And then there were...?

September 25, 2008 6:11 PM

Washington Mutual seized by FDIC, sold to JP Morgan.
posted by empath (209 comments total)

Perhaps a better article.
posted by empath at 6:12 PM on September 25, 2008 [1 favorite has favorites]

Yeah, I don't think they were seized or sold whole hog-- the bulk of their assets and branches have been sold though.
posted by Big Fat Tycoon at 6:17 PM on September 25, 2008

Ah WaMu, so sad to see you go. Thanks for all the fees and trouble you caused me so many years ago! Glad to see my money went to good use...
posted by rand at 6:19 PM on September 25, 2008 [2 favorites has favorites]

Well at least they can finally release those poor bankers back into the wild...
Boooooorn freeeeee as free as a b--no not that way!
posted by Potomac Avenue at 6:20 PM on September 25, 2008

I'm not sure where you're getting that "seized" language from. WaMu has been trying to sell itself for a couple of weeks; it looks like the FDIC helped it find a buyer.
posted by mr_roboto at 6:23 PM on September 25, 2008

Deal terms are extremely light right now. The announcement isn't the surprise; who takes the hit? The OTS, the Fed, or is the deal structured in such a way that only WM bondholders and equity are wiped following a very, very shitty sale of the remaining Alt-A portfolio. It's great that the FDIC comes out unscathed (supposedly), but why, and how? And people are calling this a "bank failure". Meh. The deal was being brokered as early as two weeks ago, and info. leaked. It's kinda like IndyMac and Schumer: once the depositors get a whiff of stink, they flea for the exits.

I wanted to post this news, but there's really nothing to talk about yet.
posted by SeizeTheDay at 6:24 PM on September 25, 2008

HA! At 5:00pm today I took all my $ out of my WaMu account and went to a credit union - suck it you "whoo-hoo!"-ing bastards!
posted by tristeza at 6:24 PM on September 25, 2008

The sensation you are feeling is the quickening.
posted by cowbellemoo at 6:24 PM on September 25, 2008 [27 favorites has favorites]

I'm not sure where you're getting that "seized" language from. WaMu has been trying to sell itself for a couple of weeks; it looks like the FDIC helped it find a buyer.

I was seeing "seized" earlier too. Looking for the article. I'm no economist, so perhaps the earlier versions of the stories were sensationalizing things.
posted by Tehanu at 6:25 PM on September 25, 2008

You had the opportunity to use the 9:11 tag.
posted by gman at 6:25 PM on September 25, 2008 [1 favorite has favorites]

Here's the story I read earlier. It was speaking of it as a likely event earlier in the day.
posted by Tehanu at 6:26 PM on September 25, 2008

How do regular folks who want to protect their savings get a feel for how their credit unions, banks, etc. are doing, health-wise? If we haven't heard anything in the news at this point, should we consider them relatively fine?
posted by Blazecock Pileon at 6:26 PM on September 25, 2008

As far as I can tell, WaMu was not "seized" by the FDIC. Things are bad enough without misleadingly inflammatory posts like this.
posted by googly at 6:28 PM on September 25, 2008

How do regular folks who want to protect their savings get a feel for how their credit unions, banks, etc. are doing, health-wise?

Put some panty-hose on your head. Put on a big hooded sweatshirt. Walk into your bank. Put your finger under your sweatshirt so it looks like you have a gun. Ask the teller for all the money in the back. If she laughs, you know you're in trouble.
posted by billysumday at 6:29 PM on September 25, 2008 [18 favorites has favorites]

Can Citibank and Wells Fargo fail now? I hate those bastards. I think Wells Fargo is probably floating on overdraft fees alone.
posted by bukharin at 6:29 PM on September 25, 2008 [1 favorite has favorites]

If you're under $100,000, you're fine. Just look for the FDIC label. Period. No questions asked. And you can get deposit protection of up $900,000 if you structure it properly at one bank.

For all you rich folk with over $100,000, find a bank that uses a program called CDARS. That allows you to spread your deposits in $100,000 increments across 500 banks.
posted by SeizeTheDay at 6:30 PM on September 25, 2008 [3 favorites has favorites]

They do have some sweet deals going on.
posted by gman at 6:31 PM on September 25, 2008

The NYT says:

Indeed, the seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan C. Fishman, was flying from New York to Seattle at the time the deal was brokered, according to these people.

The FDIC says:

Thursday evening, Washington Mutual was closed by the Office of Thrift Supervision and the FDIC named receiver.

If that's not a seizure, I don't know what is.
posted by grouse at 6:31 PM on September 25, 2008 [12 favorites has favorites]

"Alan C. Fishman, was flying from New York to Seattle at the time the deal was brokered, according to these people."

That must have been a hell of a flight. You get on the plane, you're CEO of a major bank. You get off the plane...
posted by Naberius at 6:34 PM on September 25, 2008 [4 favorites has favorites]

The deal was brokered, grouse. It's a matter of semantics, and at this point, we don't have enough information to decide if the deal had to be done tonight, or if JP just said, "Fuck it, let's roll." It's definitely NOT a typical transaction, and that's why there's so much more information that needs to come out first. This was not a weekend bank closure-type event (partially due simply to the bank's size).
posted by SeizeTheDay at 6:34 PM on September 25, 2008

The OTS, the Fed, or is the deal structured in such a way that only WM bondholders and equity are wiped following a very, very shitty sale of the remaining Alt-A portfolio.

The FDIC's press release and the WSJ are implying that the equity and bondholders are getting basically wiped out. Apparently JPMorgan is paying $1.9 billion for the assets (all? not clear) and deposits and some of the other obligations. I assume the $1.9 billion will be used to pay off equity and bondholders, but it obviously won't be nearly enough.
posted by Mr. President Dr. Steve Elvis America at 6:35 PM on September 25, 2008

Just look for the FDIC label. Period. No questions asked.

I guess I'm hearing $700 billion thrown around by the Treasury Department, and not really coming from this trusting that the FDIC or any other government entity would be able to cover bank failures, if those failures were to spread past what's already happened. Are there other signs to look for that lead up to a "regular-folk" bank failure?
posted by Blazecock Pileon at 6:37 PM on September 25, 2008

Yeah; just yesterday I got confirmation that my direct deposit wasn't going there anymore and was moved to my other bank. I know, I had nothing to fear, FDIC blah blah but...I'm feeling safer in my smaller, less trouble-prone new bank. If that one goes, if my money's still worth anything, guess I'll start burying it in the backyard.

Plus I hate Chase, BofA, and Wells Fargo, and knew at least one of them was going to take over. Wamu never hassled me much, was with them for 5 years; oh well.
posted by emjaybee at 6:38 PM on September 25, 2008

It's a matter of semantics

Tell that to the people who are inexplicably claiming that this isn't a seizure.
posted by grouse at 6:39 PM on September 25, 2008

Here's the official FDIC.gov webpage on the failure -- which despite the "acquisition" language is what it really is, a failure, just as grouse just said. JPM is buying the bank but not the holding company, is not buying the debt or the stock, is giving money to the FDIC, etc. That doesn't sound quite like any acquisition I've heard of. And I bet JPM immediately turns around and trades in WaMu's bad loans to the new government TARP program, thereby turning all Americans into owners of bad California home equity loans and second mortgages...gee, thanks, fellas.

But it looks (so far) as if the FDIC will not be directly hit by this, which is a mercy -- the FDIC would have been wiped out by WaMu if it had gone down in traditional fashion.

I guess that means that TPG, who invested in WaMu a few months ago, will take a total loss.
posted by Asparagirl at 6:39 PM on September 25, 2008 [2 favorites has favorites]

Well, I, for one, stand corrected.
posted by googly at 6:40 PM on September 25, 2008

I've been in a local credit union for ages. Very personal there, plus I'm smitten with one of the tellers. Even though I have an ATM card, I still go in whenever I can...
posted by Eekacat at 6:41 PM on September 25, 2008

We don't know what assets though (as you note), which is the crux of the losses incurred. That's the most important part of the deal, as it will set the precedent for the future.

Are there other signs to look for that lead up to a "regular-folk" bank failure?

I don't want to get into the whole "history of banking" here, but the FDIC was setup after the Depression to help "regular folk" have confidence in the banking system. So no matter what happens, you'll get your money. That's not in question.
posted by SeizeTheDay at 6:41 PM on September 25, 2008

Now I have to get new checks? Of course there are worse problems to have in the midst of all this. Good thing McCain went back to Washington...
posted by captainsohler at 6:41 PM on September 25, 2008

JENGA!!!
posted by shadow vector at 6:41 PM on September 25, 2008 [11 favorites has favorites]

Apparently JPMorgan is paying $1.9 billion for the assets (all? not clear) and deposits and some of the other obligations. I assume the $1.9 billion will be used to pay off equity and bondholders, but it obviously won't be nearly enough.

$1.9b paid to the FDIC. And it's just the bank subsidiary assets/liabilities, not the holding company. What, you aren't on the conference call? Presentation/webcast here.
posted by mullacc at 6:42 PM on September 25, 2008 [1 favorite has favorites]

Hey, SeizeTheDay, you're now 1/3 of the way to losing that bet I made you! And BKUNA got downgraded by the OTS earlier this month, so we're almost at 2/3...
posted by Asparagirl at 6:46 PM on September 25, 2008 [2 favorites has favorites]

So no matter what happens, you'll get your money. That's not in question.

I'm aware of FDIC's history. So even if the FDIC had failed, had WaMu not been able to be sold off, then "regular folk" accounts would still be safe? What are the other processes by which accounts are protected?
posted by Blazecock Pileon at 6:46 PM on September 25, 2008

Search and apply online for job opportunities at Washington Mutual. Great place to bank. Great place to work
posted by localhuman at 6:46 PM on September 25, 2008

You get on the plane, you're CEO of a major bank. You get off the plane...

... you're still worth 50 million bucks? Sounds like a good flight to me.
posted by dmd at 6:48 PM on September 25, 2008

I guess that means that TPG, who invested in WaMu a few months ago, will take a total loss.

That's the amazing part to me. TPG, heretofore the most successful of the big buyout shops, put in $2 billion in April and got paid $50 million to arrange a syndicate that put in another $5 billion (including other "smart" money players like Wellington). I don't know if any private equity firm has seen so much money go to zero so quickly.

How might that affect you? TPG fund investors include: "Washington State Investment Board has $1.5 billion at stake in two TPG funds that are part of the WaMu investment. Other investors include the New York State Common Retirement System, the New Jersey State Investment Council and the Pennsylvania Public Schools Employees Retirement System." (from here)
posted by mullacc at 6:51 PM on September 25, 2008 [1 favorite has favorites]

Blazecock: emergency congressional appropriation.
posted by OldReliable at 6:52 PM on September 25, 2008

Whoo-hoo!
posted by dhammond at 6:53 PM on September 25, 2008

So even if the FDIC had failed, had WaMu not been able to be sold off, then "regular folk" accounts would still be safe? What are the other processes by which accounts are protected?

