Should IndyMac customers be bailed?

It's not quite like a moral hazard, but the results are much the same: IndyMac depositors who kept more than the maximum insured $100,000 (6,500 customers more or less) would recoup at least some of their losses under legislation that's part of the financial reform package. The measure would make permanent a boost in the FDIC coverage from $100,000 to $250,000, and then make the increase retroactive to before IndyMac was taken over. Democratic Rep. Jane Harman, who was pushing the measure, said this:

"In California, a widow lost more than half of her late husband's life insurance dividend. Another woman lost $63,000 of her disability insurance payment. A single mother who sold her home deposited a $360,000 check for safe keeping as she prepared to buy another house, two weeks before IndyMac collapsed. These people were the victims, not the cause, of the banks' collapse. Giving their depositors the same protection provided to all depositors just three months later is the right thing to do."

I'm not sure. It's true that a number of customers had accounts of more than $250,000 so they don't get off entirely. And apparently some folks were genuinely confused or misled about the insurance limits. And the additional cost will come out of the pockets of the banks. In other words, it's not that big a deal. But it's one more example of reckless actions that government is waiving off. Don't play by the rules? Don't worry about it.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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