5 Dumbest Things on Wall Street: July 18

3. IndyMac: Let the Blame-Storming Begin

Now that Federal regulators have finally seized beleaguered mortgage bank IndyMac, what better activity to start than the blame-storming?

And where dumber to try sticking the blame than on the senior senator from New York, Charles Schumer.

Friday, after the market close, the Office of Thrift Supervision placed IndyMac in the hands of the Federal Deposit Insurance Corp. after the regulator decided that the bank was unlikely to have sufficient funds to meet depositor demands.

At least part of the problem was the outflow from the bank of $1.3 billion of deposits starting in late June. That's a huge amount, accounting for almost 7% of the bank's total deposits of around $19 billion.

And that's where the dumbness really starts, because John Reich, director of the OTS, says the rush to withdraw funds was all sparked by a June 26 letter from Schumer to the OTS warning of pending liquidity problems.

"Although this institution was already in distress, I am troubled by any interference in the regulatory process," Reich said Friday in a press statement referring to the Schumer letter.

In other words, Reich is saying Schumer caused a bank run.

Surely that gives Schumer way too much credibility.

Seriously, would you take his word for it that a bank was set to go under? Even Schumer was a bit incredulous, telling the AP his letter offered "no new revelations." He likened the administration's response to "blaming the fire on the person who called 9-1-1."

An alternative interpretation of events, and one that seems to ring truer, might be that depositors finally got wise to the fact that IndyMac's loans weren't worth the paper they were written on. Or at least they weren't willing to run the risk of finding out.

IndyMac specialized in making so-called Alt-A loans, typically granted with little documentation of income or assets or to those with credit blemishes -- in other words, loans to people who wouldn't normally qualify for prime loans.

It doesn't take a genius to figure out that anything less than prime has a tendency to age badly these days.

So why are the banking regulators giving Schumer so much credit?

Maybe they're trying to create a distraction to keep people from asking who let things get out of control in the first place.

If the regulators had done their jobs, then maybe the FDIC wouldn't be staring a possible $8 billion bill to cover mess, possibly making the most expensive U.S. bank failure ever.

Someone needs to be blamed, right senator?

Dumb-o-meter score: 90. Message to senators: Please don't spark anymore bank runs!