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Just Big Enough to Fail
Washington Mutual fails.
Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual — the nation’s largest savings and loan, with $307 billion in assets — to JPMorgan Chase.
Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 per account limit. Customers of Seattle-based WaMu are unlikely to be affected.
JPMorgan Chase — which acquired Bear Stearns only six months ago in another shotgun deal brokered by the government — is to take control Friday of all of WaMu’s 2,300 branches, which stretch from New York to California. The New York-based bank will oversee its big portfolio of mortgage and credit card loans. It will also acquire all of WaMu’s deposits with the sale.
It is, as you'll hear again and again, the largest bank failure in American history. But the failure was widely expected, so this doesn't upset or alter negotiations in D.C.
|9.25.08 @ 10:47PM|#
I'd swear that just yesterday I was reading an article claiming
that WaMu was too big to fail.
Turns out there are some rational actors in the marketplace after
all. Maybe some of them will start buying up those mortgage backed
securities at a steep discount.
Orange Line Special|9.25.08 @ 10:50PM|#
AlexJones was talking about this last night on C2CAM and he also has a site
here, but no one should
listen to him or RonPaul. What Jones was describing is just crazy
talk. Everyone should just listen to your Orange Line
leaders.
In fact, just for you, Reason is going to FollowTheMoney on this
whole deal and tell us who's making out like a bandit. Just wait!
Dave "Bulldog" Weigel is on the case.
Will the real LoneWacko please|9.25.08 @ 10:56PM|#
That's gotta be a spoof - EveryoneKnows LoneWacko only links to his own insipid blog.
|9.25.08 @ 10:56PM|#
good. let these corporations fail. and let other, more competent, responsible companies take their place, as should happen in a free market, if you can even call our economy a free market at the moment. lets pray that this bailout package gets nowhere. and if you are an atheist, well, i guess just hope as hard as you can that it doesn't pass.
Czar|9.25.08 @ 10:56PM|#
They refused to cash their own cashier's check for a buddy of mine a couple weeks ago. Serves 'em right.
Brandybuck|9.25.08 @ 11:03PM|#
I don't listen to AlexJones because he can't manage to tell you the time of day without wrapping in some nutty conspiracy. There is no political position so sensible and right that he can't manage to make it sound as crazy as a squirrel on meth.
Syd|9.25.08 @ 11:32PM|#
On the bright side, maybe they'll stop sending me credit card applications twice a week. My shredder's getting full.
Rich Ard|9.25.08 @ 11:32PM|#
An advertisement on Alex Jones' "Midas Resources" financial news
page reads as follows:
"If you own your own bread...
You'll never stand in a population-control bread line...
Non-Contaminated Food Still Available"
The food website from the ad is linked above. Thank you, LoneWacko,
for bringing it to my attention.
(Note: one of their products, straght from David Cross, is the
Patriot Pack.)
The Wine Commonsewer|9.26.08 @ 12:00AM|#
Shoulda bought the dam stock on Monday when it was a coupla
bucks. Didn;t think it would happen this fast.
[kicks himself]
The Wine Commonsewer|9.26.08 @ 12:09AM|#
Wait. Maybe I didn't understand that part about stockholders being wiped out.
Paul|9.26.08 @ 12:16AM|#
Sweet. My boring, old fashioned, super safe fixed rate mortgage is with them. Curious where this is going to go.
|9.26.08 @ 12:37AM|#
Just yesterday -- right after Bushie's "our loans are clogged"
speech -- I drove past a new branch with, like, Grand Opening signs
out front. I kinda thought, hope springs eternal.
I guess they can change that sign to "Now, With Mergers And
Acquisitions!" or "Get Your Bear Stearns Toaster!"
|9.26.08 @ 12:51AM|#
Does that mean I don't have to pay that over-draft fee I've owed them for a couple of years?
|9.26.08 @ 1:12AM|#
While many will blame Mortgage-Backed Securities; I think what really led to their demise was the free checking for life offered to customers - which must have been a strain on their budget.
The Wine Commonsewer|9.26.08 @ 1:24AM|#
Sweet. My boring, old fashioned, super safe fixed rate
mortgage is with them. Curious where this is going to
go.
I'm thinking that the contract clause that says successors or
assigns will cover this. It better, since I've got one of
those 5% loans and I'm rather fond of it.