The FDIC put out this letter today.

Relevant quotes:

The fund's current balance is $45 billion – but that figure is not static...

Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department...

If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years...
posted by mullacc at 6:54 PM on September 25, 2008 [1 favorite has favorites]

If you're aware of the FDIC's history, you know that the FDIC won't fail. Your deposits are backed by the US govt.

Asparagirl, I don't remember actually taking that bet. I do remember saying that randomly speculating about bank failures is bad juju. Kudos on your picks, though.
posted by SeizeTheDay at 6:56 PM on September 25, 2008

What
posted by AsYouKnow Bob at 6:57 PM on September 25, 2008

The FDIC put out this letter today.

Er, THIS letter.
posted by mullacc at 6:57 PM on September 25, 2008 [1 favorite has favorites]

Thanks for the info, mullacc.
posted by Blazecock Pileon at 6:57 PM on September 25, 2008

Yeah, as I understand it, Congress is just using money that should be in FDIC coffers for general fund stuff. Kind of like how Social Security is run. If there's a huge collapse, then Congress funds FDIC. Of course, that's assuming they can scrape together something to fund it...
posted by Eekacat at 6:59 PM on September 25, 2008

Sure am glad I forgot to close my account today. That's wonderful.
posted by Optimus Chyme at 7:00 PM on September 25, 2008

Or what mullacc said on preview...
posted by Eekacat at 7:01 PM on September 25, 2008

What a fun week! Probably time to link the Doom Song again.
posted by 5MeoCMP at 7:01 PM on September 25, 2008

Man, I looked through the press release and presentation. JP has to do an additional $8 billion capital raise, and it goes to 8.2% Tier 1. They're marking the loan portfolio down $30 billion.
posted by SeizeTheDay at 7:03 PM on September 25, 2008

Another one bites the dust!
posted by jeffburdges at 7:11 PM on September 25, 2008

I just bought a gross of pencils, string and apples. I'll be a new-Depression entrepreneur.
posted by subbes at 7:11 PM on September 25, 2008 [1 favorite has favorites]

If the banks can't balance their little check books...sheesh...
posted by Alexandra Kitty at 7:16 PM on September 25, 2008

Interesting they pulled the string tonight, not tomorrow. My guess is this isn't a traditional failure, but a case of the FDIC putting a shotgun to the backs of WaMu and JPMC.

I'm happy we not only were almost done pulling out of WaMu, we also had enough cash to get through the weekend.

That was different. That was Washington Mutual. The ex-friend of the family!
posted by dw at 7:16 PM on September 25, 2008

Does anyone know how these deals get done so quickly? Do they just make the a vague deal super-fast and then there are a dozen addendums added on once the lawyers really get a chance to review stuff?
posted by smackfu at 7:17 PM on September 25, 2008

I don't know if any private equity firm has seen so much money go to zero so quickly.

I once interviewed at a shop and I asked that question (not about TPG, but about investments in general, since leveraged loans like Claires, Linens, Masonite went south in a year); he looked at me, stunned, and said, "They're the best shops in the business; they'll be fine." (I didn't get the job.) Some eight months later, I'm asking myself, "Who's the idiot now?"

The Journal has a funny piece by Evan Newmark (the Mean Street column) which talks about how these shops are going to take over, as IBs take a backseat with all the new regulations put on them. The more I think about it, the more I wonder, when will the next big deal be, really? It may be 2-3 years off if we continue this massive deleveraging. Every company is too expensive, by that metric, and only micro and middle market deals will thrive.
posted by SeizeTheDay at 7:22 PM on September 25, 2008

I think a bunch of guys show up with black suits and briefcases as the offices are closing down.
posted by empath at 7:22 PM on September 25, 2008

Presentation/webcast here.

That's really interesting. They're very much selling it to their investors as a good fit, and clearly they've been working on this for a while. I especially like the slide where they show how much better the Chase branches are at cross-selling than the WaMu ones, and that if they could match that it would be huge profits.
posted by smackfu at 7:25 PM on September 25, 2008

Sigh, do I get to be the Warlord of the Eleventh Floor yet? Or do I have to wait for total collapse? It's getting tedious , ...I have a whole headdress made.
posted by The Whelk at 7:25 PM on September 25, 2008 [2 favorites has favorites]

This sounds to me more like the FDIC said "you do it, or we will. Either way, it's happening RIGHT NOW."
posted by scrump at 7:26 PM on September 25, 2008

They're very much selling it to their investors as a good fit, and clearly they've been working on this for a while.

They're trying to raise $8 billion in capital; they're selling it to their investors because they're literally selling it to their investors.
posted by SeizeTheDay at 7:26 PM on September 25, 2008

smackfu: I can't answer your question generally. But JPMorgan has been hot and cold on a WaMu acquisitions for a couple years. WaMu was seen as JPM's way to get into the big west coast markets and take on Wells Fargo. JPM had mergers talks with WaMu back in January and WaMu has also been shopping itself for a couple weeks now. On the conference call, Jamie Dimon said, and I'm paraphrasing here, that they've spent as much time or more on this WaMu acquisition as they have on any other deal.
posted by mullacc at 7:26 PM on September 25, 2008

I have an semi-related askme question that just occured to me on the drive home, for any of the financial gurus that happen to pop in this thread.
posted by empath at 7:27 PM on September 25, 2008

Ah, I liked WaMu, a lot. They were totally cool to me the 2 years I lived in the US. Afterwards, they kept on sending me checkbooks to Chile, never charged me a dime, either.
posted by signal at 7:30 PM on September 25, 2008

Optimus: You're cool. The WaMu deal, like when Regions took over Integrity a few weeks, covers all deposits, not just those below the $100,000 limit. (Look for this to happen more and more often this cycle, btw.)

And, moreover, all the branches are going to be open tomorrow. So you can just close your account tomorrow and get all your money, though there might be a line.

Smackfu: From what I understand, the FDIC keeps tabs on all the banks deemed "well-capitalized," and has a record of what companies they might be interested in acquiring on the cheap. When a bank is on its way (2-3 weeks before, usually), the FDIC asks the banks that have expressed a desire for banks of the size / in the area that the failed bank is, if they want to make a bid.

Potential bidders are asked to sign nondisclosure agreements, then they get to analyze the books of the bank headed towards receivership. Bids for the deposits are due on the Wednesday before the bank goes under; the acquiring company learns they won usually Thursday morning.

The failed bank usually finds out its done about 5.00 on Friday. The CEO might learn Friday morning, I can't remember. But basically, the FDIC rolls in that Wednesday, go to work at the bank Friday night, and work all weekend.

There was an article in the Wall Street Journal three months ago that describes takeovers from the FDIC's point of view, if you have a subscription or another way at getting at their archives.
posted by thecaddy at 7:30 PM on September 25, 2008 [4 favorites has favorites]

The FDIC only has $45bln in reserve at the moment. A few weeks ago, they were ratcheting up the premiums they charge banks to cover the insurance. They may not have started early enough.

Let me divert a moment to explain what caused this. A few years ago, 2004, my brother, a successful computer geek and his wife, a top-tier business loan officer at a local branch, decided to buy a house. Through luck and connections, they bought an ordinary house in an ordinary neighborhood for an ungodly sum. They could juuuust swing the payments and live a comfortable upper-middle-class lifestyle by shopping around for the best deal from the reputable mortgage brokers, scrupulously avoiding the fly-by-night jokers.

My brother is smarter than the average bear, so he hired a lawyer to read the contract. The lawyer signed off on it as being A-OK! The house was theirs! My brother being smarter than the average bear also had the lawyer read it twice.

Oh, look, there on page twenty-three of forty-seven. A balloon payment of TWENTY THOUSAND DOLLARS was due four years into the mortgage. Oops!

The broker explained, this way, my brother and his wife would save all of FIFTY DOLLARS A MONTH! And hey, they would just re-finance in a year or two for a better rate once their credit went from "awesome" to "super-awesome", right?

Wrong. That wasn't the deal my brother made with the broker. That wasn't the deal the broker sold to my brother. It was hidden in the fine print on page twenty three (a foot note of a foot note!), this one little CONTRACTUALLY BINDING detail that would have sent my bro and his wife into the poorhouse. Just to come in fifty bucks a month cheaper, to get a leg up on the competition. My brother then decided there was such a thing as being too sharp a buyer, and went with the higher credit union rate, instead, and lives a middle-middle-class lifestyle.

How many working class people, not savvy or paranoid enough were sold one mortgage, and then obligated to pay another? Quite. A. Few.

And these brokers then sold these phony-baloney mortgages to the big investment banks as sure-things, and the big investment banks invented new ways of making money off of making money with them without bothering to check it out closely... it's worse than tulip bulbs. It's investing like mad in rotten onions without bothering to make sure they were rare and valuable tulip bulbs.

The mortgage brokers? All out of business, now selling amway or mail order acne cures or running spam scams.

And we're all on the hook, because the people we voted into office to protect us from these crooks confused a free market with unbridled anarchy.
posted by Slap*Happy at 7:37 PM on September 25, 2008 [35 favorites has favorites]

Alrighty, on that note, how's silver prices doing?
posted by crapmatic at 7:39 PM on September 25, 2008

That must have been a hell of a flight. You get on the plane, you're CEO of a major bank. You get off the plane...

The worst part was probably being stuck in a middle seat between two other CEOs of failed banks.
posted by rokusan at 7:42 PM on September 25, 2008 [9 favorites has favorites]

What I'm concerned about is a bank run. At some point people are going to panic and start pulling their money out. WaMu might be the last straw for a lot of people.
posted by empath at 7:44 PM on September 25, 2008

Today I began moving about 10% of my assets into a risk-free mattress-based fund. Literally, I have a wad of 20s under my mattress and will have more tomorrow because if I'm doing this I might as well put it in the lulzy stereotypical place. I'm not about making a run on the bank so the vast majority of my cash remains there but it's beginning to seem real prudent to have some cash on hand for the possibility that it's hard to get at for a while.
posted by TheOnlyCoolTim at 7:45 PM on September 25, 2008 [1 favorite has favorites]

So... has anyone figured out how this won't cost the FDIC any money? They clearly say it in bold in their Q&A ("This transaction did not cost the FDIC insurance fund any money and as a result, the uninsured Depositors did not incur a loss either.") But where did the negative balance sheet go then? Chase paid money for the good part, but that presumably wouldn't cover the bad part, because then WaMu wouldn't have been in such dire straits in the first palce.

