NYT: Government Seizes Washington Mutual

[spurster]

Why do we need a bailout? Our government already seems to have enough power to take action. If there is a credit problem, maybe the fed can buy commercial paper, etc. to keep things moving, and take over and sell banks as needed.

http://www.nytimes.com/2008/09/26/business/26wamu.html

Government Seizes WaMu and Sells Some Assets

By ERIC DASH and ANDREW ROSS SORKIN
Published: September 25, 2008

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night in the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JPMorgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 limit for each account. WaMu customers are unlikely to be affected.

JPMorgan Chase is to take control on Friday of all of WaMu’s 2,300 branches, which stretch from New York to California, and will oversee its big portfolio of mortgage and credit card loans. It will also acquire all of WaMu’s deposits with the sale.

...

[Shastafarian]

Well that sucks

[ChumpDumper]

Yeah, I guess the high interest rates won't matter much with the oncoming inflation.

[cool hand]

dumb ass we've had artificially low interest rates for years...its time to let the market be for a change.

[ChumpDumper]

WaMu had artificially high interest rates of which I took advantage, and will continue to take advantage. The cool thing with the takeover is that I can move money out of my CDs early if I choose without penalty.

[Dex]

They better not jack down my 4% APY on my savings. :pctoss

[ChumpDumper]

They probably will, that's why I put a good chunk in a CD last week.

[MannyIsGod]

They better not jack down my 4% APY on my savings. :pctoss

LOL dude, expect that shit to be at 1% or so really quickly. How the fuck do you have a regular savings account with 4% right now?

[Das Texan]

as long as my balance transfer goes through, i really dont give a damn what WAMU does. Though this just means I now have another credit account through Chase.


Thrilling.

[Das Texan]

LOL dude, expect that shit to be at 1% or so really quickly. How the fuck do you have a regular savings account with 4% right now?


I do through United SA Federal Credit Union.

[ChumpDumper]

LOL dude, expect that shit to be at 1% or so really quickly. How the fuck do you have a regular savings account with 4% right now?It's a money market account linked to free checking.

[Aggie Hoopsfan]

Why do we need a bailout? Our government already seems to have enough power to take action. If there is a credit problem, maybe the fed can buy commercial paper, etc. to keep things moving, and take over and sell banks as needed.


Do you really think the buyout is necessary to save Wall Street and our economy? It's helping Paulson and co. bail out their buddies, nothing more.

92% of the mortgages in this country are being paid on time. We've had what, 13 banks fail (there were 1000s in the S&L crisis in the 80s).

Let the greedy fucks fail and go bankrupt. Other banks that are run responsibly will step up to fill the void (and they deserve our dollars for not putting our economy in this situation).

[DarkReign]

Do you really think the buyout is necessary to save Wall Street and our economy? It's helping Paulson and co. bail out their buddies, nothing more.

92% of the mortgages in this country are being paid on time. We've had what, 13 banks fail (there were 1000s in the S&L crisis in the 80s).

Let the greedy fucks fail and go bankrupt. Other banks that are run responsibly will step up to fill the void (and they deserve our dollars for not putting our economy in this situation).


Big fucking :tu

[RandomGuy]

Do you really think the buyout is necessary to save Wall Street and our economy? It's helping Paulson and co. bail out their buddies, nothing more.

92% of the mortgages in this country are being paid on time. We've had what, 13 banks fail (there were 1000s in the S&L crisis in the 80s).

Let the greedy fucks fail and go bankrupt. Other banks that are run responsibly will step up to fill the void (and they deserve our dollars for not putting our economy in this situation).

That would be all well and good if the damage were just to those banks who made really shitty decisions.

The problem is the "ripple" effect.

The fancy term for this is "self-sustaining negative feedback loop".

1) banks that made the bad loan decisions fail.
2) This lowers the availability of credit overall, causing:
3) larger costs of borrowing for everybody.
4) businesses can't afford to expand or capitalize on opportunities
5) consumers can't afford to consume.
6) Many businesses that rely on some credit to function, cease functioning.
7) unemployment and overall defaults on loans and that causes:

1) banks that made good loan decisions to fail.
2) This lowers the availability of credit overall, causing:
3) larger costs of borrowing for everybody.
4) businesses can't afford to expand or capitalize on opportunities
5) consumers can't afford to consume.
6) Many businesses that rely on some credit to function, cease functioning.
7) unemployment and overall defaults on loans cause

1) banks that made good loan decisions to fail.
2) etc
3) etc
4) etc


This is the loop that Bernake, who has studied the root causes of the Depression for most of his adult life, is attempting to break.

