Paulson Among Buyers of Failed IndyMac Bank

The FDIC issued a news release Friday to let the world know the agency’s board had approved a letter of intent to sell IndyMac Bank to a thrift holding company controlled by IMB Management Holdings LP.  Though one of the men involved in purchasing the bank shares the same last name as Treasury Secretary Henry M. Paulson, members of the mainstream news media have failed to acknowledge that fact.

A Los Angeles Times report Saturday listed John Paulson as one of two hedge-fund operators (the other being billionaire George Soros) among a small group of owner-investors, while an article published Friday in the San Jose Business Journal noted that the limited partnership includes John Alfred Paulson, the same man.  Neither article, however, deemed it worthwhile to report that the man involved in purchasing a large failed bank shared the same last name as the man who oversees the nation’s banking system, Secretary Paulson.

Noticing that, I decided to see if any other news outlets had seen fit to address the nagging question, “Is John Alfred Paulson related to Henry M. Paulson?” After all, even the pseudo-journalists behind the desk at ESPN Sports Center know enough to toss in an occasional “No relation” upon noticing that two unrelated players who share the same last name.

Surprising me again, none of the articles I found — neither the above-mentioned articles nor others published in the Wall Street Journal Jan. 5, at Bloomberg.com Jan. 3 and via Associated Press Jan. 3 — addressed the question.  That’s when I decided to ask people who should know.

I called IMB’s corporate offices early this afternoon and was told to send an e-mail inquiry to Armel Leslie at Walek & Associates, IMB’s Madison Avenue public relations counsel.  Twice given the opportunity to respond to the question, “Is John Alfred Paulson related in any way to Secretary of the Treasury Henry M. Paulson?” the PR specialist responded by e-mail as follows:  “No relation” and “Yes, no relation.”

Though I had an answer, I was not yet convinced; therefore, I called the Treasury Department Public Affairs Office in Washington, D.C., and asked them to field a nearly-identical question, “Does Secretary Paulson have any immediate relatives by the name of John Alfred Paulson?”

With true bureaucratic efficiency, the buck was passed at least twice during my phone call before I was dispatched with a promise that someone would call me back with the answer.  Unfortunately, that was almost five hours ago.

Is John Alfred Paulson related to Henry M. Paulson? Perhaps not, but that’s not what motivated me to write this article.  Instead, my chief concern was the news media’s seemingly-collective decision to ignore any possible connection between the men.  That kind of collusion, I fear, might portend a much greater problem for our nation’s future than banking failures.

IndyMac Bank Customer Frustrated by $52K Loss

Editor’s Note: When I began corresponding with a self-described conservative who reads this blog, I had no idea he was cohabitating as a “domestic partner” with another individual to whom he was not married.  Though I’m staunchly against such unconventional living arrangements, that’s not my focus here.  Instead, I chose to pursue this story based upon my vehement opposition to the kind of government interference in personal financial matters that stands to cost this man more than $52,000 from what he had understood to be FDIC-insured accounts.

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Eight days before Christmas, David Cohn happened by my blog, Bob McCarty Writes, and read a post I had written about the July 11 failure of IndyMac Bank.  Afterward, he left a comment that came across to me as either a warning to his fellow Americans or the words of a kook.  After deleting the comment because he had included his home phone number in it, I was intrigued enough to send Cohn an e-mail Dec. 17 at 2:02 p.m.  In it, I asked him one question:

So what do you want to share with me about your IndyMac experience?

In his reply, Cohn shared a copy of a letter he had sent two days earlier to FDIC Chair Sheila C. Bair.  In addition, he detailed his so-far-unsuccessful efforts to obtain help from his congressman, Rep. Connie Mack (R-Fla.), and from his two U.S. senators, Bill Nelson (D-Fla.) and Mel Martinez (R-Fla.).

After moving him out of the “kook” category, I told him I would take a look and see what I could do, adding, “No promises, but I’ll try my best to help.”  Thus began a three-day exchange of e-mails and phone calls during which I learned the details of his four-month-long battle against to have his insured deposits returned to him by the Federal Deposit Insurance Corporation, a regulatory agency Congress created in 1933 to “restore public confidence in the nation’s banking system.”

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A 44-year-old business owner and real estate investor in Port Charlotte, Fla., Cohn had $305,798.17 — $300,000 of which he believed was insured by the FDIC — on deposit with the Pasadena, Calif.-based IndyMac Bank.  Twenty days after the July 11 failure of the bank, the FDIC debited a total of $105,798.17 from his accounts without his consent and without prior warning.  Cohn found himself in a state of disbelief.

