Friday, September 26, 2008

Another Start In Shrub's Crown

Last night saw the biggest bank failure in United States history. Via the New York Times:
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.
Washington Mutual is by far the biggest bank failure in history, eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago, an event that presaged the savings and loan crisis. IndyMac, which was seized by regulators in July, was a tenth the size of WaMu.
Congratulations George hows does it feel to have the honor of destroying the largest financial institution ever? How dis it happenl? Justlike every other bank failure the depositors pull out all their money leaving the bank with more debts than assets and therefore insolvent.
From WSJ:
Federal regulators said WaMu has suffered an exodus of $16.7 billion in deposits since Sept. 15, leaving the Seattle thrift "with insufficient liquidity to meet its obligations." As a result, WaMu was in "an unsafe and unsound condition to transact business," according to the Office of Thrift Supervision.
After the FDIC took possession of the bank, J.P. Morgan Chase purchased the assets of WaMu and for everyday depositors nothing will change and the banks will be open for business Friday just like every day. This is not a good sign for the rest of us though. It may be just a hint of what we see coming at us in the future.

You may remember that JPMorgan had tried to buy WaMu earlier in the year for $8 a share. The deal didn't happen because the WaMu's CEO was going to lose his job and not make enough on the deal. Now just a few months later WaMu shareholders are left with nothing. Now it is just the taxpayers left holding the bag.

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