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Globe and MailPatricia Ramirez's home, which sits on a ragged dead-end street at the edge of East Los Angeles in the shadow of an elevated freeway, cost $445,000 (U.S.) when she and her husband bought it in February, 2007.
Mrs. Ramirez, an office manager at a tortilla maker, and Mr. Ramirez, a truck driver, together make $48,000 a year. When a relative of theirs bought a house a few years ago, his real estate agent told the Ramirezes they could afford a house too. They had dreamed of owning a home for years, and jumped at the chance, scraping together a $5,000 down payment, or 1 per cent.
... It may sound like a foolish business model, but for IndyMac Bancorp Inc. of Pasadena, Calif., it has been a catalyst for spectacular growth. Or at least it was, until eight days ago, when the bank was seized by the federal government.
It was the second-largest banking failure in U.S. history, and its collapse can be viewed as a cautionary tale: Not just of how America recklessly embraced subprime mortgages, but of how these questionable home loans have ripped through the wider economy, shredding confidence in the markets and inciting a global credit crisis.
... Now, with IndyMac's failure – and news of a probe by the Federal Bureau of Investigation – there are fresh concerns. For one thing, many of the securities it backed are still lurking in investment portfolios – potential ticking time bombs.
As painful as this will be for some investors, the size of the bank's holdings aren't large enough to threaten the entire economy. But the replayed image of hundreds of customers, lining up outside IndyMac's branches in a classic run on the bank, just may be.
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