Consumer Confidence & the Economy

When people lack confidence, prophecies or concerns sometimes become self-fulfilling.

Last week saw the largest Bank failure in our history, when there was a run on IndyMac Bank, causing the third largest bank failure in our history.

According to Marketwatch.com, " Regulators said the "immediate cause" of IndyMac's failure was a deposit run in recent days that began after a June 26 letter to the OTS and the FDIC from New York Senator Charles Schumer was made public. The letter voiced concerns about IndyMac's soundness.

By July 10, depositors had pulled more than $1.3 billion from their accounts, the OTS said in a statement. "

The impact of the IndyMac failure has been softened by the FDIC insurance which provides $100,000 on some covered deposits, and up to $250,000 coverage on IRA deposits, but the cost to the FDIC will be substantial.

Would IndyMac have failed without the failure of consumer confidence caused by the Schumer later? Maybe yes and Maybe no, but the lack of confidence was in fact a precipitating factor.

As the government moves to shore up the trouble financial industry, the big question is when and how will consumer confidence be restored? The facts of the economy seem to have much less impact then media coverage and its impact on public perception, and action.

Perhaps we would all be better served, like the people in the movie "Its A Wonderful Life" if we just remember not to panic. In our market at least, the price of homes is very affordable, and the risk of loss of equity is minimal according to the risk assessment done of major metropolitan areas, recently concluded. But I'll cave that for another post.