The FDIC sells failed IndyMac Bank too soon—and for too little.
Posted Tuesday, Jan. 6, 2009
The Federal Deposit Insurance Corp. on Monday agreed to sell IndyMac, a failed bank it took over last July, to a group of sharp Wall Street operators. They’re paying about $15 billion, leaving the FDIC with a loss of about $9 billion on the bank. The government will probably be glad to get rid of IndyMac after just eight months, as it would like to unload all the other failed companies and bad assets the Treasury Department and Federal Reserve has amassed. But there’s reason to think they should wait awhile before selling.
Markets, which are presumed to be rational, are in fact frequently bipolar. Prices get distorted—too far upward during bubbles and too far downward after they pop. Now, they’re down. Nobody today wants to buy banks or financial firms or subprime mortgage-backed securities, whose value has fallen by 90 percent or more since the peak.
So it’s no surprise IndyMac is selling for a song. Buyers base their purchasing decisions in part on benchmarks, recent sales of similar property. Think what would happen to the market value of your house if the four identical homes surrounding it had just traded hands in foreclosure sales. What’s more, when you put something expensive up for auction—a mansion, a yacht, a big lender—in this environment, you won’t get many bidders. Wall Street banks are hoarding the capital they’ve received from the government, hedge funds are erecting drawbridges to keep investors from leaving, and private-equity firms are licking their wounds. And with oil prices at less than $50 a barrel, the Persian Gulf sovereign wealth funds aren’t feeling particularly flush. The FDIC noted that it “received considerable initial interest from potential bidders” for IndyMac. But how many serious bidders were there?
…Many private-equity and hedge-fund managers are wonderful people—charitable, kind to small children and animals. But you never want to be on the opposite side of a trade from them. During a boom, you don’t want to buy what they’re selling. The corollary, of course, is that in a down time, you don’t want to be selling what they’re buying. Especially on these terms…