Even the WSJ is just going "huh?": "A key unknown: the fate of WaMu's bad assets, which include mortgage loans that have soured as housing markets tanked."
posted by smackfu at 7:47 PM on September 25, 2008

From what I understand, the FDIC keeps tabs on all the banks deemed "well-capitalized," and has a record of what companies they might be interested in acquiring on the cheap. When a bank is on its way (2-3 weeks before, usually), the FDIC asks the banks that have expressed a desire for banks of the size / in the area that the failed bank is, if they want to make a bid.

That's more than likely what happened. Moment a bank falls below "well-capitalized" the FDIC swoops in to shotgun a merger. My guess is when the S&P cut their ratings yet again yesterday it forced more calls on their debt, and thus WaMu fell out of "well-capitalized." Thus, the shotgun merger.

Of course, I also know that over the past month there's been a slow-motion run on WaMu here in Seattle. People aren't lining up to take their money out, but they were moving to other banks, shifting their direct deposits, and leaving their WaMu accounts open. It could be the combination of these two things led to the end.

Now Seattle has another problem -- 4300 employees in metro Seattle are probably going to get cut, and the almost-new WaMu Tower is about to be emptied. Housing prices have been slow to decline here; I think the pressure downward is about to be overwhelming. (So, maybe, maybe, I'll finally be able to buy a house later next year....)
posted by dw at 7:47 PM on September 25, 2008 [1 favorite has favorites]

Today I began moving about 10% of my assets into a risk-free mattress-based fund.

You really think that's a good idea, given that Sealy is down 56% over the last year?

I recommend coffee cans.
posted by dw at 7:53 PM on September 25, 2008 [2 favorites has favorites]

Today I began moving about 10% of my assets into a risk-free mattress-based fund. Literally, I have a wad of 20s under my mattress and will have more tomorrow because if I'm doing this I might as well put it in the lulzy stereotypical place.

Cash is useless. It's worth whatever the Fed says it's worth, and then, only as much as people believe the Fed. Gold is useless. It's pretty, it's heavy, it's not good for much. Start turning that cash into premium marijuana seeds and stocks of hi-po gunpowder and turbine-based generator tech, wind or water. When it all falls flat, you'll be king!

But, really. Just dump that into a no-load index fund. We're Americans, gawdammit. If we can make twenty bucks selling used cowboy boots at a yard sale as a "Decorative Accent", we can sure as hell regain the top spot in the world economy once the bozos in Washington get the hint they need to rip off them, not us.

Even better, if the dollar tanks, manufacturing comes here. Our workers are the most efficient in the world, because we are all goof-off-artists. We do twice the work in half the time, and smirk to ourselves as we sip on our coffee, knowing hey, we cheated the boss out of almost a third of the day with breaks and lolly-gagging! The fools, if they only knew... (Sort of like how an office's productivity goes =up= once they stop monitoring web usage.)
posted by Slap*Happy at 7:59 PM on September 25, 2008

dw- not to mention how many of those mortgages and presales for the still yet to be completed condos that are going up. There are always guys stuck at the end of a boom who have to finish construction on a building just in hopes to free up any money they have tied up in it. I am sure wamu was a major financier behind a lot of these projects.

Maybe the construction outside my apartment will stop, and there will just be a giant pit for a skate park for a few years.
posted by mrzarquon at 8:00 PM on September 25, 2008

I listened in on the call live earlier (not much interesting, beyond the fact that their assumptions on allocation for losses is complete bullshit, their model is jacked up with expectations on unemployment). If we do rely on their assumptions of their model though, we're looking at 20% losses on Alt-A mortgages and 40% on subprime (page 16 of their presentation this evening has everything you need). On that page, those numbers are in Billions and on the top middle there's a percentage of return.

This is important because this gives you a good glimpse of why the $700 Billion TARP is total garbage. JP Morgan is expecting 40% of subprime to be LOST. That's a HORRIFIC number, not because you'd expect 40% x $700Billion = $280Billion to be wiped out, but because this means that it's likely that EVERYTHING will be wiped out. That's because the garbage that the banks have on their books are the highest interest rate (and most risky) tranche. We're going to expect that the banks are going to dump the shitty CDO tranches onto us taxpayers and keep the rest good ones. If you ever had any suspicions that there simply wasn't that much garbage floating around, this should scare the shit out of you. We're not getting the money back, fuck this "executive compensation" talk (that's just peanuts), the real theft will be this garbage. These are the banks' own numbers, finessed to be as positive as possible. I had no idea that they were expecting a 40% haircut on mortgages.

I'm pissed.
posted by amuseDetachment at 8:00 PM on September 25, 2008 [4 favorites has favorites]

I don't remember actually taking that bet.

I know, so that's why I have to bring it up merely for the fine fine emotional capital it might yield me. :-)

randomly speculating about bank failures is bad juju.

Well, clearly it wasn't random speculation. And I find it funny that someone so involved with hard figures and capital ratios and nickels and dimes can still swing so far to the other extreme that they also believe in juju and magical thinking. I suppose it's something like those actors who won't even say the name of The Scottish Play for fear that it will cause a calamity in the theatre, but who will happily enact its bloody killings and double crossings and assassinations with nary a thought.
posted by Asparagirl at 8:00 PM on September 25, 2008

Fun fact: The FDIC can take over banks for many reasons, not just because they are insolvent. It seems that in this case, the FDIC took over despite the lack of insolvency, and brokered a deal with JP Morgan on behalf of WaMu.
posted by thewittyname at 8:01 PM on September 25, 2008

err, those numbers are in millions, JPM is dumping $176 bil of mortgages on their books
posted by amuseDetachment at 8:01 PM on September 25, 2008

But where did the negative balance sheet go then?

Two places:

1) JPM. Win: They got the depositors. Lose: They got the loans. They're going to write off between $36 and $54 *billion* in those loans. But they get all the loans that don't fail, plus the deposits, for $1.9B cash (paid *to* FDIC) and the cost of the bad loans. Played right, they'll do well on this.

2) WaMu Inc, the holding company that owned WaMu Bank and Trust. They got left with all the other toxic assets, the bond obligations (BTW, that 29% 10Y WaMu bond? Worthless.) and of course, the Shareholder Lawsuits, because the shares are also worthless.

In other words, the investors in Washington Mutual just lost everything. This is correct, because Investment is a risk, and WaMu failed. The *depositors* of WaMu are fine. They're not investors, they're being paid to allow WaMu to use their assets to profit. Those assets have been returned to the depositor.

This failure went exactly right, in terms of the public. The depositers are okay -- the only reason to pull your money out is that you hate JPM or that you already have $100K in JPM deposits (in which case, you're protected for six months, then they'll aggregate the WaMu and JPM deposits in terms of FDIC protection.)

If they can pull the same trick with Wachovia, we'll be much better off.
posted by eriko at 8:03 PM on September 25, 2008 [5 favorites has favorites]

All these billions mentioned this week get confusing, even Google is failing at math.
posted by nickyskye at 8:05 PM on September 25, 2008 [1 favorite has favorites]

Today I began moving about 10% of my assets into a risk-free mattress-based fund.

That's an excellent hedge if hyperinflation (caused by the spiralling public debt) gets going, but if you're truly serious about your heating and cooking needs I strongly recommend you use stacks of $1 bills.
posted by crapmatic at 8:05 PM on September 25, 2008

but because this means that it's likely that EVERYTHING will be wiped out.

No, it means the market is frozen, there are no buyers, and banks are only getting vulture bids as a result. JPMorgan wrote down these assets because they're legally forced to. That's the big fear when purchasing a bank; you have to use mark-to-market for all of the bank's assets.

There are no buyers because no one trusts the products. No one trusts the products because the ratings agencies slapped AAA on every-fucking-asset known to man, and created a real panic in investors, because now no one has anyone to trust to price these assets.

TARP buys the market time. It gets the assets off the banks' balance sheet and lets the market soothe itself. When the fear and panic go away, and home prices stabilize, real value will come from these assets, at which point the Treasury would unload them into the market.
posted by SeizeTheDay at 8:05 PM on September 25, 2008

Literally, I have a wad of 20s under my mattress and will have more tomorrow because if I'm doing this I might as well put it in the lulzy stereotypical place.

This kind of made my night.
posted by cashman at 8:06 PM on September 25, 2008

Everybody chill the fuck out.

An American bank near collapse was purchased by another American bank in a deal orchestrated by a long-standing American government-backed institution.

Yes, things are bad. Horrific, even. But the WaMu example is pretty much exactly how things are supposed to work.

Good thing the Bush administra ... aww, fuck, these jokers are still around for a few more months, aren't they? But still ... everybody chill the fuck out.
posted by Cool Papa Bell at 8:06 PM on September 25, 2008

And I find it funny that someone so involved with hard figures and capital ratios and nickels and dimes can still swing so far to the other extreme that they also believe in juju and magical thinking.

juju in the sense that in finance (and the markets), rumors and speculation can kill a company, or a country. As the Russians about their equity markets. Or the Pakistanis. Or the Argentines. Or the Chinese. Or us (in the case of Lehman, Bear, and Merrill). Money flows like air, so speculation is worse than cancer, it's like the incurable, immediately acting plague.

No one in the business (except for the amoral, die-hard capitalists) wants to "kill companies". Analysts don't put out sell reports trying to kill companies. But speculators do. Speculators and rumor-mongers are like cancer to the industry, because money flows so quickly. (And I take it a bit personally, since a rumor can kill me; I'll have to admit that over the last year, I have a newfound respect for the power of the rumor, and the destruction it causes. I remember reading case studies of capital outflows from developing countries and how it ultimately destroyed their economies. I smugly thought, "Heh, they should've had better capital controls." Little did I know that it's impossible to control, and can kill in an instant.)
posted by SeizeTheDay at 8:15 PM on September 25, 2008 [1 favorite has favorites]

They're going to write off between $36 and $54 *billion* in those loans.

Dude, it's $31 billion. You don't have to make up numbers. They're in the investor presentation.
posted by SeizeTheDay at 8:18 PM on September 25, 2008

Er, to interrupt this with a question:

Wachovia seems to get mentioned in this a lot. I have a Wachovia free checking account that I get my direct deposit into. I use it for day to day spending and it automatically pays for my cell phone and a couple of other things but there's nothing I couldn't manage to take off of my debit card. Should I be starting a new bank account on Saturday? If so, where?
posted by graymouser at 8:19 PM on September 25, 2008

Cash is useless. It's worth whatever the Fed says it's worth, and then, only as much as people believe the Fed. Gold is useless. It's pretty, it's heavy, it's not good for much. Start turning that cash into premium marijuana seeds and stocks of hi-po gunpowder and turbine-based generator tech, wind or water. When it all falls flat, you'll be king!

