Scott Polakoff, Top Bank Regulator, Placed On Leave Pending Probe Of Backdated Cash Infusions For IndyMac

WASHINGTON — A top bank regulator has been placed on leave pending a Treasury Department investigation into regulators' approval of backdated cash infusions for troubled thrifts.

The Office of Thrift Supervision said Thursday that its acting director, Scott Polakoff, was placed on leave "pending a review by the Department of the Treasury of the OTS' August 2008 actions related to post-period capital contributions."

Treasury Secretary Timothy Geithner named OTS Chief Counsel John Bowman to replace Polakoff as acting director, the agency said. The OTS gave no further details on the Treasury Department's review and how it might relate to Polakoff.

Polakoff, who is the agency's chief operating officer, had held the acting-director position only since last month following the resignation of OTS Director John Reich. Agency spokesmen and Polakoff could not be reached for comment late Thursday.

Late last year it was revealed the OTS had approved in May a backdated infusion of $18 million for IndyMac Bancorp to March 31, allowing it to meet first-quarter government requirements for reserves held against possible losses.

Pasadena, Calif.-based IndyMac failed in July and cost the federal insurance fund for banks nearly $9 billion. The OTS removed Darrel Dochow, the agency's official in charge of the Western region, from that position and he later resigned from the agency.

Treasury Department Inspector General Eric Thorson wrote in a letter to members of Congress that the OTS had also allowed other thrifts to record capital infusions in an earlier period than when they were received.

Thrifts have been the most troubled regulated institutions during the financial crisis and among the most spectacular failures.

By law, they must have at least 65 percent of their lending in mortgages and other consumer loans _ making them particularly vulnerable to the housing downturn. Seattle-based thrift Washington Mutual was the largest bank to collapse in U.S. history, with around $307 billion in assets. It was later acquired by JPMorgan Chase & Co. for $1.9 billion.

Comments

[sarabono]

I wonder if he had a side deal with George Soros, the Hedge Fund King from Austria.

Soros and partners just purchased a substantial interest in the remains of IndyMac from the FDIC at a "very attractive price".

[Robert Cantor]

Your comment makes no sense.

[damilitantone]

Scott was my Assistant Regional Director at the FDIC in the 90s. He was a straight shooter back then. I hope he hasn't done anything that will cost him his career. Not all regulators are jaded. In the early 2000s when FDIC's Chairman, Don Powell, decided to implement a MERIT examination program (abbreviated examinations) for "1" and "2" rated banks regulated by the Corporation there was some push back by the field bank examiners, but to voice your concerns in an open forum was not a career enhancer. As a matter of fact, when I raised concerns at a regional conference in 2002, other examiners who stated beforehand that they would join me in speaking up sat on their hands and left me twisting in the wind. I would have spoken up anyway, (that's how I got the name da' militant one) but the incident reminded me of the power of a good salary and benefits. I didn't help my career at the time and ended up leaving in 2007 as I grew tired of fighting the power structure to let us do our jobs properly. Needless to say, the MERIT program was eliminated last year and bank examiners are back to performing comprehensive examinations like in the old days though the train has already left the station.

[sarabono]

Damil...

Good insider perspective. Thanks for your comments.

[TXfemmom]

These government officials are just as ingrained in fraud as the people they are supposed to regulate.

[quiviran]

Maybe he thought he worked for OTB.

Now if they would deal with C.K. Lee, the OTS employee responsible for keeping track of AIG. Heck of a job, Lee-le.

[hawkny]

We will learn that regulators (the government) and bankers alike view us depositors and/or borrowers as cannon fodder for their games and machinations. They have no fear because they hold all the cards. We hold none.

[fougasseu]

It sounds as if someone at the top of the OTC wanted to back-date the cash infusions in order to prop up the Thrifts until the election, making sure nothing fell apart during the campaign, helping the Republicans. So who appointed the senior executives at the OTC, and did they have any communications with the White House? Time for an investigation into the White House role in not dealing with the financial crisis sooner - because it would hurt McCain's chances.

[ekoorb]

I think you're absolutely right. They wanted to stall this until after the election just as was done in 1988 for the GOP to keep the White House. They almost made it. Too bad it wasn't aggressively managed in 2007.

[never-ever-give-up]

I am waiting for the perp walks to begin.

[magibrotherhood]

exactly-----when ? when ? when ?

[TeeLolly]

Don't hold your breath--at least not until this "looking forward, not back" approach runs its course.

[SurrealPumpkin]

The fraud investigations can come from the individual States, witness Cuomo. It doesn't all revolve around Obama, no matter how hard the Republicans try to sell the idea.

[flatus]

Anyone found guilty of a corruption that has negatively impacted the lives of 1,000 people or more should be dealt with "China style".

[SecretSister]

"Treasury Department Inspector General Eric Thorson wrote in a letter to members of Congress that the OTS had also allowed other thrifts to record capital infusions in an earlier period than when they were received."

Does this mean that he was cooking the books? At the very least, it sounds like he was colluding with someone in the bank.

Now, I would like to see the FBI show up on this guy's doorstep to arrest him.

