Star One Smart Blog's

Words mean things, Chucky. And so do letters.

Charles Schumer wrote a letter June 26 that rattled California's IndyMac BanCorp.'s depositors and started a run on the bank. Despite efforts by IndyMac's regulators to calm the masses, the bank collapsed Friday and was seized by the Office of Thrift Supervision, who turned the bank's assets over to the FDIC.

"The Pasadena, California-based lender specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. The demise adds to the crisis caused by the subprime collapse and may mean regulators will have to raise more money to support the federal deposit insurance program that repays customers when a bank fails.

``IndyMac is the vanguard, the precursor of more stuff coming,'' said Christopher Whalen..."

Chucky's role...

The director of the Office of Thrift Supervision, John Reich, blamed IndyMac's failure on comments made in late June by Sen. Charles Schumer (D., N.Y.), who sent a letter to the regulator raising concerns about the bank's solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion. Mr. Reich said Sen. Schumer gave the bank a "heart attack."

"Would the institution have failed without the deposit run?" Mr. Reich asked reporters. "We'll never know the answer to that question."

We may soon see the failure of Fannie Mae and Freddie Mac, those US Government agencies that buy mortgages and package them as securities. WE, the taxpayers, are already responsible (as guarantors) for IndyMac, and may soon have to eat the Freddie and Fannie pies as well.

"As quoted companies, Fannie and Freddie raise capital through the stock market and issue bonds in the fixed income market just like other companies, but there has always been a fundamental ambiguity about who is ultimately guaranteeing the mortgages.

"Markets have long assumed that, given that they were established by Congress, they will be backstopped by the Government. So if they go bust, and by some measures they are already technically insolvent, either they go under and interest rates rise as the US mortgage market seizes up, or the Government bails them out at vast cost to the budget deficit, which also means rates go up."

If we do have to absorb these losses, you can bet that such Obama Promises as Universal Health Care will be on permanent hold.

There's only so much taxpayers can absorb before the Government backstops fail, and the U.S. Treasury defaults. We should demand that both of the presidential candidate's promises to wide-eyed, expectant, liberal-minded citizens for vaporous Government giveaways -- promises designed primarily to lure these uninformed voters -- need to be backed by hard data that details the funding sources. Otherwise they need to stop promising things that will be impossible to deliver.