Oh, I feel you. I see two possibilities that have led me to increase cash-on-hand, though. The first is that things get a bit tight and FDIC can't bail things out as smoothly anymore. In this case there is a temporary disruption in my ability to withdraw from the ATM, etc., and having some additional sitting around gets real handy. The other much less likely one is that things do get to the point that where marijuana seeds and guns are the wise choice. In that case my money is worthless whether it's in the bank or under my mattress, but I feel like there'd be a bit of a transitional period where people who suddenly find themselves with no cash-on-hand and no functioning ATM still want cash and I can trade my cash-on-hand for said marijuana seeds and guns.
posted by TheOnlyCoolTim at 8:24 PM on September 25, 2008

Should I be starting a new bank account on Saturday?

If you're under the FDIC, please don't. It's because depositors like you took out their money that banks are failing. Each one of the big ones (IndyMac, WaMu) was because banks were inadequately capitalized due to depositors leaving. If you like your service, you find it convenient, then just be happy and stay put.
posted by SeizeTheDay at 8:25 PM on September 25, 2008

Should I be starting a new bank account on Saturday? If so, where?

A Canadian bank with U.S. branches? I'm pretty sure Royal Bank, Scotiabank and Toronto-Dominion all have branches south of the 49th.
posted by illiad at 8:27 PM on September 25, 2008

Start turning that cash into premium marijuana seeds

Fuck, this is what I get for buying high-grade sinsemilla.
posted by uncleozzy at 8:29 PM on September 25, 2008 [2 favorites has favorites]

In Soviet Russia, Bank seizes government!
posted by blue_beetle at 8:29 PM on September 25, 2008 [3 favorites has favorites]

How fortuitous!

Washington Mutual Fails -- September 25, 2008.

Washington Mutual, its predecessor incorporated -- September 25, 1889

"The transaction ends exactly 119 years of independence for Washington Mutual, whose predecessor was incorporated on September 25, 1889, 'to offer its stockholders a safe and profitable vehicle for investing and lending,' according to the thrift's website. This helped Seattle residents rebuild after a fire torched the city's downtown."

posted by ericb at 8:30 PM on September 25, 2008

It was old man Potter all along!
posted by M.C. Lo-Carb! at 8:31 PM on September 25, 2008 [1 favorite has favorites]

If you're under the FDIC, please don't. It's because depositors like you took out their money that banks are failing. Each one of the big ones (IndyMac, WaMu) was because banks were inadequately capitalized due to depositors leaving. If you like your service, you find it convenient, then just be happy and stay put.

I'm decidedly not a fan of Wachovia, but I'm not at panic stage right yet. Just worried about the future of my bank account. As it stands I suppose I'll wait the current crisis out (assuming the decision doesn't get made for me) and switch to a bank that looks good & stable after the dust settles.
posted by graymouser at 8:32 PM on September 25, 2008

As far as I can tell, WaMu was not "seized" by the FDIC. Things are bad enough without misleadingly inflammatory posts like this.

AP: Government Seizes WaMu, Sells Some Assets.
posted by ericb at 8:35 PM on September 25, 2008 [1 favorite has favorites]

SeizeTheDay: TARP buys the market time. It gets the assets off the banks' balance sheet and lets the market soothe itself. When the fear and panic go away, and home prices stabilize, real value will come from these assets, at which point the Treasury would unload them into the market.

You're kidding, right? The underlying mortgages are garbage, no one wants those $600,000 McMansions in Sacramento. The numbers that came out today are not marked to market, read the fucking slides. Look at slide 16: "Remaning life loss estimates". That doesn't sound mark-to-market, that sounds downright actuarial. Are you drinking the kool-aid or just being completely disingenuous? Because there is no fucking way we're getting it back that $700 billion. Admit it. If we're looking at 40% losses on subprime loans and they're dumping the high-interest tranches on the TARP, we're looking at 100% losses on those garbage tranches.
posted by amuseDetachment at 8:35 PM on September 25, 2008

You don't have to make up numbers. They're in the investor presentation.

Yes. Note page 16.

It's still a pretty good deal -- they picked up a hell of a lot of business for $1.9B and a stack of write-offs later.
posted by eriko at 8:38 PM on September 25, 2008

This is my surprised face. . .
posted by troy at 8:46 PM on September 25, 2008

Wachovia seems to get mentioned in this a lot. I have a Wachovia free checking account that I get my direct deposit into. I use it for day to day spending and it automatically pays for my cell phone and a couple of other things but there's nothing I couldn't manage to take off of my debit card. Should I be starting a new bank account on Saturday? If so, where?

If you're not happy with Wachovia, change banks. If you are, then there's no reason to move. Again, FDIC insured.
posted by dw at 8:47 PM on September 25, 2008

Today I began moving about 10% of my assets into a risk-free mattress-based fund.

Mattresses? Phooey on your mattresses! Tasteless and bland!

SANDWICHES! It's the sandwich-heavy portfolio that will pay off for the hungry investor, and then ZOIDBERG will be king!
posted by ROU_Xenophobe at 9:03 PM on September 25, 2008 [1 favorite has favorites]

If you're under $100,000, you're fine. Just look for the FDIC label. Period. No questions asked posted by SeizeTheDay at 6:30 PM

As long as you have faith - (like Peter Pan asks you to to believe in fairies so tinkerbell can exist) - the system will be just fine.

FDIC May Need $150 Billion Bailout as More Banks Fail (Update3)
posted by rough ashlar at 9:10 PM on September 25, 2008

An American bank near collapse was purchased by another American bank in a deal orchestrated by a long-standing American government-backed institution.

One of the largest banks in America actually failed today, for the -- how many times is it in the last few weeks? Such that a long-standing American government-backed institution (one that CPB's type would have decried as Stalinist a year ago), had to step in and force a buyout. Again, how many times has this happened since Labor Day?

We're fine! We're all fine. We just have to give the richest people in the world, the biggest fuckups that ever lived, SEVEN HUNDRED BILLION DOLLARS, RIGHT NOW* MORE THAN IT COST TO SEND MEN TO THE MOON SEVERAL TIMES. And we'll be fine. Well, you'll be fucking destroyed, but they'll be fine, and that's all that matters.

*and more later
posted by dirigibleman at 9:12 PM on September 25, 2008

On the other hand, really great Oregon State - USC game tonight.
posted by dirigibleman at 9:13 PM on September 25, 2008

Today I began moving about 10% of my assets into a risk-free mattress-based fund. Literally, I have a wad of 20s under my mattress and will have more tomorrow because if I'm doing this I might as well put it in the lulzy stereotypical place.

I think you better knock a couple of significant figures off the LatLong data on your profile page :)
posted by Chuckles at 9:13 PM on September 25, 2008 [6 favorites has favorites]

On a Thursday, too.

Actually this is a more normal takeover. Usually you'll have a situation where the FDIC engineers a buyout. What's been happening recently has been abnormal.

By the way, check out our good friend IndyMac. It's shares are up 200% today, on rumors that Goldman Sachs is going to buy up the buildings and infrastructure to start their own consumer banking, now that they're no longer an investment only bank.
posted by delmoi at 9:18 PM on September 25, 2008

> no one wants those $600,000 McMansions in Sacramento.

You leave my beloved Excremento out of this.
posted by scope the lobe at 9:18 PM on September 25, 2008 [1 favorite has favorites]

FDIC May Need $150 Billion Bailout as More Banks Fail (Update3)

FDIC has access to the printing press, they'll get the money they need (how much that money is worth, in the end, is another question)
posted by delmoi at 9:20 PM on September 25, 2008

Delmoi, the Federal Deposit Insurance Corporaion isn't the Federal Reserve. Unrelated agencies.
posted by Class Goat at 9:31 PM on September 25, 2008

"backed by the full faith and credit" = $$$$
posted by smackfu at 9:36 PM on September 25, 2008

On the plus side, this hopefully means no more damn commercials with that lady driving the pink rocket car.
posted by dirigibleman at 9:40 PM on September 25, 2008

I wrote this at 6 pm on Wednesday. It was supposed to be a horror show scenario describing what would happen if everyone dropped the ball. It wasn't supposed to, you know, actually happen.

I was stunned when I heard the bailout deal went south. I now believe John McCain derailed the negotiations, I just am not sure whether he did it on purpose or incompetence. But what the fuck is the rest of Congress and the President doing? Brinksmanship? Now? You fucking dummies have had a year and a half to fix this shit and pass whatever bills you wanted. Now it's too late. Just put goddamn Vanguard in charge of the whole thing so everybody can go to sleep at night. Our elected officials are fucking around like this is some meaningless budget resolution.

This WaMu deal proves the FDIC, Fed and Treasury are running wargames behind the scenes. E.g., if the deal doesn't pass by such-and-such day, sell this bank to that one, etc. They have no confidence in congress, no confidence in the candidates, no confidence in the president, no confidence in the market to move things forward. Maybe they never thought it would get passed, but thought it would buy a few days in the market to iron out some deals.

The govt isn't supposed to be brokering deals. That's what the investment banks are for. Oh, right, we don't have any more investment banks.

So WaMu's failure was a foregone conclusion, the FDIC realized it could no insure those deposits, and brokered a deal.

Wachovia is going to go next and then we reap the whirlwind. Who buys Wachovia? BAC? Goldman? Morgan? Wells? US Bank? I hope they have a buyer lined up, because no deal by COB tomorrow means the largest holder of deposits in the US fails.

Congress needs to get off its ass, and Bush needs to sign whatever they pass, without question, or he needs to resign. If regulation of CEO comp is the sticking point, take it out and add it to a separate bill. Serve it up to Obama as a campaign pledge in his first hundred days. The next president can change the whole thing if he wants.

Bernanke spent his entire career studying the Great Depression and its political and economic causes. I believe that he is stunned into silence these days by how everyone seems determined to relive the past. No one wanted to act, no one wanted to lead. Everyone looks like a deer in headlights, especially McCain and Bush. I'm fucking disgusted with these two, and I'm disgusted with every racist prick that insists on voting for McCain just because he isn't the black muslim guy even though it is obvious to everyone now that McCain's a stuffed-shirt hack and a stupid idiot.

This incompetence has to stop.
posted by Pastabagel at 9:41 PM on September 25, 2008 [18 favorites has favorites]

A couple things I still dont understand:

1. Why arent the rating agencies in any trouble? It seems to me that they just slapped AAA on these securities without bothering to actually assess the risk. Isnt this the lack of due diligence that broke the system? What does this say about other items they have been rated?

2. Fraudulent loan applications. Why arent there civil and criminal suits against both the brokers and those who applied for the loans? Seems to me that these people are now being painted as haplass victims which doesnt seem fair.

