Government Seizes WaMu and Sells Some Assets

Government Seizes WaMu and Sells Some Assets
Eric Dash and Andrew Ross Sorkin
Sep 25, 2008

http://www.nytimes.com/2008/09/26/
business/26wamu.html?_r=1&oref=slogin

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

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape.

Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and additional deposits will be backed by JPMorgan Chase.

By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

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 deposits and bank branches, creating a nationwide retail franchise that rivals only Bank of America. But JPMorgan will also take on Washington Mutual’s big portfolio of troubled assets, and plans to shut down at least 10 percent of the combined company’s 5,400 branches in markets like New York and Chicago, where they compete. The bank also plans to raise an additional $8 billion by issuing common stock on Friday to pay for the deal.

WaMu is largest U.S. bank failure

WaMu is largest U.S. bank failure
Elinor Comlay and Jonathan Stempel (Reuters)
Sep 25, 2008

http://biz.yahoo.com/rb/080925/
business_us_washingtonmutual_jpmorganbiz.html?.v=3

Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.

The rescue marks a historic step to clean up a U.S. financial system littered with toxic mortgage debt.

Seattle-based Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The nation's largest previous banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

The transaction gives JPMorgan roughly 5,400 branches, and fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States.

It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price.

Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.

These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc, the bankruptcy filing of Lehman Brothers Holdings Inc, and Bank of America Corp's planned purchase of Merrill Lynch & Co.

JPMorgan, based in New York, ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches. Washington Mutual had 2,239 branches and 43,198 employees.

Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading after news of a JPMorgan transaction surfaced. JPMorgan shares rose $1.04 to $44.50 after hours.

Thursday's transaction makes JPMorgan close in size to Citigroup, now the largest U.S. bank by assets.

JPMorgan has surpassed Bank of America in size. That bank would become the largest U.S. bank once it completes its planned purchase of Merrill Lynch, expected in the first quarter of 2009.

Once a golden child at Citigroup before his mentor Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has carved for himself something of a role as a Wall Street savior.

Some historians see parallels between him and the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.

Bank of America Chief Executive Kenneth Lewis has also been credited with helping reduce damage on Wall Street with his acquisitions this year of Merrill Lynch and Countrywide Financial Corp, the nation's largest mortgage lender.

The world's biggest Ponzi Scheme is unravelling..

The world's biggest Ponzi Scheme is unravelling..
Nebraskablue
Sep 23, 2008

http://www.dailykos.com/storyonly/2008/9/23/18926/1826/220/607964

And Ben Bernanke and Hank Paulson are just the front men for the wind down of the biggest scam ever run.

They are just jugglers tying to keep all the balls in air so the current game doesn't melt down on their watch.

And like the slow motion train wreck that Enron became... so will the system they are trying to keep going.

There is a global financial adjustment coming and it will rock the economies of many nations, not just ours here in the USA.

Not even... Germany will suffer, so will the UK, and Austrailia, the Swiss and Russia.

The 10,000 lb Gorilla in the room NO ONE is talking about is the Credit Default Swap (or option) market.

Currently the CDS / CDO market is conservatively estimated to be valued at 44 TRILLION dollars.

The value of the ENTIRE US Stock Market is 22 TRILLION dollars.

The value of the ENTIRE US Mortgage market is 7 TRILLION Dollars.

Can you say inverted pyramid?

THE CDO / CDS market is based upon NOTHING but wishfull thinking and bad paper, who is going to unwind it? We shall see....

Of course this started in the US Debt market, sell more stuff to America, more houses, more cars, more electronics and put it all on an equity loan, or your credit card!

America gets attacked on 9-11, hell, come on America, do your part! - Go shopping!!!!!

The name of the game was - how much DEBT can we (Wall Street and the other Global Financiers) push off on the public.

Of COURSE they got scared after a while because they can crunch numbers too, or so it seems. And they figured out while they were getting really huge returns on all of this debt they were pushing and trading, it was getting so very much riskier to keep it all floating around.

So they decided to make up their own insurance plans, in the form of securities they could trade amongst themselves which SUPPOSEDLY spread the risk of failure among many companies and various forms of debt.

(By the way the smartest guys on Wall Street bought and paid for this venue for them to make money by getting even MORE deregulation via their paid for lobbyists and compliant Congressman and Senators).

The invisible hand of the FREE market... ya know!!!

Bailouts will lead to rough economic ride

Bailouts will lead to rough economic ride
Ron Paul
Sep 23, 2008

http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html

Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter
Jason Linkins
Sep 22, 2008

http://www.huffingtonpost.com/2008/09/22/
dirty-secret-of-the-bailo_n_128294.html

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. [..] just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

Growing right-wing opposition to the Paulson plan

Growing right-wing opposition to the Paulson plan
Glenn Greenwald
Sep 22, 2008

http://www.salon.com/opinion/greenwald/
2008/09/22/paulson/index.html

As the AP put it yesterday: "Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.

And now, some of the most rabid ideologues on the Right are voicing increasingly strident opposition as well.

At National Review last night, Newt Gingrich wrote that "watching Washington rush to throw taxpayer money at Wall Street has been sobering and a little frightening" and said he "hopes Congress will slow down and have an open debate."

