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LINDA WERTHEIMER, host:

This is Weekend Edition from NPR News. Scott Simon is away, I'm Linda Wertheimer. On a day that fear and turmoil swept through the financial markets, the biggest victim was a savings and loan, a bank that specialized in risky mortgages. IndyMac Bank was seized by federal regulators late yesterday. It's the largest mortgage lender to fail during the housing crisis, and one of the biggest bank collapses in U.S. history. IndyMac's demise is a striking example of the boom-and-bust cycle in the housing market, a bust growing more severe by the day.

NPR's John Ydstie joins us to talk about the IndyMac failure. So what exactly happened to IndyMac?

JOHN YDSTIE: Well, IndyMac which is based in Pasadena, California, and shouldn't be confused with Freddie Mac and Fannie Mae - which Joe Nocera is going to tell us about in a few moments - IndyMac was a high-flying mortgage lender specializing in exotic and risky loans, sometimes called Alt-A loans, including loans where they didn't require the borrower to provide documentation of their incomes.

Now, it worked great during the housing boom. They made hundreds of millions of dollars in profits for a couple of years. But when home prices started falling and loans began to go sour, they fell very hard. The chief regulator, John Reich of the Office of Thrift Supervision, the OTS, said the institution failed due to a liquidity crisis, which is really a fancier way of saying they ran out of money.

WERTHEIMER: Well, what happened to the depositors, to the people that had money in that bank?

YDSTIE: Well, according to the FDIC, which insures the deposits and is taking over the bank, depositors will have access to their funds this weekend through ATMs and through their debit cards and checks. And IndyMac will open on Monday as a new entity under government control. Depositors who had 100,000 dollars or less in the bank will be made whole. They won't suffer any loss. But according to the regulators, there were about 10,000 people with deposits totaling a billion dollars that were not insured. And they'll get a payment equal to half the uninsured amount. So they're going to take a big hit. Employees also suffered. IndyMac fired 7,200 people on Monday, half its workforce.

WERTHEIMER: There was some finger pointing. John Reich, the head regulator, suggested that interference by a U.S. senator may have played a role in the collapse.

YDSTIE: Yeah, and this is very interesting. He was pointing a finger at New York Democrat Charles Schumer who two weeks ago wrote a letter that said lax lending standards and deposits purchased from third parties had left the bank on the brink of failure. And in the 11 business days after Schumer expressed his concern, there was a run on the bank. Depositors withdrew more than 1.3 billion dollars. And Reich said that Schumer gave the bank a heart attack.

Schumer shot back yesterday. He wrote an email saying if OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today. He said, instead of pointing false fingers of blame, the OTS should start doing its job to prevent future IndyMacs.

WERTHEIMER: Are there going to be future IndyMacs?

YDSTIE: I think there's little doubt there will be more bank failures as a result of the housing crisis. But IndyMac was really an outlier, a cowboy bank. It took big risks with jumbo loans, had a lot of business in the hottest real estate markets in California. Other bank failures, though, aren't likely to be this large. This is a huge takeover. IndyMac is the largest savings and loan ever to fail. It held 32 billion dollars in assets in late March, and it's the second largest depository institution behind Continental Illinois which failed back in 1984.

WERTHEIMER: NPR's John Ydstie. Thank you very much.

YDSTIE: You're welcome, Linda.

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