3. Are isolated bank runs really such a problem? If there's a run at WaMu then is that going to affect BoA? Does the US have enough banks to weather a bank run storm or do we have too few players?
posted by damn dirty ape at 9:43 PM on September 25, 2008

NYT:

WASHINGTON — The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

posted by delmoi at 9:46 PM on September 25, 2008 [3 favorites has favorites]

DDA -- 2. They are, and you can find news about it if you search.
posted by garlic at 9:47 PM on September 25, 2008

My father is a retired FDIC examiner with almost thirty years under his belt. These days he spends lots of time following "the market" via CNBC and the internet since he has a number of different investments and he's obsessive about money. He says that, if FDIC is the receiver, that's a seizure. In fairness to the "not a seizure" crowd, I should point out that (a) this story hit the wire after he turned the channel to Lifetime Movie Network for the evening, so he hasn't been following it and (b) he was half asleep when I asked him. If he registers a different opinion tomorrow, I'll let you folks know. But the odds are against it.
posted by Clay201 at 9:51 PM on September 25, 2008 [1 favorite has favorites]

Are these guys gaming the FDIC and creating the next bubble?

"When I first saw Promontory, I was amazed that the regulators would let it fly,'' says Sherrill Shaffer, a former chief economist at the New York Federal Reserve Bank. "It undermines a lot of the safeguards around the FDIC deposit fund. I'm astounded that the FDIC has not picked up on that and tried to shut down that loophole.''

The loophole Promontory exploits is the FDIC rule that allows an individual to open up federally insured accounts of up to $100,000 at an unlimited number of banks.

Promontory has contracts with 2,350 banks. It advertises to wealthy investors who want to insure more than $100,000 in certificates of deposit. Customers tap into Promontory's network through their home banks.

Promontory arranges for the customer's money to be divided among banks, with each receiving less than $100,000 so all of the cash is FDIC insured. The receiving banks pay Promontory a fee, and in return, Promontory directs deposits to them.

...

Promontory charges banks more in fees, about $12.50 per a $10,000 one-year CD to get access to federally insured funds, than the FDIC itself charges in insurance premiums, typically $5-$7 per $10,000 deposited.

FDIC Chairman Sheila Bair says she's surprised that Promontory gets a higher fee than her agency. "That's an interesting question,'' she says. "I'll have to look into that.''
posted by netbros at 9:51 PM on September 25, 2008 [1 favorite has favorites]

> So WaMu's failure was a foregone conclusion, the FDIC realized it could no insure those deposits, and brokered a deal.

Pastabagel, the FDIC finding a buyer for a failed bank is routine. We're all upset, but you need to chill out with the hyperbole.
posted by sdodd at 9:52 PM on September 25, 2008 [1 favorite has favorites]

What time will Obama's "town hall" start tomorrow night? You can expect McCain to get in front of a camera and announce a deal about a half-hour after that.
posted by Cyrano at 9:53 PM on September 25, 2008 [2 favorites has favorites]

I wrote this at 6 pm on Wednesday. It was supposed to be a horror show scenario describing what would happen if everyone dropped the ball. It wasn't supposed to, you know, actually happen.--Pastabagel

Dude first of all that scenario was absurd. ATMs running out of money? That didn't even happen at IndyMac.

The govt isn't supposed to be brokering deals. That's what the investment banks are for. Oh, right, we don't have any more investment banks.--Pastabagel

Again WTF? Brokering deals is what the FDIC does. Seazing the banks with no buyers is the abnormal case and only happens when buyers can't be found.

I'm kind of glad McCain fucked up this deal. Because fuck the deal. It's a rip-off. Just because you're "ruthlessly capitalistic" (as you say) with your money doesn't mean it's our responsibility to bail you out, quite the opposite really.

$700 billion buys a hell of a safety net if the government wanted. I'd rather see that money go to protect the middle class from the fallout then prop up wall street. I mean it's not like bankers and lobbyists are so important to the economy that they ought to be subsidized like farms. I mean, come on.
posted by delmoi at 9:54 PM on September 25, 2008 [4 favorites has favorites]

Pastabagel: No.

A bill has to be passed as soon as possible, but it must take equity of these companies. If they're going to fail then we're going to own the equity. Straight up. I don't care about executive compensation, I want fucking equity.

Otherwise here's the equation:
Taxpayers: We give them $700Billion+
Banks &c: They give us garbage paper with massive liabilities (oops, I mean "assets for half-price -- good deal!!!11")

If they don't want to give up equity, then clearly they don't have a problem. The shareholders will do the math and realize that an 80% erosion of their equity is a good deal compared to $0. What will help the ignorant shareholders realize this? Force them to mark-to-market any MBSes along with the new bill, I guarantee you that all the asshat shareholders that didn't see this mess coming will buy into this, except instead of free money the equation looks like this:

Taxpayers: We give them $700Billion+
Banks &c: They give us 80% of everything they own (residually)

If their shareholders don't buy into it, we do the equation above in a super-new super-quick bankruptcy court that would be enacted with the bailout package.

This is an emergency. We have to bring liquidity into the market AND take equity as soon as possible. The fact that the administration won't play ball with a sane bailout package is utterly reckless and will force the market to go down. They need to be bipartisan and pass the above ASAP. The alternative would be dire!!111oneoneone (Do you see what I just did? Us taxpayers can play that game too.)
posted by amuseDetachment at 9:55 PM on September 25, 2008 [4 favorites has favorites]

(On the other hand, I was kind of expecting a bridge bailout of $150 billion or so to be announced today with more to come later if necessary)
posted by delmoi at 9:57 PM on September 25, 2008

Should I be starting a new bank account on Saturday?

If Wachovia is seized and sold to BigBank on Friday, then on Saturday you HAVE a new bank account. With BigBank.
posted by dhartung at 10:01 PM on September 25, 2008

So WaMu's failure was a foregone conclusion

Yes, but I believe it had nothing to do with the failure of the bailout plan and everything to do with WaMu's credit rating getting cut again. Even if McCain and Obama personally wrote the plan and magically had it through Congress and signed by the president at 4pm PDT, WaMu still would have been seized and sold to JPMC.

The FDIC is not out one red cent to repay depositors. It still has its money ready for a full-scale failure. Wachovia may be next, but I think they'll take the same tack with them as with WaMu, only warning Morgan and Goldman that they may not like the terms of the shotgun wedding if they don't get the deal done soon.

Congress needs to get off its ass, and Bush needs to sign whatever they pass, without question

O RLY? Isn't that what got us the Patriot Act?
posted by dw at 10:06 PM on September 25, 2008 [1 favorite has favorites]

You've got no argument from me over taking equity. There's no sane argument not to. But it isn't clear to me that that is the sticking point, though.

Again WTF? Brokering deals is what the FDIC does. Seazing the banks with no buyers is the abnormal case and only happens when buyers can't be found.

Did you happen to notice that this is the same buyer who took over Bear Stearns?
posted by Pastabagel at 10:08 PM on September 25, 2008

So:

We accountholders, what do we have to expect?

Account numbers, checks, automatic bill payments: these will continue to work?
Will the bank change name/logo, and if it does, will that affect us?
Should we expect to see changes in bank policies?
Branch closures? Layoffs?
posted by alexei at 10:11 PM on September 25, 2008

rumors and speculation can kill a company, or a country.

There's an antidote for that, you know. It's called sunshine.

If MeFiBank is the target of untrue rumors about its loan portfolio, all they have to do is open the books to a few analysts and say "see, here's what kinds of loans we have and here's how they're performing". If people wonder just what the hell is going on with the alphabet soup Federal Reserve programs -- or the new TARP program -- and what kinds of crazy distressed assets they're buying, they could just tell us what they bought and for what kind of haircut in value and I'm sure we'd all feel better. Just tell the frickin' truth, be proactive instead of reactive, and drive a stake in the heart of the rumor.

But no. What we get is Shadow Puppet Theatre. What the banks shouldn't do is lie about their assets' fair market price and shove them back in Level 3 sort-of-off-the-books la-la-land, where they can claim that there's no liquid market at the moment, so the assets are still worth 100% of what they were last time there was a market, which could be six months ago. They don't book full profit on loans that are actually decades away from pay-off, like how Option ARM's are counted on banks' books -- especially when those loans stand a greater than average chance of default since they're negatively amortizing in a declining market! They don't change the game mid-stream and decide that "180 days late" now counts as a delinquent loan, instead of their previous metric of "120 days late", just to make their stats look better to Wall Street and the FDIC for one more lousy earnings quarter. (WFC, I'm looking at you.) They don't suddenly try to get "goodwill" to count towards a bank's capital ratio, either, which I read just started in the last few weeks.

Those sorts of underhanded tactics tend to make depositors -- who are not assets but living breathing customers and entitled to be rational actors in the marketplace! -- get nervous, and maybe move their funds around. To blame the problems the banks are currently having on them -- or on the blogs, as Shelia Bair of the FDIC recently said (!) -- or people who (totally legallly) sell stocks short, as Chris Cox and the SEC claim -- is, well, insane.

I hope this isn't sounding too Little Mary Sunshine here, but the burden of proof needs to rest on the banks to be honest and open, not on the depositors to be trusting.

Each one of the big ones (IndyMac, WaMu) [failing] was because banks were inadequately capitalized due to depositors leaving.

THIS IS A FEATURE, NOT A BUG. We are customers; we can vote on a bank's actions (or inactions) and on its honesty (or its reluctance to share information) with our feet and our money. Or does that idea only apply when trying to lure us to open a new checking account?
posted by Asparagirl at 10:16 PM on September 25, 2008 [13 favorites has favorites]

I'm kind of glad McCain fucked up this deal. Because fuck the deal. It's a rip-off. Just because you're "ruthlessly capitalistic" (as you say) with your money doesn't mean it's our responsibility to bail you out, quite the opposite really.

I like how you try to cast me personally as some wall street tycoon by taking a phrase I wrote in a comment long ago and pulling it out of context. It's a new twist for you, you usually just stick to dismissive phrases like "idiot" and "absurd" without actually backing up anything you say. But FYI, it isn't about me, and if it were, I can assure you I'm the last person in America who needs bailing out. So I'll just chalk this up as yet another instance where someone disagrees with your position, and you make it personal.
posted by Pastabagel at 10:28 PM on September 25, 2008

I'm taking all my money out of savings tomorrow before McCain doesn't show up for the debates.
Today it became clear that he is not needed, and if there is even a chance that someone that out of touch might become president, I can't trust the market to stay loyal to my savings agreement.

I think I worded that wrong..
posted by Balisong at 10:30 PM on September 25, 2008

DOW Futures now down -183.00
posted by afx114 at 10:38 PM on September 25, 2008

The biggest risk as I see it is not coming up with a solid plan before the ban on shorts is lifted. Things are a smidge more calm because of this ban.
posted by iamabot at 10:42 PM on September 25, 2008

If MeFiBank is the target of untrue rumors about its loan portfolio, all they have to do is open the books to a few analysts and say "see, here's what kinds of loans we have and here's how they're performing".

You continue to make this assumption that people will act rationally when it comes to money, that a rational response will an emotional reponse. But that's simply not the way things work.

I absolutely agree that transparency should be the norm with banks. But it's not a silver bullet to prevent things like bank runs and naked shorting, because humans are emotional and greedy.
posted by dw at 10:48 PM on September 25, 2008

dw: If they had an open book then by definition naked shorting would not work. If I knew the value of a bank down to the penny and it was short that price, I would buy (and borrow) as many shares as I humanly can.

