC already had buyers lined up for the failed institutions by the time they were taken over. Troubled banks are generally closed on a Friday and given to new owners over the weekend. In most cases, the failed bank's branches reopen with a new name on the door...
Here's how it worked. The FDIC decided to run the bank itself rather than rely on the bank's past managers or hire new ones. So almost immediately after the agency took over IndyMac last July, it sent over two of its top officials, chief operating officer John Bovenzi and Dallas-based assistant director Rick Hoffman, to Pasadena, Calif., to run the bank. Bovenzi became IndyMac's CEO. Hoffman took on the role of president. For Bovenzi and Hoffman, cost-cutting was high on their agenda. They slashed the rate the bank was paying on certificates of deposit. Expensive...
...FDIC also has a public-policy mission with IndyMac, which had made many risky mortgages. Many of those loans went to borrowers in California, where home prices have fallen sharply. The FDIC tried to show it could keep many of those borrowers in their homes and still turn the bank around. In all, IndyMac modified the loans of more than 10,000 of its borrowers in less than eight months, in many cases eliminating the chance that those borrowers would face foreclosure. (See pictures of Americans in their homes...
Despite the government's successes, IndyMac also shows that nationalization can be costly. Last week, the Treasury Department estimated that the IndyMac takeover will end up costing the FDIC nearly $11 billion. Nearly half of those losses came from the actual day-to-day operation of IndyMac, which lost $4.4 billion in the second half of last year...
What's more, IndyMac is only one of four financial firms to have effectively been nationalized during the current financial crisis. Among that group, which also includes Fannie Mae, Freddie Mac and AIG, only IndyMac has been returned to private ownership. The others seem a long way off from a similar outcome, if at all. Critics of nationalization say taking over and resolving the issues at a bank like Citigroup, which has hundreds of thousands of employees and businesses spread around the world, would be a much more difficult task than turning around IndyMac, which is a relatively small bank...