IndyMac Bank Shut down by Government

The US Government shut down former internet darling IndyMac Bank on Friday. This mortgage provider was and aggressive mortgage lender with very low rate at one time. The also feature great savings plans with above norm returns.

This really made me re-think a lot of what I have seen on Finance Blogs regarding bank and credit card arbitrage. In the case of savings, it is chasing the highest returns, and then pulling once the bonus is paid or the offer runs out. Often you need to set up direct deposit with then to get the bonus, or follow other steps that lock you up, or at least make it a pain to switch.


Credit Card arbitrage is a bit scarier, at least to me, although many are great at it. Basically, that is signing up for every 0% transfer rate Credit Card at once then maxing them out via a transfer to a bank account, usually at a bank with better than average deals ala ETrade or others like...IndyMAC.


As long as you aren't ever one day late (which triggers the higher rate) and are very diligent, you can make good money. Consider getting three $5000 one interest no payment cards for one year (using these to show the math, but banks are running away from no payments...not too tough. You max out the $15K in credit and start to get, say 3%. You then withdraw the money and pay-off the card at the end of the year. Worst case you earned $450 (actually a bit more since it compounds at least weekly).


Hey I'll take $450 for just paying my cards on time, plus say you have good credit and get $50,000; you could make $1500+ or more.


Downside, one slip up and it can wipe out your profit with late fees and penalties. OR even worse...the bank could go out of business. Yes they are (hopefully) FDIC insured to $100k per person, but it takes the FDIC often a lot of time to process claims! Hope you didn't need that cash right now sir!


Anywho, long story longer, just be careful when you see those over-stuff return rates, risk=reward, and sometimes you do get the fuzzy end of the Lollypop.

Banks to Bust says Billionaire

CNBC had a great interview with Billionaire Wilbur Ross, CEO of WL Ross and Co. In the interview Mr Ross the question I have been asking; With all of these bad loans going on, why haven't we seen more bank closings?

His answer: a very simple, "We Will." "I think that's going to be the next wave, and coupled with problems in the commercial real estate market; I think they'll be the next bubbles that burst."

He was also asked about risk to big banks. ""I think that the big banks won't fail in the sense that they will go to zero and depositors would lose money," Ross replied. "I think the Fed and other regulators will make things happen. I think it's the medium-sized banks, and particularly some of those that got overextended with the subprime and other kind of mortgage debt. I think those are the ones that had the serious mismatch, making 20- and 30-year loans based on 90-day deposits."

This matched what the Federal Reserve Chair Bernanke told a Senate committee in late February. He believe those small banks that took flyers on higher returns on medium and high risk loans are at risk.

There are more and more reports about people walking away from their mortgages and in a report last night it was said that 28% of those in default aren't even talking to their banks. Given that the banks need another house like a hole in their head, this is the best time to work with your mortgage company if you are having issues.

The bigger problem is that that consumers aren't there to bail out the economy this time, and even those in good or better shape are spending less to prep for harsher conditions instead.

$5 Million Reasons to Bank in New York

Well after my issues with E*Trade I think I have found the perfect bank for me. Sure I will need to move to New York, Commerce Bank really has the best terms around.

Benjamin Lovell had $800 in his account and was going to make a deposit when the teller told him he had $5 Million in his account already! That is about 624900% Interest, or 624895.9% better than E*Trade!

Well Old Ben couldn't believe his luck and over the next little period he withdrew $2 Million. He bought Jewelry for his girlfriend and used some to invest...hopefully not in Commerce Bank Stock! Ben realized this wasn't his money, and unfortunately for him, so did the bank eventually. He is currently sitting in the pokey awaiting trial on $3 Million Bail...which is what he would of had left in the account! Not intentional, probably, but funny none the less.

These sort of errors happen all of the time, probably more often then the banks would prefer that we know and not usually this size. They take the money back out and if it is gone, like Ben, ask for it back, demand it back, then call the police. Yep, whether it was the banks fault for giving him access to the funds or not, it is still stealing and a potential felony if more than $1,000.

This is one of those times were even the best of us would be tempted, especially if we were under other pressures, as he apparently was. However, stealing is stealing whether it is candy from a baby, money from crooks like in "No Country for Old Men" or banks that make stupid mistakes.

It is sort of like this famous story attributed to be Winston Churchill to Lady Astor:

A certain gentleman inquired of a lady whether she would be willing to sleep with him for 50,000 pounds. After some hesitation, the lady replied that she supposed she would, in consideration of the magnitude of the offer. Then he asked whether she would sleep with him for twopence.

"Certainly not," she responded with indignation. "Just what kind of lady do you think I am?"

"Madam, I believe we have already established that," he remarked calmly. "Now we are just haggling over the price."

That being said, I am still tempted to switch banks :) How about you? What would you do? James Bond-like escape to Central America or Jimmy Stewart call to the Bank to report the error even though the pressure would be pretty tough?

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(card by Parker Bros.)