Paul|9.26.08 @ 1:53AM|#
Damn, I was hoping for some mortgage relief, with a big picture of McCain and Obama clutching eachother in a sultry embrace. Chances?
|9.26.08 @ 7:38AM|#
This is bad. WaMu didn't simply fail. There was a run on the
bank that forced it to fail. It's "failure" was a self-fulfilling
prophecy. $16.7B was withdrawn from the bank since 9/15. They
simply couldn't recover from that.
People are scared. I'm scared. There's nowhere safe for your money
right now. And frankly, money itself isn't.
You'd better hope that the Paulson plan passes, sans the idiotic
equity requirement. Otherwise, we're in for a world of hurt.
|9.26.08 @ 7:53AM|#
I'm sure the timing of this is just a coincidence. Bank closures are always announced on Thursday, right?
|9.26.08 @ 8:06AM|#
Max said:
I'm sure the timing of this is just a coincidence. Bank closures are always announced on Thursday, right?
From Reuters:
"FDIC Chairman Sheila Bair said the bailout happened on Thursday
night because of media leaks, and to calm customers. Usually, the
FDIC takes control of failed institutions on Friday nights, giving
it the weekend to go through the books and enable them to reopen
smoothly the following Monday."
They needed to stop the run before the asset base was further
destabilized. And frankly, if part of the Thursday decision was to
put the screws to Congress, I'm fine with that.
|9.26.08 @ 8:27AM|#
Didn't they have an ad campaign where they kept a group of experienced bankers in a pen and bragged that their business model involved ignoring their advice? That should have been a clue.
|9.26.08 @ 8:47AM|#
People are scared. I'm scared. There's nowhere safe for your
money right now.
Dude, relax. Regular savings and checking accounts are still
insured by the FDIC.
And frankly, money itself isn't.
Right, its a little known fact: during times of financial crisis,
US paper currency secretes certain toxic chemicals.
It something that dates back to Teddy Roosevelt's administration -
put in place to deter bank runs. Most people forgot about it though
after the FDIC was created (talk about unintended consequences).
Experts recommend that one wears latex gloves and a surgeon mask
when handling money until the housing market is stabilized.
You'd better hope that the Paulson plan passes, sans the
idiotic equity requirement. Otherwise, we're in for a world of
hurt.
A response to my above sarcasm might be that you fear
hyperinflation. But does "Sudden increase in the deficit by
$700,000,000,000.00 (without even an 'equity requirement')" sound
like "Combating inflation" to you?
|9.26.08 @ 8:56AM|#
"are still insured by the FDIC"
Oh man, that's rich. The FDIC? You think the FDIC is well
capitalized enough to cover a major series of bank failures? Get
real. That's what the Paulson plan avoids. At least that plan
prints money in exchange for assets. Counting on the FDIC means
that you're simply going to print money in exchange for
nothing.
Good luck with that plan.
And yes, I'm fully aware that the Paulson plan has an inflationary
component. But I'd prefer that vs. the inflationary component
involved in the collapse of the US banking system.
|9.26.08 @ 8:59AM|#
"You banged me. And you banged me. Then you banged each other...and let me watch."
|9.26.08 @ 9:07AM|#
There's no escape!
Sure, close your account at the bank because you're afraid of a
run, but, when you then get a no-knock, wrong-door raid, you know
what they're going to do with all that cash in your mattress?
They'll confiscate it as evidence of drug-dealing. Once they know
there's runs on the banks, they might even find this more lucrative
than speeding tickets.
That'll teach the hoarders!
|9.26.08 @ 9:52AM|#
It is, as you'll hear again and again, the largest bank
failure in American history. But the failure was widely expected,
so this doesn't upset or alter negotiations in D.C.
And, apparently, negotiations in DC are what really matters these
days.
Anyone notice that the largest bank failure in US history was
handled by letting private firms sort it out without infusions of
taxpayer cash? Anyone at all?
T|9.26.08 @ 9:52AM|#
There's nowhere safe for your money right now.
I'm buying ammo. The price keeps going up and one way or another,
it'll come in handy. I recommend bulk sealed packs of
.223/5.56.
|9.26.08 @ 10:18AM|#
I recommend bulk sealed packs of .223/5.56.