Upon seeing the $300,000 figure above, one might be inclined to jump to the conclusion that Cohn should have known his accounts were vulnerable because they exceeded the FDIC limit of $100,000 per account.  But Cohn would argue they were wrong.  After all, people at IndyMac Bank had outlined the deposit insurance guidelines for him at the time he opened his accounts.  Surely, they knew what they were talking about.  Or did they?

Eight days and several phone calls after the FDIC seizure of his funds, Cohn reached Michael D. Geske, an FDIC financial institution specialist based in the agency’s Dallas Field Office.

During a phone conversation with Geske, Cohn learned that FDIC rules regarding beneficiaries — in place at the time of the IndyMac Bank failure — excluded “domestic partners” from the list of people who qualified as beneficiaries.  For Cohn, a man who has been involved in a 15-year domestic-partner relationship with a person whom he named as one of the beneficiaries of his trust account, advance knowledge of that rule would have changed the way he handled his money at the time he deposited it at IndyMac Bank.

Much to his surprise, Cohn said he was told by Geske during the same phone call that he would be getting back $100,000 of the funds that had been seized.  According to Cohn, Geske said that the FDIC would not have insured domestic partners under normal circumstances.  Because IndyMac was such a massive public bank failure, according to Geske, the FDIC was taking extraordinary measures and would, as he stated in the above-mentioned e-mail, insure his losses up to $300,000.

Excited but still cautious, Cohn wanted something to serve as proof of his conversation with Geske, so he asked the FDIC official to recap their conversation in the form of an e-mail.  The e-mail Geske sent to Cohn Aug. 8 at 2:26 p.m. contained the following details that served to confirm their phone conversation:

From: Geske, Michael D. <MGeske@FDIC.gov>
Subject: Indy Mac Bank
To: David Cohn
Date: Friday, August 8, 2008, 2:36 PM

Dear David,

I am emailing you to let you know your deposit insurance determination.  You have account number (deleted) listed as solely in your name.  This makes it a single ownership account and qualifies for up to $100,000 in deposit insurance.  Since the balance was $102,010.42, it is uninsured $2,010.42.  Your other account is number (deleted).  It is listed as an in trust for account with 2 beneficiaries.  These types of accounts qualify for deposit insurance up to $100,000 per qualifying beneficiary.  Since there are two beneficiaries, it would qualify for up to $200,000 in deposit insurance coverage.  This account had a balance of $203,787.75 and is therefore uninsured $3,787.75.  The grand total of deposit insurance is $300,000 and the total of uninsured funds is $5,798.17.  You will receive a corrected receivership certificate in the mail.

The FDIC has issued a 50% dividend for all uninsured depositors.  You will receive a check in the mail for $2,899.08 from the FDIC.  Some of the remaining 50% of uninsured funds may still get collected.  As the FDIC liquidates the assets of the failed bank, if we collect more than the 50% already paid, we will issue additional dividends.  It is impossible to say how much an asset will sell for or how fast it will sell.  So there is no way to let you know when, how much, or if you will collect additional funds.

If you have additional questions, feel free to email me directly.

Sincerely,

Mike Geske
Federal Deposit Insurance Corporation
Financial Institution Specialist
Dallas, TX Field Office

PS, I gave you the wrong extension over the phone.  The correct extension for the office I am working in is (972) 761-2389.  I will be in this office until mid September.

In reply, Cohn sent this e-mail to Geske less than three hours later:

From: David Cohn
Sent: Friday, August 08, 2008 5:11 PM
To: Geske, Michael D.
Subject: Re: Indy Mac Bank

Mike,

Thank you once again for the e-mail confirming our conversation. In your email you stated that I should receive a check in the mail for $2,899.08 which is 50% advanced dividend of my uninsured deposits. I understand this. When will I receive a check for the remaining balance of my insured funds?

Thank you once again, David.

Nearly 12 hours passed before Geske replied to Cohn via e-mail as follows:

On Sat, 8/9/08, Geske, Michael D. <MGeske@FDIC.gov> wrote:

From: Geske, Michael D. <MGeske@FDIC.gov>
Subject: RE: Indy Mac Bank
To: David Cohn
Date: Saturday, August 9, 2008, 5:49 AM

That should be handled electronically through the bank.

* * *

Unfortunately for Cohn, Geske and his supervisor appear to have provided him erroneous information in much the same manner as the people at IndyMac Bank failed to provide him complete information at the time he made his deposits and selected beneficiaries for his funds.

Adding salt to the “wound” that is Cohn’s frustration, the FDIC changed its rules within 90 days of IndyMac Bank’s failure.  In a Sept. 26 news release, the FDIC announced a “simplification” of the beneficiary rules which includes no mention of limits being placed upon people who qualify as beneficiaries.