[Carolab]

Interesting this article doesn't point out that it was George Soros and Michael Dell who bought IndyMac from the FDIC, not to mention John Paulson (Paulson & Co.) who made billions betting against Lehman's (how did he know?) and a former Goldman Sachs partner.

And the deal involves "us" backing up 80% of the losses.

How did Soros and company get such a sweet deal?

Flowers, Soros, Michael Dell team to buy IndyMac

The Federal Deposit Insurance Corp. said Friday that a holding company led by Steven Mnuchin, co-chief executive of private equity firm Dune Capital Management, agreed to buy IndyMac in a deal reached Wednesday.

The investors have formed a partnership, called IMB Management Holdings LP, that includes Dell's investment firm, MSD Capital.

Investors in the partnership include five private equity firms or hedge funds: J.C. Flowers & Co.; Stone Point Capital; Paulson & Co.; a fund controlled by billionaire George Soros' Fund Management; and a fund controlled by Silar Advisors LP.

Dune Capital was founded in 2004 by former Goldman Sachs Group Inc. partners Mnuchin and Daniel Niedich.

J. Christopher Flowers, who launched, then dropped, a bid to buy student lender Sallie Mae last year, also is a former Goldman Sachs partner. Paulson & Co. made billions in profits in recent years by betting on the failure of risky home loans.

http://finance.yahoo.com/news/Flowers-Soros-Michael-Dell-apf-13957659.html

[never-ever-give-up]

So, what exactly is your point. The FDIC auctions off banks that it takes over. Otherwise, we (the US government) would be stuck running banks. If you have some sinister plot in mind, just put it out there so that we can analyze it.

[viflyer]

His point, is that the poor guy is obsessed with George Soros. What is with these right wing loons and George Soros?

[Carolab]

My point is that Soros and Dell and some Goldman Sachs guys and John Paulson, whose hedge funds mysteriously made billions betting against Lehman's, etc. while other hedge funds went bust, somehow scored a sweetheart deal on this, and apparently the FDIC lost $9B on it, depleting their funds and bringing about increased fees for community and regional banks that can ill afford it--$500B that is going to be used instead of protecting depositors for backstopping the "private investments" in Paulson's plan. And I find all of that "questionable".

[cordyc]

The point is that the FDIC should be using the community banks and credit unions to service the deposits and loans of these failed banks.

Instead, it's the big hedge funds that operate without ANY regulation that are getting the deals.

Look up Penny Mac, founded over a year ago by Blackrock, and run by the former Countrywide executive team. Why aren't these guys in jail for predatory lending?

Instead these crooks are out bragging about making 20% profits off this tragedy.

[dontsellmyemail]

Good work carolab! It seems that the "consolidation of wealth and power" strikes again to a very few well known elites. We need to keep exposing this very aspect of the puzzle so people can line up the dots and see through the left / right paradigm. Once the majority has accomplished this, we can take back our country.

[Viper]

Our Goverment regulatroy agencies have been gutted during the past 8 years. It will take at least that long to rebuild these departments back into credible operating units who can do just their old jobs... Wehere was the SEC of FDIC during the last 5 years? Get my point!.

Pls note , these are the same people who would try to run large international banks/investment houses when they have not been able to run small regional Indy Mac for 6 months and not lose 60% of its customers and at a cost to the government of 14 billion, plus billions yet to be paid out in insurance to the buyers against further losses. Thats was the direct government losses... then their were the depositors losses who had accounts with over 250K ( mostly business.. that then had to shut down, bond holdeers and shareholde­rs.... or another 10-20 billion in non government losses).

Applying this 1/3 direct cost of a government takeover to Citi bank and you are talking more than 500 billion... and its much, much more complex... so cost s/b MUCH more....

Their typical nationalization has lasted just 3 days in 20 small banks... and the nationalized banks were transfered over to larger banks to run ... at a cost that quickly wiped out FDICs funds.. and with insurance given to the acquiring back against further loss... so the cost goes on...

Regards.

[vippy]

gutted, how about our country had been looted by the Bush Adminstration. Anyone NOT seeing this and blaming Obama needs to have their heads examined.

[schatsie]

not only did he loot the country, there was preferential Republican hiring into the CIVIL SERVICE and these people are not committed to doing the work that needs to be done. Of course it would help if there was aggressive direction from the top and auditing of the finances of federal employees to make sure they are not in on the take the way the republicans are... 1% per year should be a good sentinel effect and then it would be interesting to see how many clear out of dodge before they get caught in WHITE COLLAR CRIME...

[Michael McGloin]

If you want to understand the potential cost of this crisis look at Indy bank. The bank had 32 billion in deposits when it failed, and according to the FDIC the total estimated loss to the Deposit Insurance Fund is 10.7 billion dollars. That is about a third.

So while everyone was complaining about AIG's bonuses the FDIC was paying out almost 11 billion to cover the banks failed assets. While the FDIC is funded by it's member banks, it is backed by the full faith and credit of the US government.

Look at the balance sheets of Citibank and Bank of America and that 10 billion will be a very small start of what could be a very expensive problem for the FDIC and eventually the tax payers.

Wonder what we learn about the regulators then?