The sooner you intervene, the cheaper it is to fix the problem.

Doing nothing and allowing "the market" to right itself is simply asking for this nasty little cycle to cause a truly apocolyptic scenario. The ghost of Herbert Hoover seems to be haunting his party again.

We are looking at the very least a slowdown, probably a recession, and possibly a Depression with a capital "D". I do not say that lightly.

We, as a nation, are leveraged up to our eyeballs. Take away our ability to borrow, and you will see a prolonged contraction.

[Thunder Dan]

holy shit, their stock is down over 90% today.

[RandomGuy]

Like it or not, the rescuing the greedy fucks who caused the problem will prevent a lot of people who weren't greedy fucks and made fairly prudent decisions from being dragged down too.

Personally, I would be all about the death penalty for some of these bastards. Save their institutions, but line 'em up in front of a firing squad.

Barring that, some hard time in a nice pound-you-in-the-ass federal prison would do.

[George Gervin's Afro]

I bank with WAMU and work at AIG! We need help!:depressed

[Yonivore]

I bank with WAMU and work at AIG! We need help!:depressed
Well, that certainly informs my opinion of your posts...

Sincerely, good luck to you.

[spurster]

That would be all well and good if the damage were just to those banks who made really shitty decisions.

The problem is the "ripple" effect.

The fancy term for this is "self-sustaining negative feedback loop".

1) banks that made the bad loan decisions fail.
2) This lowers the availability of credit overall, causing:

...


I don't understand why the government can't intervene at Step 2. In essence to provide capital for banks to make short-term loans or to do it themselves with the companies that the government practically owns or will own soon.

[spurster]

Removing double post

[DarkReign]

That would be all well and good if the damage were just to those banks who made really shitty decisions.

The problem is the "ripple" effect.

The fancy term for this is "self-sustaining negative feedback loop".

1) banks that made the bad loan decisions fail.
2) This lowers the availability of credit overall, causing:
3) larger costs of borrowing for everybody.
4) businesses can't afford to expand or capitalize on opportunities
5) consumers can't afford to consume.
6) Many businesses that rely on some credit to function, cease functioning.
7) unemployment and overall defaults on loans and that causes:

1) banks that made good loan decisions to fail.
2) This lowers the availability of credit overall, causing:
3) larger costs of borrowing for everybody.
4) businesses can't afford to expand or capitalize on opportunities
5) consumers can't afford to consume.
6) Many businesses that rely on some credit to function, cease functioning.
7) unemployment and overall defaults on loans cause

1) banks that made good loan decisions to fail.
2) etc
3) etc
4) etc


This is the loop that Bernake, who has studied the root causes of the Depression for most of his adult life, is attempting to break.

The sooner you intervene, the cheaper it is to fix the problem.

Doing nothing and allowing "the market" to right itself is simply asking for this nasty little cycle to cause a truly apocolyptic scenario. The ghost of Herbert Hoover seems to be haunting his party again.

We are looking at the very least a slowdown, probably a recession, and possibly a Depression with a capital "D". I do not say that lightly.

We, as a nation, are leveraged up to our eyeballs. Take away our ability to borrow, and you will see a prolonged contraction.


Good.

Maybe it will wake people up to their taskmasters. Or not, either way, we start over.

[Dex]

LOL dude, expect that shit to be at 1% or so really quickly. How the fuck do you have a regular savings account with 4% right now?

Yeah, I know that shit is goin down. :( I'd just like to carry out my state of denial as long as possible.

The entire reason I switched to WaMu was the incredible rates on Online Savings (it was 4.75% when I started), but I knew anything that good wasnt bound to last forever.

[velik_m]

The fancy term for this is "self-sustaining negative feedback loop".


Negative feedback loops are good and stable. It's the positive ones we should be worried about.

[ChumpDumper]

I bank with WAMU and work at AIG! We need help!:depressedYou mean you bank at Chase.

And as long as you stayed within your FDIC limits, there was never any problem with your judgment. Hell, even the people who had more in there aren't losing anything in the takeover.

WaMu's shareholders are the folks taking it in the ass this time around. It's actually a bit refreshing, but I'd be pissed a hell that WaMu's board didn't take Chase's $8 per share offer when they had the chance.

