IndyMac Bank was seized Friday by federal regulators after the “second largest US bank failure in history.” (The bank had $32 billion in assets). But rather than fixing what’s wrong with the financial system, the Senate chose Friday to pass a bloated, pork-filled mortgage bailout bill that will rip off taxpayers to pay off politically-connected lenders and give handouts to corrupt left-wing special interest groups like ACORN that engaged in the very practices, like “liar loans,” that helped spawn the mortgage crisis. The bill also circumvents constitutional limits.
IndyMac collapsed partly because borrowers with interest-only mortgages were able to just walk away from their mortgages, without any real penalty. Why? Because of California credit regulations, which permit only non-recourse loans. Stupid managers also contributed to the bank’s failure, as Professor Bernstein explains.