Lessons From IndyMac’s Failure
IndyMac, the second largest federally insured financial institution, failed today. CNN and Bloomberg both have coverage. IndyMac has been taken over by the Office of Thrift Supervision and the FDIC.
What does this mean for you?
If you’re a customer of IndyMac, any money you had under the $100,000 per account FDIC insured limit is 100% safe. Your money will be accessible normally, though you’ll probably change banks in the near future.
If you’re a customer of IndyMac who has more than $100,000 in cash in any one account at IndyMac, expect to take a 50% loss on that money. Of course, if you have $100,000 in cash laying around, you probably don’t listen to the Financial Aid Podcast.
What else does this mean?
IndyMac’s failure due to mortgage problems and a run on the bank are not going to be unique. Make sure that if you are investing, whether it’s for a college education (in a 529 plan) or for retirement, that your investments are diversified across many different sectors of the economy and many different countries. Don’t have all your eggs in one basket, or even in one location.
If you happen to have more than $100,000 in cash, make sure it’s split up among FDIC insured accounts, ideally at different institutions. Of course, if you have that much cash laying around, please consider funding a scholarship or two!
IndyMac’s failure is a lesson to everyone that overborrowing - whether it’s for a mortgage, student loan, credit card, or anything - is always bad, and always catches up with you in the end. Overlending, lending to unqualified borrowers, is equally bad and is what killed IndyMac.
Please be safe out there.