People are shorting because the real value of these banks are $0 per share.
posted by amuseDetachment at 10:53 PM on September 25, 2008

I really need to proofread...

If I knew the value of a bank down to the penny and it was short below that price, I would buy (and borrow) as many shares as I humanly can.
posted by amuseDetachment at 10:54 PM on September 25, 2008

Lead article on the Seattle Times site right now:

Washington Mutual's banking operations have been acquired by JPMorgan after federal regulators seized the bank following 10 days during which nervous depositors withdrew nearly $17 billion.

The Office of Thrift Supervision said in a statement late Thursday that depositors in the nation's sixth-largest bank withdrew more than $16 billion between Sept. 15 and Sept. 24. The deposits JP Morgan is acquiring total $134.7 billion.

...

The FDIC said JP Morgan paid $1.9 billion for the assets it is acquiring. There will be no cost to the FDIC's deposit insurance fund, the agency said.

IOW, JPMC is buying WaMu for about 1/9th the total amount of money pulled from WaMu in the last ten days.

Slow-motion bank run.
posted by dw at 10:55 PM on September 25, 2008 [1 favorite has favorites]

Oh, look, there on page twenty-three of forty-seven. A balloon payment of TWENTY THOUSAND DOLLARS was due four years into the mortgage. Oops!

The broker explained, this way, my brother and his wife would save all of FIFTY DOLLARS A MONTH! And hey, they would just re-finance in a year or two for a better rate once their credit went from "awesome" to "super-awesome", right?

Same thing happened to us when we bought our house, although a lawyer didn't find it; I did, when I insisted on reading every word of every page during the loan signing (to the annoyance of the broker.) We were doing an 80/15 (which we've since refinanced out of), and the balloon payment was on the 15. But here's the fun part: the balloon payment was due at the end of the fifteen-year loan, and was equal to the entire amount of the loan! Literally, we'd have made the payments for fifteen years, only to discover we owed them the original amount of the loan -- interest only for fifteen years. I still shake my head when I think about it.

Such utter, utter bullshit. The broker acted surprised that we might be displeased, and said she did it to get us a better monthly (which we hadn't asked for), and it saved us $125 a month (which we could afford to pay.)

Tangent: during the signing, we realized my wife didn't have her Driver's License on her. The broker got quite agitated, and claimed that it was "illegal to be outside your house without government ID on you!" -- mind you, this was about six years ago. Some people already believe they're living in a police state, I guess.
posted by davejay at 11:05 PM on September 25, 2008

Another one bites the dust
Fiscal meltdown never sounded so good.
posted by Monsters at 11:08 PM on September 25, 2008

It's not like they can't extend the ban. And they could also ban long selling while they're at it, I mean, why not close the markets early this week and take a long weekend to solve the problem.

The republicans have bailed on the bailout and John McCain has fucked up the deal. The democrats ought to pass a ruthlessly partisan (and punitive) bill and cram it down Bushes throat. Pass the Dodd bill and throw in SCHIP and unemployment insurance extensions.

Why the hell do the democrats always need to cower behind republican skirts. It's incredibly embarrassing to watch them waver and quake because they can't get republican votes. All they have to do is pass a good bill that doesn't reward wallstreet for fucking everything up.
posted by delmoi at 11:08 PM on September 25, 2008 [1 favorite has favorites]

Check out the WaMu website. What the hell are those two Asian kids doing behind the message: "Wamu Customers Welcome to JPMorgan Chase". What kind of hilariously awkward secret message is that?

"LOL PLS DONT LOOK AT THIS MESS, WE GOTS IT TEHEHE"

I thought I was on LOLFED or something.
posted by amuseDetachment at 11:13 PM on September 25, 2008

Today I began moving about 10% of my assets into a risk-free mattress-based fund. Literally, I have a wad of 20s under my mattress and will have more tomorrow because if I'm doing this I might as well put it in the lulzy stereotypical place.

Given that the US government is about to create $700B of new money by issuing a fuckload of t-bills (bailout draft, section 7), I shouldn't think that putting your money in US dollars is a terribly wise investment. M2 (since 2006, the most expansive accounting of the amount of US money in existence) is only $7.7 trillion as of April 2008 (source: Federal Reserve of New York). Creating this new money will expand the money supply by 9.1% without really creating anything. And since the US imports a very large proportion of what it consumes, this means that price inflation is coming to a bank account and/or mattress near you.
posted by clevershark at 11:14 PM on September 25, 2008 [1 favorite has favorites]

404ed
posted by b1tr0t at 11:16 PM on September 25, 2008

clevershark: yeah I have no idea how they're going to raise all that money, our interest rates are way too low to get enough foreign investment interested -- but we can't raise rates because if we do, it'll kill our industry by raising the cost-of-capital and bringing even more trouble to those pesky adjustable-rate mortgages.

I'm still trying to find good places to park my cash.
posted by amuseDetachment at 11:21 PM on September 25, 2008

Platinum suppositories remain a safe investment...
posted by clevershark at 11:23 PM on September 25, 2008

The craziest thing about all this is how right Calculated Risk has been.
posted by drezdn at 11:23 PM on September 25, 2008

amuseDetachment, Asparagirl, Pastabagel, and several other contributors I'm forgetting . . .

I've seen some pretty amazingly sharp analysis out of MeFi over the past couple weeks - I'm curious as to where, realistically we go from here? Wachovia fails and gets a buyer, great, but what else happens? Is it impossible to even hazard a guess until the bailout bill is signed?

I'm not sure whether it's encouraging or terrifying that so many of the predictions in previous MeFi banking threads over the past couple of weeks have come true, but I'd like to know what the rest of you guys are thinking.

Or where I should be putting my meager savings.
posted by Ryvar at 11:40 PM on September 25, 2008

So, hey, does this mean I don;t have to pay them back what I have on my credit card?
posted by Artw at 11:51 PM on September 25, 2008 [1 favorite has favorites]

The govt isn't supposed to be brokering deals. That's what the investment banks are for. Oh, right, we don't have any more investment banks.

No, this isn't correct. The preferred way to deal with an insolvent bank, particularly a large one, is often to sell it to another bank that can resume operations the next morning with no interruption in service. An open market liquidation of WaMu would have been gruesome. Letting it actually start defaulting on deposits would've been gruesome too.
posted by Mr. President Dr. Steve Elvis America at 12:16 AM on September 26, 2008

Ok, it's probably worthwhile reviewing exactly what goes on "behind the scenes" in situations like this.

The criteria applied by the regulators to close a bank are especially interesting.

In other threads I've raised the topic of reserve deposit ratios. Its important to understand (and accept) that modern banking systems like ours run reserve deposit ratios of less than 100%; this is called a fractional reserve banking system (as opposed to other types that maybe we'll discuss in another thread).

In the United States we group banks according to their risk-based, capital ratio (btw, these aren't always the capital same ratios as the international banking community uses, which we previously discussed in this FPP).

Banks are required to regularly report these ratios, and immediately report any material changes to their business or operating environment that might cause a negative change to these ratios (the former would be the deposit run WaMu underwent, while the latter would have been Katrina; the business operations of pretty much any bank operating in New Orleans would have been seriously impacted).

The groupings currently used are

• Well capitalized - capital ratio of 10% or more
• Adequately capitalized - maintains a capital ratio of 8% or more
• Undercapitalized - a capital ratio of less than 8%
• Significantly undercapitalized - capital ratios of less than 6%
• Critically undercapitalized - capital ratio of less than 2%

These first two ratings are fine, and represent solvent enterprises. It's when a bank drifts into the undercapitalized ranking that the FDIC issues a warning. Typically this warning (I've never seen one myself, so if anyone working in banking and reading this thread can shed some light please do) not only formally notes the undercapitalization, but also notes the time period the FDIC expects the situation to be resolved by.

When the ratio drops below 6%, regardless of whether or not a warning had previously been issued, the FDIC will force a management shakeup, in addition to other corrective actions such as forced liquidation of performing assets, etc. The goal is to increase the capital ratio to an acceptable level.

Finally, when a bank becomes critically undercapitalized the FDIC declares the bank insolvent and moves in.

Apparently what happened here was the ratio changed so quickly that FDIC couldn't immediately change management without the confidence that the situation would have stabilised.

So while this wasn't a surprise (I've posted WaMu's Credit Default Swaps and especially their changes many times in other threads) what is interesting about this is when the bank was seized; The FDIC prefers to do this at COB Fridays.

Guys keep in mind that banks fail all the time, even in robust economic conditions. In 2005 and 2006 we actually had zero bank failures.

The United States was going through a very, very benign period of economic health. Seems like all banks were making money back then - it was hard not to, given the housing bubble.

Now the bubble has burst, and we're gonna see some more failures. In fact, while there is no reason to believe we won't see a return to the long run average, its important to note that for this long run relationship (the mean) to hold then we'll have to see a period, perhaps a prolonged period of failures and more than we've become (in recent years at least) accustomed to.

So get ready for more failures.


iamabot -- "The biggest risk as I see it is not coming up with a solid plan before the ban on shorts is lifted. Things are a smidge more calm because of this ban."

Agreed, that would be troublesome. But the ban really is more about building confidence in the market than anything else. I've previously pointed out how ridiculously easy it is to short (still), so I don't really think this is stopping professionals if they really are bearish on a bank. Still lots of ways (I just illustrated one, I know of at least two more) to short a bank stock.


afx114 -- "DOW Futures now down -183.00"

Curious, but FTSE and the DAX are actually trading up here in Europe (about 1.91% and 1.29% respectively as I craft this), even though it seems The Dow is gonna drop about 60 points at the open (if it were to open now that is). Will be interesting to see how the trading day shakes out.

In any case, we already know the markets are gonna be volatile into next week. On Tuesday September 30th we're coming up on a simultaneous month end and quarter end.

This is when Financial Institutions square their books for more detailed regulatory reporting covering, September 2008 (month end) and Q3 2008 (quarter end), so we should expect more volatility in the near term. The past few days have been indicative.



Ryvar -- "Or where I should be putting my meager savings."

Ah don't worry about the FDIC - as SeizeTheDay has pointed out earlier they won't let that fail. You'll get your money, even if inflation has chewed it up a bit. But you'll get it.

The FDIC is still solvent so if you like your current bank and are under the deposit limit stay there.

We previously discussed how to circumvent the FDIC and deposit limits on Metafilter



"...but what else happens? Is it impossible to even hazard a guess until the bailout bill is signed? "

NOBODY, not even professionals know what's gonna happen next with any reasonable degree of certainty. Markets are difficult to predict with a high degree of confidence, all the time. What we do know is there are fundamental structural changes underway in the American economy. We've seen periods of great change before in The United States. This probably won't be the last time we see significant change; after all, our economy is dynamic and ever adapting.

