Newsom looked more closely at the data. The bank's growing mountain of worthless loans meant it was "dead meat," he said. Although it seemed clear the bank wouldn't survive, IndyMac, with the approval of government regulators, continued accepting deposits, including some greater than the FDIC-insured $100,000 limit in effect at the time.
According to bank data compiled by the FDIC, IndyMac accepted $91 million in these uninsured deposits after March 2008, dooming unwitting savers to lose 50 cents on every dollar they deposited over the $100,000 limit. By the time of the bank's July seizure by the FDIC, it held accounts with $2.6 billion in uninsured deposits.
Jake Poehls
Newsom on the beach near his home in Montara.
Banking regulator Darrel Dochow.
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Cheryl Hodgson is a detective with the Orange County Sheriff's Department and the single mother of an 11-year-old son. "My brother has always begged me to move closer, so he and his wife could help out," she said.
She took him up on the offer, sold her house, and took her $360,000 escrow check to IndyMac, where a manager set her up with a regular savings account — just two weeks before the bank failed. Most of Hodgson's savings went up in smoke. Because of the $100,000 FDIC limit, $260,000 of her money was uninsured, and IndyMac, its deposits tied up in worthless liar loans, agreed to pay only 50 cents on the dollar to uninsured depositors.
"Two weeks and $130,000 later, I was devastated," Hodgson recalled. "When I went to the bank in tears, the bank manager smirked and told me I should have had a financial adviser, which is not her job." She is among thousands of IndyMac customers who've lost much of their savings, having been given incorrect advice by bank employees on how to protect their money.
Fran Quittel, an Emeryville headhunter, lost more than $10,000 on an IndyMac account she used to pay employees. "There's no reason for a depositor to be at risk," she said. "Why does a depositor go to a bank? It's not a hedge fund."
Lisa Marshall, a Manhattan Beach pilot whose mother lost $62,000 when the bank failed, created a Web site that has become a clearinghouse for IndyMac sob stories, including one customer who lost much of the money he'd accumulated for his daughter's college fund.
The most appalling bit of news to Marshall's ears, however, came when she learned an official named Darrel Dochow had overseen a regulatory operation that disguised IndyMac's financial condition so the bank could continue recruiting doomed depositors. "It was like all the cylinders collapsing at one time," she said. "You say, 'Oh, my God. This man was back in there in 1989, doing the same thing.'"
In the summer of 2008, Newsom began digging deeper into IndyMac's financial filings, which showed that it should have been declared "troubled" long before regulators actually raised red flags.
On June 26, Senator Charles Schumer (D-NY) wrote to the OTS, saying he was concerned that IndyMac's financial deterioration posed significant risks to taxpayers and borrowers. Dochow's immediate boss, OTS chief John Reich, accused Schumer of spreading "rumors and innuendo" that caused damage that "might not occur otherwise."
The episode played like the rerun of an old movie. At the 1989 Lincoln Savings and Loan hearings, Schumer was the House banking committee member most outspoken in his disgust at Dochow. "Now that we know that Washington knew that the debt was worthless, and still allowed the sale to proceed, I'd like to see those higher-ups start reimbursing those senior citizens who lost their money," he said in 1989. "It's almost as if the regulatory system was in a totalitarian state, where one man, Keating, could pull all the strings."
Newsom could barely believe the headlines he was seeing. Just as in 1989, malfeasant regulators demonized the very whistleblowers seeking to avert a crisis.
Newsom assembled a 100-page dossier for members of Congress, explaining how lax oversight by the Office of Thrift Supervision may have worsened the mortgage debacle and increased losses during bank failures.
"The inexplicable delay in regulatory action at IndyMac appears reminiscent in some respects to the delay orchestrated from 1987 to 1989 in the seizure of Lincoln S&L," Newsom wrote. "Most alarming of all, to we Lincoln S&L veterans, was OTS Director Reich's August 2007 appointment of Darrel Dochow to be the Regional Director of the OTS Western Region; essentially, Dochow became the primary federal regular of IndyMac, Countrywide, and Washington Mutual the month after the current crisis started."
Newsom became among the first to identify the man who has become a sort of Rosetta Stone for understanding the failure of regulators to properly deal with the three failed banks. He made contact with reporters at the Los Angeles Times and the Washington Post. The Times cited him in stories detailing the Dochow link between regulatory malfeasance behind Lincoln Savings and Loan and IndyMac Bank.
In December, the Post reported that Dochow had been reassigned after U.S. Treasury investigators discovered he had "approved a plan by IndyMac Bank to exaggerate its financial health in a May federal filing, allowing the California company to avoid regulatory restrictions only two months before it collapsed."
According to the Post, Dochow allegedly allowed IndyMac to claim it had received an $18 million transfer from its holding company in March that it had actually received in May. The backdating of records allowed the bank to report that it was "well capitalized" and thus solvent enough to stay in business. Despite the ruse, the bank collapsed soon after, and is expected to cost the FDIC $9.4 billion. (It later surfaced that the OTS had authorized similar backdating at four other institutions.)
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