Thereafter, NR's Yuval Levin proclaimed that nobody could read through the Paulson proposal "without concluding that everyone in Washington has lost their minds."

In The New York Times today, Bill Kristol said he's "doubtful that the only thing standing between us and a financial panic is for Congress to sign this week, on behalf of the American taxpayer, a $700 billion check over to the Treasury."

While Michelle Malkin posted a lengthy alarmist screed warning that "Hank Paulson must be contained."

Right-wing opposition to the Paulson plan is vital for having any meaningful chance to stop it. Does anyone have any confidence at all in the Democrats' willingness and/or ability to impede this bailout train if the Bush administration and the Right were vigorously behind it, warning the nation of impending doom unless we submit to vast, unchecked government power of the type Henry Paulson is demanding?

The instances of complete Democratic acquiescence under those circumstances -- including when they "controlled" the Congress -- are far too numerous to allow any rational person to think Democrats, standing alone, would stop the Paulson plan. As sad as it is, meaningful right-wing opposition is critical for that to happen.

Paulson Debt Plan May Benefit Mostly Goldman, Morgan

Paulson Debt Plan May Benefit Mostly Goldman, Morgan
Jody Shenn
Sep 22, 2008

http://www.bloomberg.com/apps/
news?pid=20601087&sid=aUj_9.k13q7s

Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

Treasury Secretary Henry Paulson's push for the program, now considered by lawmakers, is designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.

The intervention into markets would be the broadest since at least the Great Depression.

While Goldman and Morgan Stanley, both based in New York, were yesterday granted permission to transform themselves into bank holding companies, the companies so far have operated mostly under investment-bank accounting rules, logging almost $21 billion of asset writedowns and credit losses. Paulson is a former chairman and chief executive officer of Goldman.

Companies including American International Group Inc., the insurer that accepted $85 billion in a U.S. takeover, have said the rule by the Financial Accounting Standards Board requires them to record losses they don't expect to incur. The world's largest banks and brokers have reported more than $520 billion in asset writedowns and credit losses since last year.

Welcome to the final stages of the coup...

Welcome to the final stages of the coup...
Larisa Alexandrovna
Sep 20, 2008

http://www.huffingtonpost.com/larisa-alexandrovna/
welcome-to-the-final-stag_b_127990.html

Let me first point you to the Bush administration's so-called Wall Street bailout bill, here, so that you can see for yourself that this treachery is being conducted in the light of day. Fascism is finally and formally out of the right-wing closet even if the F word is not yet openly being used (although it should be, and often).

Now, if you do not yet understand that the Wall Street crisis is a man-made disaster done through intentional deregulation and corruption, I have a bridge in Alaska to sell to you (or Sara Palin does anyway). This manufactured crisis is now to be remedied, if the fiscal fascists get their way, with the total transfer of Congressional powers (the few that still remain) to the Executive Branch and the total transfer of public funds into corporate (via government as intermediary) hands.

The Bush family, in the form of Prescott Bush, has tried a more aggressive coup before in order to install fascism in this country. This treasonous plot was called "the Business Plot," because the high-level plotters - including Prescott Bush - were Wall Street men who openly supported fascism.

It seems this time around, the Bush family is trying the more subtle approach to open bloodshed: first create a crisis, then under the guise of addressing that crisis, overthrow democracy. Yes, it does sound terribly conspiracy-theory-esque when explained just this way. But what else does one call a criminal conspiracy to destroy Congressional powers permanently, alter Judicial powers permanently, and steal public funds?

Where to Keep Cash When No Investment Seems Safe

Where to Keep Cash When No Investment Seems Safe
Eric Dash
Sep 10, 2008

http://www.nytimes.com/2008/09/10/business/businessspecial3/10cash.html

CASH used to be the most boring of assets. But not this year.

DEPOSIT ACCOUNTS A checking account is probably the simplest cash management tool, but few investors use it strategically. Your goal should be to put in enough money to cover your basic needs but no more. After all, checking accounts have just about the lowest yield of any investment, and the interest is taxable.

MONEY MARKET FUNDS Another portion should be allocated to money market mutual funds, which carry relatively low yields but are generally safe and liquid, despite the problems some of them had over the past year as investments in complex mortgage-related securities soured.

C.D.’s AND BROKERED DEPOSITS Investors who do not need their money on hand but are still looking for a safe haven might find certificates of deposit attractive. Banks set their own interest rates, and those badly in need of deposits offer the most attractive rates. C.D.’s are backed by F.D.I.C. insurance. You will have plenty of options. At least six institutions are currently offering one-year C.D.’s at interest rates of 4.25 percent or better.

How to prevent the next Wall Street crisis

How to prevent the next Wall Street crisis
Joseph Stiglitz
Sep 17, 2008

http://www.cnn.com/2008/POLITICS/09/17/stiglitz.crisis/index.html

Editor's note: Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001.

This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems -- and a variety of solutions:

1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options.

2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money.

3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.

4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing.

5. We need better consumer protection laws, including laws that prevent predatory lending.

6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition.

These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.