The time has recorded the second largest bank failure in the history of the United States, as Pasadena based IndyMac has now come under the control of the Federal government.

But the failure was almost expected by everyone, knowing the fact that the bank was laying off its employees and closing many branches to cope up with the heavy losses in the recent years. Lots of analysts have earlier predicted the collapse of the company as the stock price of bank even crashed to $1. The air is full of speculations that the Federal government will also take over mortgage giants like Fannie Mae and Freddie Mac, which are responsible for almost half of the mortgaged debt of the nation.

Due to these rumors, the shares of these two companies fell by a heavy margin to let the Dow Jones industrial average drag down by almost 1.1% and the points table closed at 11,100.54 at the end of the session. Now the analysts are concerned that these giants will need to put up extra efforts and raise extra dollars to balance the expected losses that will steam from mortgage defaults. But they are saying that these companies will not be able to offset these loses as there is no scope in the private market.

Coming back to IndyMac, the company has been under close analysis for the last six months, when the OTS depicted the ill health of the company.    Due to the result of sour home loans, the bank lost almost $614.8 million in the year 2007 and $184.2 million in the first quarter of this financial year. The company was a leader in its department and posted a profit of $342.9 million in the year 2006, but
its loan losses ballooned later, after a gradual slow down of the real estate market.

Earlier IndyMac was selling and closing offices but it reconstructed its business to focus only on  conforming loans, that are small mortgages made to people with good credit. These can be resold on the secondary market as soon as possible. But according to the analysts, it was unclear whether the moves would prove sufficient to save the already done damage.

"This institution failed today due to a liquidity crisis," John M. Reich, director of the OTS, said at a news conference Friday afternoon. "Although this institution was already in distress, the deposit run pushed IndyMac over the edge."

The number of employees in the institution once reached to 10,000, but it later fell victim to a classic run on the bank. The regulators are blaming Sen. Charles E. Schumer (D-N.Y.) (CHAIRMAN SEN. CHARLES E. SCHUMER) for having fueled these massive withdrawals. On June 26, Schumer said in letters to the FDIC, the OTS and two other federal agencies that IndyMac might have "serious problems" with its loan holdings.

"I am concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers," Schumer wrote. The bank "could face a failure if prescriptive measures are not taken quickly." This kind of public warning influenced the depositors to pull $1.3 billion out of their accounts between June 27 and the present time.

Schumer said that the sole reason of this failure was "poor and loose lending practices" that should have been prevented earlier only. Later, a Schumer spokesman said: "Mr. Reich, a political appointee, should be spending less time playing politics and more time doing his job."