The Swift Boat of Subprime

Some former IndyMac Bancorp employees say it wasn't risky loans that brought down the California thrift last month, but a U.S. senator.

Fifty-one former employees have asked the California attorney general to investigate whether Senator Charles Schumer, the New York Democrat, frightened customers and precipitated the thrift's collapse when he publicly released a letter he had sent to federal regulators questioning the future of IndyMac.

The accusation has now taken a decidedly partisan twist: The employees' letter to the California A.G. was distributed by CRC Public Relations, whose clients include the Republican National Committee and Republican congressional committees. The Alexandria, Viriginia firm is also tied to a company that published a 2004 book questioning Democratic presidential candidate John Kerry's Vietnam service on a swift boat.

Schumer's office had no immediate comment on the flap.

But Barry Ritholtz on the Big Picture scoffed on the notion that the senator was to blame:

"It wasn't the conflicts of interest, the outright fraud, or the management's rampant criminality that sent IndyMac belly up. It wasn't losing nearly a billion dollars this year alone. It wasn't the share prices tumbling 87 percent in 2007, and then losing another 95 percent this year-to-date. And of course, the loss of $30 billion dollars had nothing to do with this.

"It was the Senator's' letter in June that was the cause of the collapse," he concludes sarcastically.

There is no word yet on whether Jerry Brown, the California attorney general , will pursue an inquiry.

Federal regulators seized IndyMac, one of the nation's biggest mortgage lenders, on July 11 after a run on the bank. Customers withdrew $100 million a day, totaling more than $1.3 billion in deposits before regulators stepped in. It was one of the biggest banking failures in U.S. history.

Schumer has accused regulators of not giving sufficient oversight to IndyMac, which offered mortgages requiring minimal documentation from borrowers.

But John Reich, the director of IndyMac's regulator, the federal Office of Thrift Supervision, has said that a critical letter from the senator about the thrift frightened depositors. The former IndyMac employees reiterated that criticism in a letter to Brown, noting that after Schumer's letter became public on June 26 "until the closure of the bank, a run on the bank took place and the failure became inevitable."

Elizabeth Olson