IndyMac Bank, Steve and Barry's University Sportswear... Why They Failed

And another one bites the dust... more and more companies are said to be circling the drain and a huge retailer files for Bankruptcy while jittery lenders push for its demise. America's markets are built on trust and credit, lenders (banks) give capital (cash) which must be paid back with interest. The current slumping economy comes simply back to this; people are not paying the lenders back.

There a variety of reasons why a borrower would not pay back. They may not have the capacity or capability to. There may have been a significant life event: a hospitalization, a death, unemployment that could be effecting payment as well. Some savvier borrowers may realize that the property which they paid for is not worth the loan balance and decide not to pay it off. Whatever the individual reason, this is currently happening in masse.

Indymac Bancorp, known as IndyMac Bank, a Pasadena-based Savings and Loan made their name by perpetuating a relatively new set of securities (investments) called Mortgage-Backed Securities (MBS). In a time of free credit and soaring housing prices, IndyMac gave loans to borrowers who would normally be questioned. The risk for Indymac, it was felt, was mitigated due to the sheer number of borrowers to which they made loans. IndyMac would then take these loans and put them into a package, selling hundreds of loans to outside lenders. The outside lenders would receive the interest from IndyMac's outstanding loans and IndyMac would pocket the gain from the sale.