Say Anything Blog

Economist Don Luskin’s “DC insider friend”, the self-styled “Mick Danger”, has a contrarian’s view of Democrat Senator Chuck Schumer’s “Who…me?” denials of culpability in the recent failure of IndyMac Bank.

Schumer, remember, caused a depositor run on the California bank, according to federal regulators investigating the collapse, when he released the contents of a letter he had written accusing the bank of being on the verge of failure.  The withdrawals, some $1.3 billion, resulted in the collapse of IndyMac.

“Mick Danger” sees a more sinister, and perhaps more venal motive behind Schumer’s actions… one that implies far more culpability, ethical and legal, than Schumer acknowledges:

The SEC is investigating hedge funds to see if they circulate rumors, knowing they are false, and trade on them, manipulating the market. Now, did the brave writers at the WSJ miss something?

Someone—with an interest—brought Schumer information on IndyMac. Who? When? Why? What are the chances that Schumer was looking into irregularities into IndyMac because some hedgie with a big short position turned him onto it?

Well, they ain’t zero.

What are the chances Schumer was “investigating” IndyMac because the Senate Banking Committee assigned that case to him? Zero.

What are the chances the SEC enforcement guys will get very shy, very fast if they pick up a trail leading up the Hill? Close to 100%. (Note, Senators have a constitutional shield against certain prosecutions of actions taken in the course of their work as Members of Congress.)

Most likely result? The SEC staff will pluck a few hapless hedgies out of the middle ranks and shoot them in the public square.

Is Schumer correct? Or did Schumer break a law by leaking his letter? What if he were a research director at a hedge fund and told people what he suspected? Would that be the kind of rumor the SEC is hunting?

Think there might be a clever hedge fund which might use Schumer to leak info so they can trade on it without fear of prosecution? Uh, yeah.

As I recall, Schumer is but one of the Democrats known to have been hitting hedge funds up for contributions lately.  Perhaps someone should look into Senator Schumer’s list of campaign contributors to see just which hedge funds and their personnel are well represented of late.