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THE MONDAY AFTER MY BANK, INDYMAC, FAILED
July 15, 2008


My bank, IndyMac, failed this past Friday - it was taken over by the FDIC. This past weekend, I wrote about my experience at the Irvine branch on Thursday - the DAY BEFORE the FDIC takeover ... and you can read about that experience here:

     Tough Economy - My Bank Just FAILED on Friday

Over the weekend there was a news conference at the IndyMac headquarters in Pasadena where the FDIC administrator who took over sought to reassure the depositors that all is well. ["All is well" EXCEPT if you have more than $100,000 on deposit that is.] He said the bank would re-open on Monday, and that it would be business as usual for everyone.

Yesterday I worked from home, and the very first thing I did was hit the IndyMac website, and logon to my electronic banking account there. Sure enough, the $98,000 I have on deposit is still there - that's good news. Next I went ahead, and found out what the new interest rate is on the e-Money Market account I have that $98K in ... down to 3.7% (from 4.01% last week). Okay - that is fine ... nothing to cause me to panic and withdraw. 3.7% is still better than any other e-banking interest rate I have in my portfolio.

Next I turned on the TV ... and all the local news channels are showing long lines of people lined up outside all of the IndyMac branches. I am saying to myself, "why are these people panicking?" - and then I hear some of the interviews. Many of these people seeking to withdraw their money are elderly people ... who had more than the FDIC-insured limit in their accounts. And as I learned over the weekend (and wrote in my earlier article referenced above), if you have more than the FDIC-insured limit in your account when a bank fails, then you are initially only given 50 cents on the dollar for the amount over the limit. You may (or may not) later be given some amount of the remaining 50 cents on the dollar later when the bank is sold - as you become a top tier creditor of the bank ... and are paid before any other of the bank's creditors are paid.

Listening to these local news interviews with the elderly investors was heartbreaking. Some of these people had their life savings stashed in IndyMac accounts. Why didn't they pay attention to the $100,000 FDIC-insured limit? Who knows - maybe they didn't read the fine print? Maybe they did not think that the worst could ever happen? Maybe they had just a little bit too much trust and faith in the "system". Not any longer - several of those people in those interviews said they were going to stash their cash under their mattress from now on where they " ... could keep an eye on it."

So what did I wind up doing with the money in my IndyMac account? I left the whole $98,000 alone - it seems safe enough for now. I am not over the $100,000 FDIC-insured limit ... and the bank is paying 3.7% ... which is better than all other banks - although Countrywide is close at 3.55%. [In the absence of the BofA takeover, Countrywide would be just as scary a ride as IndyMac].

So right now it is 7:30 a.m. on Tuesday, July 15, 2008. I briefly turned on Fox Business News, and saw that the Dow Jones Industrial Average is down roughly 200 points this morning. Fannie Mae and Freddie Mac stocks are getting hammered - again. It is nothing but bad news as far as the economy goes. I turned OFF the TV, and finished writing this article. Back in January, I wrote another article here that compared the current market to the correction of 2000 through 2002 ... and predicted that if today's market is at least as bad as that period - that the Dow will drop to 9096 by June 2010:

        The Dow Will Fall to 9096 by June 2010 (written January 2008)

My revised prediction - it may not take that long to drop that fast, and it may drop even further. Be careful where you put your money!



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