Guest Opinion | Joan Aarestad: Paying It Forward—The 2008 Indymac Bank Meltdown

Editor: IndyMac was a holding company headquartered in Pasadena that originated and serviced mortgages and other forms of consumer credit. On June 26, 2008, IndyMac Bank faced a run on deposits that drained it of $1.3 billion in 11 days. The bank’s subsequent failure affected not only its borrowers but also its depositors, many of whom lost a large portion of their savings. One of those affected was Pasadenan Joan Aarestad.

The Federal Deposit Insurance Corporation (FDIC) just let Silicon Valley Bank (SVB) go into freefall. For me, it is like déjà vu all over again.

The last time I paid close attention to a bank failure was in 2008. July 11 to be exact. I was resting easy in the great state of Montana, enjoying the vista of mountains, bright blue sky and beautiful pines. Turns out Indymac Bank failed that day in Pasadena. On the news, it was riveting to see long lines of people standing in the blazing heat hoping to get their money out, like Great Depression-era photos.

I wasn’t worried. The funds our family had on deposit was well within the insurance limits provided by FDIC. No rush back to Pasadena or standing in line for me. The majesty of Montana was more compelling.

But when I got back home to Pasadena, I had a surprise waiting. A letter from FDIC calculated our insured deposits at a figure less than what my family had in the bank. There must be a mistake. I wrote a letter to FDIC and asked that the mistake be corrected. 

I was advised that since only one name appeared as the owner of the account, there was only $100,000 in FDIC deposit insurance coverage instead of $200,000.* Seriously. How could there be only one name when both my husband and I opened up the account?

Answer. Those young, energetic Indymac Bank employees who opened up thousands of accounts, online and in house, made LOTS of errors in documenting account ownership. As a result, as many as 10,000 depositors lost as much as a half a billion dollars in the blink of an eye. 

You would think that Sheila Bair, the Chairperson of FDIC and our Protector of Depositors, might have said to her people: “Fix those errors. Give those decent hard working depositors their money back.” Nope. FDIC has its own rules. And one of them is: “FDIC gets to take advantage of errors that operate in our favor.“

And so the fight for financial justice was on. The Indymac Depositors fanned out to gather support for a problem that really needed fixing. We did a couple of protest marches, reached out often to our elected officials and sued FDIC. 

FDIC hired this really expensive law firm out of Washington, DC to fight us. While spending millions of our tax dollars, the law firm began picking off the Indymac Depositors, one by one, by beating them in federal court actions. It reminded me of Robert Shaw’s dialogue from “Jaws:” “Eleven-hundred men went into the water; 316 men came out. The sharks took the rest.” 

Not wanting to be shark bait, the Indymac Depositors kept up their campaign for financial justice. We learned that Bair was speaking at a local Town Hall Meeting. At the appropriate time, a small group of women asked her to use her discretion to help fix the problems. 

The next morning, the Los Angeles Times quoted Bair as saying the Indymac depositors would need an Act of Congress to help them. 

And so we got her one. The legislation, supported by Congressman Adam Schiff, helped many Indymac depositors. Maybe some enterprising journalist will want to uncover the sad stories of those left behind as “shark bait.” Meanwhile, you can’t be shark bait without a shark, right? So who is the head shark in the sad saga of IndyMac? Stay tuned for the next exciting episode of “Planet Pasadena: How We Spin.”

But back to SVB. It is a tragic, tumultuous situation. It is still too early to read the tea leaves and figure out where those with the power and the greenbacks will eventually profit. 

One bright light. 

The federal regulators seemed to have had second thoughts about throwing the SVG uninsured depositors into the sea. Rather, it looks like those hard-working people will have their deposits guaranteed. Yay.  

Maybe those intrepid Indymac Depositors, who fought their way to financial justice, paved the way for a better result for the SVB depositors. After all, if a few good women who stared down FDIC and got that Act of Congress can win a little justice, maybe unleashing a swarm of other financial victims more adept at social media, is just not good public relations.

Whatever the reason, a huge thanks to the “powers that be” for helping out the SVB depositors. If history is any guide, SVB may have more going for it than it appears at the moment. Just like Indymac did. And money was made off those assets. Lots of it.

So let’s keep things as calm as we can. These are precarious times and none of us want to become shark bait. 

Joan Aarestad is a Pasadena resident who was a stay-at-home mother of two in 2008 when she was informed by federal regulators that a large portion of her family’s savings had vanished when Indy-Mac Bank collapsed.

* FDIC insurance coverage was later raised from $100,000 per depositor to $250,000.