Finally, if anyone did know what was gonna happen next they certainly wouldn't be posting that information on MetaFilter.
posted by Mutant at 12:30 AM on September 26, 2008 [9 favorites has favorites]

I've seen some pretty amazingly sharp analysis out of MeFi over the past couple weeks - I'm curious as to where, realistically we go from here?

I don't think anyone really knows. Most people I know have Wachovia failing next, but after that... Citi? PNC?

All I know is that this is going to be a lean Christmas for a lot of people, and 2009 is just going to be that much worse. I don't think this is the end for the US, though. We made it through the 1970s, we made it through the 1930s, we made it through the 20 year contraction during the post-Civil War years that almost shredded this country. We're resilient. We'll find a way out.
posted by dw at 12:35 AM on September 26, 2008

WASHINGTON — The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

maybe if someone hadn't lied to the american people and congress about why they were going to war, they'd get a lot more sympathetic hearing now

karma is a bitch
posted by pyramid termite at 12:56 AM on September 26, 2008

This actually makes it seem not that bad and as a former wamu customer was pretty helpful.
posted by wolfewarrior at 12:58 AM on September 26, 2008 [2 favorites has favorites]

A bill has to be passed as soon as possible, but it must take equity of these companies. If they're going to fail then we're going to own the equity. Straight up. I don't care about executive compensation, I want fucking equity.

damn straight - no deal without equity - period
posted by pyramid termite at 12:58 AM on September 26, 2008

BBC News debate on the financial crisis.
posted by adamvasco at 1:54 AM on September 26, 2008

There we go. My bank up in smoke. Well, guess it's round about time to cash in the chips, dump that credit card and bank account ... and go native.

Hello, lumberjacks! Do you accept american money or are you still working off beaver pelts?
posted by electronslave at 2:17 AM on September 26, 2008

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes...

Time to stuff the mattress and buy a gun!
posted by GreyFoxVT at 2:23 AM on September 26, 2008

I just discovered my dad is out roughly 100k in his WaMu investment, a huge chunk of his retirement savings. Terrible. So I'd like to know: Was Washington Mutual considered a safe investment, generally? Was its behavior regarding sub-prime loans commonly understood (ie, should my dad, who is a pretty financially savvy guy, have understood the risks involved in investing in the US's largest S and L? Was investing in WaMu considered to be a "risky" investment?)
posted by Auden at 2:25 AM on September 26, 2008

Auden:

The word has been out on the street (and news) that WaMu was on the road to failure for about 3 months now, hitting a strident tone in it's death song over the last few weeks. I'm sorry your dad lost out on his retirement stash.
posted by iamabot at 3:03 AM on September 26, 2008

Check out the WaMu website. What the hell are those two Asian kids doing behind the message: "Wamu Customers Welcome to JPMorgan Chase". What kind of hilariously awkward secret message is that?

"LOL PLS DONT LOOK AT THIS MESS, WE GOTS IT TEHEHE"

I thought I was on LOLFED or something.

May I mention that the image in question (which mentions JPM by name) is called Hero_090508.JPG? As in 09/05/08, three fucking weeks ago? (I'll give the "OMG, JPM is my Hero!" part a pass)

Tinfoil hats? Anyone?
posted by qvantamon at 3:11 AM on September 26, 2008

qvantamon, the "Welcome to JPMorgan Chase" message is HTML text that has been overlayed on top of a pre-existing JPEG image — it's not an actual part of the image. While the text is new, the image has been part of their home page for at least a week.
posted by RichardP at 3:35 AM on September 26, 2008

RichardP: Oops. I just looked at the URL... didn't notice it wasn't on the image. FAIL for me, then.

Do you think there's still time to recall all the envelopes I sent to the press, in case of my untimely demise?
posted by qvantamon at 3:43 AM on September 26, 2008

Damn! That was quick.
posted by gman at 4:13 AM on September 26, 2008

Asparagirl, I wanted to take this comment offline, but it seems like your misinformation is so egregious that people might believe you, and so I'm taking it here. FWIW, I really do like you, and your comments, so don't take this personally. But you are, in my mind, a speculator. And your comments, misinformed as they are, strike at the core of why we have unnecessary bank runs, and why people like you should be told to shut up.

If MeFiBank is the target of untrue rumors about its loan portfolio, all they have to do is open the books to a few analysts and say "see, here's what kinds of loans we have and here's how they're performing".

We have that. They're called financial analysts. The banks have a choice about their level of disclosure. But there are certain banks out there that haven't disclosed any hits, have changed their accounting policies, and are riding high (who will remain unnamed). Others have been more honest. IndyMac's 1Q08 investor presentation, as an example, was probably one of the most comprehensive I've ever seen. Honesty is a tricky thing: smart analysts want honesty, but once the information gets out there, the ensuing panic among the uninformed masses could cause a failure, thus creating what was trying to be prevented. We also have people called bank supervisors, who remain on site at every major bank and monitor a bank's performance on a daily basis. They are privy to private information, and thus are in the position to make the position to shut down a bank. You are not in a position to tell a depositor who is under the FDIC that their bank is failing. Because 1) You clearly don't understand WHY these banks are failing; 2) FDIC was created to stop people like you from convincing depositors to leave. FDIC is a safety net that prevents depositors from thinking that they need to leave. You undermine that each and everyday, because if you're under the FDIC limit, you have NOTHING TO FEAR.

THIS IS A FEATURE, NOT A BUG. We are customers; we can vote on a bank's actions (or inactions) and on its honesty (or its reluctance to share information) with our feet and our money. Or does that idea only apply when trying to lure us to open a new checking account?

Listen, you vote with your feet when you don't like the service, not when you think the bank is going to fail. Once again, if you're under the FDIC, you have nothing to fear. You should not leave unless you have nothing to lose. Under the FDIC, NOTHING TO LOSE.

I will say this again and again and again: FDIC was created, its sole purpose, is to give depositors confidence in the US banking system. You undermine that each and everyday by telling people who are under the FDIC that they should fear bank failure. That's bullshit, and I'm tired of hearing it. You are doing something that is technically against the law if you're a bank employee. As a bank employee, you are not allowed to question the safety and soundness of other banks, period. And it's because we have the Fed, The OCC, the OTS, and the FDIC that people have confidence in banking and deposits. If anyone is under $100,000, again, they have no reason to switch banks.

Depositors are NOT shareholders. If a bank is failing, shareholders get hurt, not depositors (under $100,000). If you think a bank is failing, as a shareholder you're right to leave. But as a depositor, you're safe. You're fine (under FDIC). Relax, and let the government handle the problem. That's why you pay taxes.

I'm very sorry if I've come across as mean. But I despise what you're saying here, because it's blatantly false, and amounts to speculation. There is enough real fear, enough real problems, enough real pain, that you don't have to invent issues for depositors. That's the bottom line. You are helping sustain this culture of fear of banks, and that's just wrong, for so many reasons. Once again, if you're under FDIC, you have nothing to lose, nothing to fear.
posted by SeizeTheDay at 4:54 AM on September 26, 2008 [9 favorites has favorites]

Mutant says: banks fail all the time

Yeah, but a bank failure 3x the biggest bank failure in history doesn't happen all the time.
posted by diogenes at 5:35 AM on September 26, 2008

someone needs to take away Pastabagel's punchbowl before he turns into Malor
posted by bonaldi at 5:57 AM on September 26, 2008 [1 favorite has favorites]

/signed. Please stop fear mongering, Asparafeargirl, you only make the situation worse. If you'd like to wear "I'm the smartest investor in the room! ROFL!" hat, I will print one out of cardboard and mail it to you and you could wear it all the time.

/love to Mutant for the insightful anaylsis.
posted by cavalier at 6:11 AM on September 26, 2008 [1 favorite has favorites]

Once again, if you're under FDIC, you have nothing to lose, nothing to fear.

You keep cheerleading that idea, but we seem to have people in charge of the government who have made an art out of catastrophic failure, and it sounds like the FDIC is not as solvent as claimed, given the scale of the failures being dealt with.

If there will be bank runs, it is rational to be very reluctant to trust the government, at this point in time. Trusting the FDIC, congressional hearings and Bush to protect life savings seems lately about as foolish an idea as hoping they keep the levees working, or the bridges in the good repair.
posted by Blazecock Pileon at 6:28 AM on September 26, 2008

Listen, I understand what the FDIC is there for, and that it should be trusted to protect me. But at the same time, you're asking me to trust a government that has completely fucked over the poor and desperate for the last eight years. How separate is the FDIC from Bush? Is it run by a crony?
posted by graventy at 6:29 AM on September 26, 2008

Asparagirl isn't fearmongering. She's stating valid concerns. If you think she's the problem, you're seriously misguided. This "loose lips sink ships" talk is kind of creepy. If it makes you feel better, keep clapping and maybe the pony will come. Some of us have noticed that there have been several recent instances of "don't worry about that, it's perfectly fine" suddenly turning into "whoops, guess we were wrong."
posted by diogenes at 6:49 AM on September 26, 2008 [2 favorites has favorites]

The FDIC's role is specifically to allay the fears that are being expressed. No matter who politically may be named to it, it is for lack of a better term run by accountants. By the serious types. The types that don't politictize, they just run numbers. They are designed to be outside the political system, ever watching, ever evaluating, the banks.

Inflationary as it may very well be, if the FDIC is not solvent enough, it will take acts to become solvent. It is there to relieve panic, to ease fears, and to keep people from doubting that their money is safe. Fear kills investments. Fear kills banks. The FDIC's sole purpose is to rationally, sanely, fight that fear.

The FDIC is not a political organization. As screwed as the Bush Co. has made the govt., there are still organizations that are simply too vital to be allowed influence by whoever's currently sitting in the big chair.
posted by cavalier at 6:50 AM on September 26, 2008 [1 favorite has favorites]

No matter who politically may be named to it, it is for lack of a better term run by accountants. By the serious types. The types that don't politictize, they just run numbers. They are designed to be outside the political system, ever watching, ever evaluating, the banks.

The track record of these serious accountant types isn't so great lately. You still have great faith in their abilities?
posted by diogenes at 6:58 AM on September 26, 2008

It seems to me that the FDIC is the bail out we need -- not the bail out the industry wants. The fact that WaMu was insolvent (and for a while, from what I can tell) should betray the gross irresponsibility and greed of modern finance, shouldn't it?

Everyone can get their money, except for the irresponsible. The FDIC can hook into the mainline if they need to inject cash into the system. Fuck the banks, where are those $35 overdraft protection "convenience" fees now? The banks have been nickel and diming their customers to death for a while and they're still broke. What a joke! I look forward to stodgy, conservative institutions and sane economic growth.

