Monday, October 20, 2008

Schumer/Indymac 2

I grew up in Louisiana during several terms of Governor Edwin Edwards. Noted for his numerous affairs, gambling junkets and slick demeanor, Edwards was a man best described as colorful.  Everyone knew he was corrupt to the core.  Nevertheless, the people of the Pelican State loved him and kept re-electing him.

This was a man who admittedly kept two million dollars cash in the governor’s mansion for that unexpected emergency or impromptu casino road trip.   It was public knowledge that if you needed a pardon for some state infraction, you hired Edwards’ brother, a lawyer.  For five to ten thousand, depending on the crime, he could get you a pardon from his governor brother.  This arrangement worked until one of the clients, who had been pardoned for a previous murder, upped and killed brother Edwards the lawyer.

Despite numerous trials and impeachment attempts, Edwards remained untouchable.  He goaded prosecutors and press alike.  He used to say that the only way he would lose office is if he was found in bed with a live boy or a dead girl.

Weeks ago, I wrote about Senator Chuck Schumer’s reprehensible behavior involving Indymac Bank.  Quick recap:  last summer, he publicly questioned the bank’s viability which government and financial critics claim caused its collapse.

To the howls of outrage, Chuck claimed that he was merely doing his job as chair of the Senate Banking Subcommittee.  He believed it was his duty to express his “concern” about Indymac’s viability in an open letter to regulators.  Unfortunately, the public understood the “concern” to mean they should get their money now before the bank is shut down.  And they ran the bank.  The Federal Government was left with an eight plus billion tab and a lot of clean up.

Ex-employees who had been “concerned” out of a job pressed the California Attorney General to bring charges against Schumer.  The AG, former Democratic Governor Jerry Brown, declined to pursue a criminal investigation.  The broader defense was that Schumer was just a little na├»ve, maybe stupid, possibly inept.  But his actions were not illegal.

Now part II.  On Friday, the Wall Street Journal published a disturbing article suggesting that there might be a little more to all this than Chuck just being soft in the head.  At the same time the Senator was performing his patriotic duty in starting a bank run, some of his best friends had a lot to gain.

A group of investors led by Los Angeles-based OakTree Capital Management LP had considered investing in Indymac and thus were given access to the banks books.  Seeing a bank that was not in the best health, they determined they didn’t want to buy the bank.  But they could see a lot of assets worth picking out of the debris should the bank collapse.  They anticipated a lot of great bargains if the bank was taken over by the FDIC and its assets sold.

These OakTree vultures had been major donors to the Democratic Senate campaign committee that Schumer chairs.  They’ve given $700,000 over four years.  And in the culture of D.C., big donors equals big friends.

Despite this warm, close and deep relationship, Schumer and execs at OakTree claim they never talked to one another about Indymac.  And we are asked to take Schumer’s “highly-unusual” behavior in releasing his public “concern” letter as merely coincidental to their perusal of the Indymac books.

To suspicious minds, the question becomes did Schumer cause this panic for OakTree’s benefit.  And that’s going to be really hard to prove beyond a reasonable doubt.

So far, OakTree Capital has not pounced on any of the defunct bank’s assets.  As one exec put it, “there remains a ‘distant possibility’ that OakTree will be interested in buying remnants of IndyMac from the government. Now, though, the rash of institutional failures has presented his firm with a rich smorgasbord of distressed assets.”

To be honest, I don’t see a part three to this.  I’d love to be wrong.  But I doubt there will be any political will from California or the Federal government to pursue a criminal investigation.   

There’s not a dead girl or live boy anywhere to be seen.

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