[George Gervin's Afro]

You mean you bank at Chase.

And as long as you stayed within your FDIC limits, there was never any problem with your judgment. Hell, even the people who had more in there aren't losing anything in the takeover.

WaMu's shareholders are the folks taking it in the ass this time around. It's actually a bit refreshing, but I'd be pissed a hell that WaMu's board didn't take Chase's $8 per share offer when they had the chance.

It's safe my to say my holdings are within the FDIC limit! I have worked for a subsidiary of AIG for over tem yrs. AIG bought out company about 8.5 yrs ago. According to Yoni I should have used better judgement in finding a job 10 yrs ago.

[ChumpDumper]

Simply put, WaMu was victimized by a classic "run on the bank." Customers withdrew $16.7 billion in a 10-day period following the bankruptcy of Lehman Brothers, leaving WaMu "with insufficient liquidity to meet its obligations," its regulators determined.

http://finance.yahoo.com/tech-ticker/article/73415/Run-on-Bank-Helped-Kill-WaMu-But-Your-Money-Is-Safe?tickers=WM,JPM,XLF,WB,%5EDJI,%5EGSPC

Awesome. Probably not the last one. Look out Wachovia.

[ChumpDumper]

It's safe my to say my holdings are within the FDIC limit!Well, there you go. I wonder how many people who took part in the run were also. There were some real idiots in the last run I saw coverage of (Countrywide).

[Yonivore]

It's safe my to say my holdings are within the FDIC limit! I have worked for a subsidiary of AIG for over tem yrs. AIG bought out company about 8.5 yrs ago. According to Yoni I should have used better judgement in finding a job 10 yrs ago.
My expression of sympathy was sincere. Throw it back, if you will.

Oh, and not to poop in your Post Toasties, there's talk of the FDIC going broke and being unable to meet it's obligations, as well.

[ChumpDumper]

My expression of sympathy was sincere. Throw it back, if you will.

Oh, and not to poop in your Post Toasties, there's talk of the FDIC going broke and being unable to meet it's obligations, as well.Not to say you're an idiot, but the Chase buyout means the FDIC won't have to pay a cent to WaMu depositors.

Oh, who am I kidding? I am saying you're an idiot.

[ChumpDumper]

Sept. 26 (Bloomberg) -- Washington Mutual Inc.'s holding company was detached from its branches and deposits when JPMorgan Chase & Co. bought the assets, helping the Federal Deposit Insurance Corp. dodge the bill for the lender's failure.

WaMu's collapse, the largest U.S. bank failure, came at a ``zero cost'' to the insurance fund for deposits, said FDIC Chairman Sheila Bair in an interview with Bloomberg Television. A ``clean, seamless transfer'' of the Seattle-based lender's banking unit helped shield the $45 billion fund, Bair said.

The FDIC's fund, drained by 12 other failures so far this year, was spared because WaMu's corporate structure let the agency seize only the bank. The holding company retained the liabilities, including senior and subordinated debt and equity.

``A wide swath of investors are going to be harmed by this, but the FDIC fund is going to come out of this unscathed,'' said Chip MacDonald, a partner in the capital markets group at Jones Day in Atlanta. ``That's the happy part.''

The FDIC seized WaMu's banking units, ``cherry-picked a little bit'' and merged the Washington Mutual Federal Savings Bank into JPMorgan without transferring all the liabilities, MacDonald said. ``The FDIC has nothing to do with the holding company.''

....

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2VofC5midrw&refer=home

Pretty slick, but probably not possible for most other banks. Hopefully more mergers and buyouts take place before outright failures.

[MannyIsGod]

I don't understand why the government can't intervene at Step 2. In essence to provide capital for banks to make short-term loans or to do it themselves with the companies that the government practically owns or will own soon.

Thats what they're doing. They're providing the capital via buying these bad securities from these banks. Its a two fold answer since removing the bad debt clears the balance sheet and allows for better credit ratings while simultaneously providing them with some liquidity which also provides them with a better credit rating.

Just giving them money is a bad idea, although the bailout of AIG was a loan in that manner. But thats because AIG has to have a certain amount of capital onhand to meet the requirmetns of the insurance bonds they have out on these MBS. If they don't, they automaticaly default on those bonds which then throws more insurance into the fray and starts a huge ripple effect. But anyway thats why they gave AIG the loan right after they let Lehman fail.