Indymac and the Global Credit Crisis

from the July 29, 2008 eNews issue

Earlier this month California mortgage lender Indymac was taken over by the Federal Deposit Insurance Corporation (more commonly know as the FDIC). Media reports showed worried Indymac customers waiting in line for hours outside the failed bank. Because the bank was insured by the FDIC, customers with deposits under 100,000 dollars will get their money back. Customers with larger accounts, however, may take heavy losses. It is estimated that Indymac will cost the FDIC between 4 and 8 billion dollars.

Indymac is the second-largest bank to fail in the FDIC's 75-year history. The bank's stock, which was valued at about 25 dollars per share one year ago, has dropped to about 10 cents per share. Indymac's failure is widely attributed to its risky investments and questionable lending practices. The bank routinely gave mortgages to customers with poor credit, and in some cases to customers without properly documented income.

Indymac is the most recent casualty in a nationwide credit and housing crisis in which about one out of every 100 mortgages are expected to end in foreclosure. The mortgage disaster has taken a toll on the entire financial sector. Indymac is actually the seventh bank to fail since last summer. In the aftermath of the FDIC's seizure of Indymac, stocks in nearly all of the nation's banks dropped due to fears that more banks could fail in the coming year. Washington Mutual, the largest U.S. savings and loan, saw its stock dip 35 percent. Many commentators have pointed out that our current predicament isn't as bad as the savings and loan crisis of the late 80's and early 90's. During the S&L crisis over 1,000 banks and financial institutions failed (prompting a 125 billion dollar government bailout). However Indymac is much bigger than most of the institutions that crashed during the S&L scandal and experts say more banks could fail in the coming year.

The subprime mortgage mess has become a full-blown global credit crisis. The International Monetary Fund estimates that financial losses could add up to as much as 1 trillion dollars. So far banks and securities firms have posted about 230 billion dollars in losses.

The Big Question

So how does this affect us? How are we to respond to uncertain economic times? The Bible says that God uses money, not only to provide for our basic needs, but also to establish daily dependence on Him and to cause us to trust Him. He also uses money to build our faith, to teach us patience, and to illustrate His power. Money is a tool that is used to bring us closer to God.

Take a minute and examine your heart. Are you letting fear and uncertainty keep you from trusting God? Or are you depending on our Heavenly Father to provide for your needs? Are you being a good steward of what God has given to you to use? Are you experiencing His blessings in your daily life? In times of trouble and uncertainty we can take comfort in His promises. Turn to the Scriptures for guidance. The Bible holds the answers to life's most difficult questions, and the key to understanding the times in which we live.