Friday, July 11, 2008

FDIC Comments Imply a Big Haircut for IndyMac's Loans

The following items are from this WSJ article about the IndyMac failure:

  • IndyMac had roughly $19 billion of deposits. Nearly $1 billion of those deposits were uninsured, affecting about 10,000 people, the FDIC said.
  • The Pasadena, Calif., thrift was one of the largest savings and loans in the country, with about $32 billion in assets.
  • The collapse is expected to cost the Federal Deposit Insurance Corp. between $4 billion and $8 billion, potentially wiping out more than 10% of the FDIC's $53 billion deposit-insurance fund.
We know from a recent Reuters article how big IndyMac's Federal Home Loan Bank advances were: "The loans, or "advances" -- totaling more than $10 billion as of March 31 by the San Francisco FHLB -- are backed by mortgages pledged by IndyMac."

We also know that "the FHLBs have a 'super lien' when institutions fail. To protect their position they have a claim on any of the additional eligible collateral in the failed bank. In addition, the FDIC has a regulation that reaffirms the FHLBs priority and the FHLBs can demand prepayment of advances when institutions fail."

Using what we know, we can infer the percentage haircut that the FDIC is placing on Indymac's assets. It's not pretty:

Now we see that these assets are every bit as bad as bearish bloggers have been saying.

Now we see that there is not a "liquidity crisis" or a "subprime crisis", but a housing crash and a solvency crisis.

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