Imagine the anxiety of IndyMac Bank customers as they waited in line to attempt to pull their money from the failed institution following a federal takeover. As tensions mounted Tuesday, police were called to the San Fernando Valley branch of the bank, based in Pasadena, Calif., although no incidents were reported.
Many customers had accounts in excess of $100,000. Deposits up to $100,000 are insured by the Federal Deposit Insurance Corp., and Individual Retirement Accounts (IRAs) and 401(k)s are insured to $250,000 per person. As such, customers were attempting to withdraw as much money as possible or get answers about funds that exceeded the insured limits.
In recent days, President Bush, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have made public statements in attempts to reassure Americans and jittery markets that the U.S. financial system remains sound. Most Americans, though, will take their cues from how the government responds to the IndyMac takeover and how the stock market responds in general.
The California ordeal is a cautionary tale to other bank customers across the country. Deposits should be limited to insured amounts.
Nearly $1 billion of IndyMac's approximately $19 billion in deposits was uninsured, according to the FDIC. This was not a failing on the government, rather unwise banking practices on the part of customers.
Then again, who could have imagined that the modern financial system would come under such stress? Consumer confidence is flagging in general, largely due to rising fuel and food prices. Matters are further complicated by the housing crisis and the soaring federal budget deficit.
Some experts, though, say the economy goes through cycles. Despite this current turmoil, the economy will eventually right itself. Other experts say this is not the time to make rash decisions or radical changes in one's investment strategy. They recommend riding out the white water because calmer waters lie ahead. Time will tell.
Common sense suggests the United States will emerge from this current economic downturn. It's difficult to imagine the salad days when gasoline costs more than $4 a gallon and news reports quote IndyMac customers saying things such as "What do you resort to now, putting money back in the mattress?"
The United States learned many financial lessons in the wake of the Depression. Few people hide money under their mattress or bury it in coffee cans in the backyard. They have confidence in the FDIC, which has $53 billion in insurance funds. It is incumbent upon the government and private-sector financial institutions to demonstrate that Americans' trust and confidence have not been misplaced.