Just Big Enough to Fail

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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.

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  1. 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.

  2. 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.

  3. That’s gotta be a spoof – EveryoneKnows LoneWacko only links to his own insipid blog.

  4. 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.

  5. They refused to cash their own cashier’s check for a buddy of mine a couple weeks ago. Serves ’em right.

  6. 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.

  7. Too bad. I like banking with them.

  8. Damn. And I liked those “bankers’ pen” commercials.

  9. On the bright side, maybe they’ll stop sending me credit card applications twice a week. My shredder’s getting full.

  10. 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.)

  11. Shoulda bought the dam stock on Monday when it was a coupla bucks. Didn;t think it would happen this fast.

    [kicks himself]

  12. Wait. Maybe I didn’t understand that part about stockholders being wiped out.

  13. Sweet. My boring, old fashioned, super safe fixed rate mortgage is with them. Curious where this is going to go.

  14. 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!”

  15. Does that mean I don’t have to pay that over-draft fee I’ve owed them for a couple of years?

  16. 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.

  17. 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.

  18. Damn, I was hoping for some mortgage relief, with a big picture of McCain and Obama clutching eachother in a sultry embrace. Chances?

  19. “But e-gold was the problem.”

  20. Curious where this is going to go

    Can you say “compost heap”?

  21. 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.

  22. I’m sure the timing of this is just a coincidence. Bank closures are always announced on Thursday, right?

  23. 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.

  24. Holy Fucking Shit

  25. Oh, although its been coming for some time now

    Sorry Pro L, for your loss.

  26. 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.

  27. (pegs Reinmoose in face with volleyball)

    GREENMAN

  28. 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?

  29. Epi –

    When you dance, why you always look so stooopid?

  30. “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.

  31. “You banged me. And you banged me. Then you banged each other…and let me watch.”

  32. 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!

  33. 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?

  34. 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.

  35. I recommend bulk sealed packs of .223/5.56.

    No, 7.62×39. You can let your SKS rust and it’ll still work. AR-15? Too much maintenance.

  36. Wa-Mu: Free checks for life!*

    *If you don’t live past 9/25/08, that is.

  37. 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.

  38. 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.

  39. 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.

  40. 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.

  41. Wa-Mu: Free checks for life!

    Our life, not yours.

  42. 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.

  43. Chase offered to buy WM months ago, without any bailout in sight. WM declined.

  44. 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.

  45. 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

  46. 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.

  47. The market may be, but I am not. I am full of ire.

  48. 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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