When deciding upon distribution of funds in a trust, the rightful owner of those funds should be able to designate whomever he chooses — family member, friend or domestic partner — as a beneficiary.  Whether or not one chooses to live with someone with whom he or she is not married should have nothing to do with it, and government should have no say in the matter.

In future posts, I will share the perspectives of the FDIC and elected officials on this matter.

Developing…

BANK FAILURE! IndyMac Bank Closed by FDIC

Below is the text of an FDIC news release about today’s collapse of IndyMac Bank:

IndyMac Bank, F.S.B., Pasadena, CA, was closed today by the Office of Thrift Supervision. The Federal Deposit Insurance Corporation (FDIC) was named conservator. The FDIC will transfer insured deposits and substantially all the assets of IndyMac Bank, F.S.B., Pasadena, CA, to IndyMac Federal Bank, FSB. Brokered deposits will be held by the FDIC and those insured deposits will be paid off when the insurance determination is complete. IndyMac Bank, FSB had total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008. As conservator, the FDIC will operate IndyMac Federal Bank, FSB to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by IndyMac Bank, F.S.B.

Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks in the same manner as before. Depositors of IndyMac Federal Bank, FSB will have no access to on-line and phone banking services this weekend. These services will be operational again on Monday. Loan customers should continue making loan payments as usual.

Beginning on Monday, July 14, IndyMac Federal Bank, FSB’s 33 branches will observe normal operating hours and will continue to offer full banking services, including on-line banking. For additional information, the FDIC has established a toll-free number for customers of IndyMac Federal Bank, FSB. The toll-free number is 1-866-806-5919 and will operate today from 3:00 p.m. to 9:00 p.m. (PDT), and then daily from 8:00 a.m. to 8:00 p.m. thereafter, except Sunday, July 13, when the hours will be 8:00 a.m. to 6:00 p.m. Customers also may visit the FDIC web site at www.fdic.gov/bank/individual/failed/IndyMac.html for further information.

At the time of closing, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. The FDIC will begin contacting customers with uninsured deposits to arrange an appointment with an FDIC claims agent by Monday. Customers can contact the FDIC for an appointment using the toll-free number above. The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount.

Based on preliminary analysis, the estimated cost of the resolution to the Deposit Insurance Fund is between $4 and $8 billion. IndyMac Bank, F.S.B. is the fifth FDIC-insured failure of the year. The last FDIC-insured failure in California was the Southern Pacific Bank, Torrance, on February 7, 2003.

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 8,494 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed.

* * *

See also: IndyMac Bank 33rd to Fail Since October 2000 (7-12-08)

News coverage: Bloomberg, SmartMoney, United Press International

Obama Finance Chair Tied To Subprime Scandal

Recently, I was encouraged by a Bob McCarty Writes reader to look into the background of Penny Pritzker, a Chicago billionaire who now serves as the National Finance Chair for Barack Obama‘s presidential campaign. When I did investigate, I found details that should not only cause “Obamaniacs” to question their candidate’s judgment, but should — at a minimum — prompt a detailed explanation from Obama himself.

Penny Pritzker Mini-Resume

According to a Forbes article (Shaking the Family Tree by Stephane Fitch) published Sept. 30, 2002, “(Pritzker) represented her family’s half-interest in Superior Bank, a thrift operating in the Chicago suburbs” that “ran into trouble early in 2001 when a large number of subprime loans went into default.”

Note the term, SUBPRIME LOANS.

Also in the Forbes article were the following details:

Regulators charged the bank with poor lending practices and sloppy accounting. The Federal Deposit Insurance Corp. was bracing to cover as much as $550 million in losses at Superior.

The Pritzkers initially seemed confident, offering in July 2001 to infuse the bank with $210 million. But by December, with details of Superior’s losses under increasing scrutiny, the family was forced to open its checkbook, agreeing to shell out $460 million over 15 years. No bank owner in history had ever offered anything close to that to settle a case. But the payout scuttled the possibility of Penny’s having to testify in a very public trial — or of her having to disclose her own role in the bank’s failure.

For Obama, the candidate who got himself involved in at least one shady real estate transaction with a Chicago businessman indicted in a state government kickback scandal and in an alleged business fraud in October 2006 (see Another Scandal in Obama’s House for details), the selection of an individual once up to her eyeballs in a costly subprime lending scandal should prompt everyone who’s serious about selecting the nation’s next leader to questions his judgment. Frankly, however, I expect only one high-profile person — Hillary Clinton — will actually do that.

* * *

For another blogger’s take on the matter, read Obama Campaign Finance Chair Involved In Superior Bank S&L Scandal?

For more information about the Pritzker family’s involvement with Superior Bank, read these articles:

The Pritzkers’ Superior Headache, Forbes, Nov. 5, 2002

The Pritzkers’ Empire Trembles, Business Week, Sept. 10, 2001