No, 7.62x39. You can let your SKS rust and it'll still work. AR-15?
Too much maintenance.
vault_dog4|9.26.08 @ 11:24AM|#
Wa-Mu: Free checks for life!*
*If you don't live past 9/25/08, that is.
|9.26.08 @ 11:28AM|#
People are scared. I'm scared. There's nowhere safe for your
money right now. And frankly, money itself isn't.
You'd better hope that the Paulson plan passes, sans the idiotic
equity requirement. Otherwise, we're in for a world of
hurt.
Man, your tinfoil hat is much too tight.
|9.26.08 @ 11:32AM|#
Reinmoose,
Thanks for the condolences. It's always difficult dealing with a
death in the portfolio. 100 shares, gone forever.
This stupid bailout has now screwed me personally. I'm opposed to
the proposal, but if it had happened already, the run on the bank
by depositors would likely not have occurred. And my $100 or
whatever would've been safe until the inevitable takeover. What
sucks is that the stock was around $33/share at the beginning of
the year and $46/share a year and a half ago. Now it's worth zero.
Bastards! And I thought I'd just ride this out--dumb ass.
Chase tendered an offer a while back at $8/share, so I'd like to
thank Kerry Killinger and the WM management for making sure that we
shareholders (and many employees, I'm sure) ended up with nothing.
Remind me not to work for WM again. Maybe I'll sue somebody.
Russ 2000|9.26.08 @ 11:46AM|#
307 billion in assets sold for 1.9 billion.
Someone in Washington has to be questioning why the Treasury/Fed
need 700 billion when the market price seems to be a half-cent on
the dollar.
Russ 2000|9.26.08 @ 12:07PM|#
Anyone notice that the largest bank failure in US history
was handled by letting private firms sort it out without infusions
of taxpayer cash? Anyone at all?
Would Morgan/Chase have been in a position to do this without the
Fed essentially subsidizing the BearStearns deal?
And there's still the fact that no one has stepped up to buy any
part of IndyMac.
The FDIC seizes the insolvent bank and finds a willing buyer 3
seconds later? Why did the FDIC need to seize it at all then?
This whole transaction seems very atypical. Morgan/Chase spends 1.9
billion and immediately takes a 30 billion write-down. Sounds
indirectly like taxpayer cash to me. Unless the federal government
is willing to cut spending commensurately.
|9.26.08 @ 12:48PM|#
Would Morgan/Chase have been in a position to do this
without the Fed essentially subsidizing the BearStearns
deal?
No way to know without being inside Morgan's accounting department,
but I don't see why not. Doing one acquisition generally makes it
harder to do another one right away.
|9.26.08 @ 1:36PM|#
Chase offered to buy WM months ago, without any bailout in sight. WM declined.
Wasn't there also a bid for AIG a month or so before the takeover?
I understood that it failed because the buyers wanted to change the
management.
I might have got that wrong though.
|9.26.08 @ 1:59PM|#
Isaac,
What gets weird is how egomaniacal executives can make decisions
like that for their own personal reasons while the owners get left
with nada. I
|9.26.08 @ 3:21PM|#
The market is taking the WM failure pretty well. This must be a disappointment to Bush and everyone who wants to undermine confidence and create a panic.
|9.26.08 @ 5:48PM|#
Oh man, that's rich. The FDIC? You think the FDIC is well
capitalized enough to cover a major series of bank failures? Get
real. That's what the Paulson plan avoids. At least that plan
prints money in exchange for assets. Counting on the FDIC means
that you're simply going to print money in exchange for
nothing.
I don't think there's going to be a "major series of bank failures"
of the type you're expecting. I doubt most banks have the bulk of
their assets in mortgage-backed mystery securities. The rate of
failure we've seen so far is somewhat higher than normal,
but not enough to be a cause for alarm (for me anyway):
http://www.fdic.gov/bank/individual/failed/banklist.html
On average, banks have more in assets than liabilities. And only
about 75 - 90 percent of those liabilities are insured
deposits:
http://www2.fdic.gov/sdi/main.asp
When a bank fails, not all of the money to pay for insured deposits
comes out of the FDIC's pockets. Selling off the bank's assets will
usually provide most of those funds.
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