SeizeTheDay, is the bail out still necessary to prevent catastrophic annihilation of American civilization?
posted by polyhedron at 7:05 AM on September 26, 2008

Relax, and let the government handle the problem. That's why you pay taxes.

Where have I heard that before?
posted by fiercecupcake at 7:29 AM on September 26, 2008

Okay, I've slept.

The reality is that the government won't let FDIC fail, because the FDIC is part of the government. So if every bank failed, you'd get your money back from the FDIC. But the FDIC has to get that money from somewhere because they don't have it now, so Congress is going to have to pass a bill authorizing that hundreds of billions go to FDIC instead of that hundreds of billions go to buying up bad assets on the banks' books to prevent them from failing. The government/fed have to create new money somewhere because money is disappearing. At least this way, the government gets some assets that theoretically could appreciate in value in the future. (And because the owner of those assets gets to make laws, they can change the rules to make it easier for people on the brink to step back from foreclosure instead of going over.)

The real practical reason you don't want banks to fails isn't rioting in the streets, or that doomsday scenario. The reason you don't want them to fail is (A) it will destroy the world's perception of our credit system, banks, and money markets, discourage foreign investment that this country needs, and (b) it will prevent many non-financial companies from getting the financing they need to support their ongoing operations. It also means it becomes more difficult for you not just to get a mortgage, but to get a car loan, finance the new appliances and electronics you want etc. People aren't going to want to lend money. Many banks today will not lend money for a house unless you put 25% down. That which you thought you could afford, you now can't, even though its price is declining.

Maybe you think this is fine because it will discourage frivolous spending etc. Great. But this means significantly slower economic activity, which means people lose their jobs and firms contract or go out of business. That means lower tax revenue AND more people dependent upon the government for healthcare, unemployment benefits, etc. Where is the government going to get the money for all this?

Those who benefit are those holding large cash reserves, in other words, the wealthy, foreign governments, cash rich corporations, etc. Saudi Arabia, Chinese banks, all those wall streeters who got massive bonuses two years ago, Microsoft, etc.

If you live in a major city, maybe you'll see things get tight. If you live in a 3-4 company town, you could see huge numbers of people in your community out of work with no place to find new work.
posted by Pastabagel at 7:40 AM on September 26, 2008

I would trust the FDIC a whole lot more if Mutant worked there.
posted by subbes at 7:41 AM on September 26, 2008

WaMu/JPM really ought to take down the Asian-kids see-no-evil photo on the home page. It is starting to freak me out, more than anything else about this incident.
posted by grouse at 7:44 AM on September 26, 2008

WaMu depositor here. Joked with my friends the past couple weeks that I was probably going to have to submit to the tender mercies of the FDIC soon. Thought about moving my money to the credit union across the street, but decided not to since my deposits are far, far below the FDIC limit. Also, I've been told my entire life that my money is safe. And, perhaps foolishly, I still believe that.*

But now I'm wondering... will the landlord accept my rent check next week? Will it bounce? If I wanted to move my money now, would I be allowed to? Or is there going to be some sort of hold on my meager funds?

* I will admit to taking $400 out of the ATM on the way home from work yesterday. Look at me, I'm a one-person bank run!
posted by bigbigdog at 7:47 AM on September 26, 2008

Many banks today will not lend money for a house unless you put 25% down.

That's a good thing in a sane universe.
posted by diogenes at 7:49 AM on September 26, 2008

The track record of these serious accountant types isn't so great lately. You still have great faith in their abilities?

Hmm? Maybe you're drinking the fear java too, and I'd encourage you to put down the cup. The track record of the FDIC accountants, thus far, is exemplary as far as we know in the stands. Before banks have collapsed, they have seized them. They are doing their job.

I think you meant to imply the accountant types of the investment and/or regular banks here, and to that, certainly I agree with you -- they bought the CDO mess, they profited off the CDO mess, and now they are dying off the CDO mess.

And for those banks that have deposits that are FDIC insured, the FDIC will rescue those deposits so that your deposits remain intact.

The system -- the FDIC insured deposit system, that safe guards nearly every reputable bank in this country -- is working. The safety net holds. Pulling your money out of a bank today does not make your money safer. It only (further) damages the bank you're pulling the money out of.
posted by cavalier at 7:52 AM on September 26, 2008 [1 favorite has favorites]

But this means significantly slower economic activity

What? I never understood this argument. If zero downpayment/subzero helped boost the finance and construction industries and those people cant pay their mortgages then it was a bullshit bubble based on fraud. The economic growth was like overspending on your credit card. Demanding 20% down doesnt hurt the economy, it puts it back in line to what its supposed to be. Thats supposed to be a good thing. Sure, Wall Street will make less but they've been dealing in phantom money and fraud the past few years.
posted by damn dirty ape at 7:54 AM on September 26, 2008

I would trust the FDIC a whole lot more if Mutant worked there.

Look, we all love Mutant here, but he's a hedge fund guy, not an accountant. If Mutant were at the FDIC, I'd be stuffing my money in my mattress.
posted by dw at 7:59 AM on September 26, 2008

I think you meant to imply the accountant types of the investment and/or regular banks

I also meant to imply the accountant types of Fannie, Freddie, AIG, the Treasury, and the Fed.

I guess all the smart guys that have a handle on this are at the FDIC. I suppose that's good luck for us.
posted by diogenes at 8:00 AM on September 26, 2008

Look, we all love Mutant here, but he's a hedge fund guy, not an accountant. If Mutant were at the FDIC, I'd be stuffing my money in my mattress.
posted by dw at 10:59 AM on September 26

I need a quote on mattress futures.
posted by Pastabagel at 8:03 AM on September 26, 2008 [1 favorite has favorites]

But now I'm wondering... will the landlord accept my rent check next week?

If he doesn't, he's an idiot. WaMu may be gone, but the check will clear (so long as you didn't take too much money out at the ATM yesterday.)

Will it bounce?

No!

If I wanted to move my money now, would I be allowed to? Or is there going to be some sort of hold on my meager funds?

No hold! You might have to wait today, but you can get your money out. Though, honestly, you should take your lead from those of us who were in the "slow run" of the last 10 days -- open your account at the CU, move things over as you can, then close out of WaMu once everything has been moved.

Again, Chase bought the retail bank. It's open today. No liquidation. No closures. Head on down and enjoy the excitement.
posted by dw at 8:07 AM on September 26, 2008

Anyone care to comment on how this Chase purchase works. Is Chase now on one wobbly leg because it has to support all the WaMu debts? I dont really understand what happens when a large bank buys another bank in trouble.
posted by damn dirty ape at 8:09 AM on September 26, 2008

But now I'm wondering... will the landlord accept my rent check next week? Will it bounce? If I wanted to move my money now, would I be allowed to? Or is there going to be some sort of hold on my meager funds?

Yes, no, yes, no.
posted by felix at 8:10 AM on September 26, 2008 [1 favorite has favorites]

This WSJ editorial claims:

"My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury."

If this is true, it explains a couple of inexplicables for me, but I'm wondering what the bullpucky factor is here.
posted by dragonsi55 at 8:28 AM on September 26, 2008

"My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury."

Is that in real US dollars or in Bush doubloons?
posted by Blazecock Pileon at 8:36 AM on September 26, 2008 [1 favorite has favorites]

but I'm wondering what the bullpucky factor is here

The bullpucky is that it's a roll of the dice. The Treasury is betting that the paper is worth more over the long run than the banks are willing (or able) to accept the risk for in the short run.

Imagine you're a big, strong fisherman, and a weaker fisherman next to you is struggling to pull a big-ass marlin into the boat -- he can't reel it in, and it's about to pull him over the side. In fact, all the thrashing around might even sink the entire boat.

You could try to pull the marlin into the boat, and then it would be your marlin. You'd be the guy in the picture they take on the dock. You'd be the guy with the marlin on your mantlepiece.

Of course, you could end up releasing the marlin, too. Or it could pull you over the side. But you're the biggest, strongest fisherman on the boat. There's nobody else around. So, like, do something.
posted by Cool Papa Bell at 8:51 AM on September 26, 2008

Here's one guys take on the bullpucky factor.

Sample: Does that sound right to you? The guys who missed this from day one -- despite many many admonitions from many people -- only they see the value in this paper, whereas the smart guys who saw the shitstorm coming in advance, and bet against it, don't?
posted by diogenes at 8:54 AM on September 26, 2008 [1 favorite has favorites]

Metafilter: Imagine you're a big, strong fisherman
posted by ornate insect at 8:55 AM on September 26, 2008 [1 favorite has favorites]

Since it's backed by the US, if the FDIC failed, wouldn't it mean we had much bigger problems?
posted by drezdn at 9:10 AM on September 26, 2008

Hello, lumberjacks! Do you accept american money or are you still working off beaver pelts?

Uh nope, no, no. We haven't accepted beaver pelts for a long time. But I hear you can exchange five fresh fish for a loonie.
posted by angrybeaver at 9:21 AM on September 26, 2008 [2 favorites has favorites]

The withdrawals were largely concentrated among retail deposits that were over the Federal Deposit Insurance Corp's $100,000 insurance cap, said Tim Ward, the Office of Thrift Supervision's deputy director for examinations, supervisions and consumer protection.

From here. What do you expect people to do, lose money in accounts over the $100k FDIC limit?
posted by fiercecupcake at 9:24 AM on September 26, 2008

I don't understand why people would put more than $100,000 in a single bank account in the first place. Let alone $16.7 billion worth. Wow.
posted by grouse at 9:49 AM on September 26, 2008

I yanked almost everything out of my brokerage account in March, because volatility was too high and my job was too busy. Three weeks later, everything I'd been long on up until that point was down by 25% or more *MINIMUM*.

The almost that I didn't yank has been sitting around as cash until now, mostly because I knew I couldn't keep up with what was going on.

This morning in the shower I finally arrived at a decision on what to do with that 'almost' that's been slowly rotting away due to inflation and a falling USD:

Fuck it, all in on gold as of an hour ago. Three week horizon. Bailout passes, inflation. Bailout fails, gold's the only thing that survives, and right now it's actually pretty reasonably priced (given the circumstances).

It's not so much that I can't easily afford to lose it all (and I have no debt), but right now it seems like gold is likely to outperform nearly any CD after adjusting for inflation.
posted by Ryvar at 9:50 AM on September 26, 2008

Or it might drop 10% in a day. Gotta love volatility in your "safe" investment.
posted by smackfu at 9:51 AM on September 26, 2008

OK, the ATM worked this morning, I'm confident that my rent check won't bounce and I could move my money to the credit union if I wanted to.

Why would I want to? I mean, apart from the ordinary arguments for being with a credit union over a large bank. Is the thinking that if the FDIC can't protect my deposits they'll be safer in a credit union? I'm not sure I buy that.
posted by bigbigdog at 9:54 AM on September 26, 2008

Why would I want to?

Because Chase sucks to deal with as a consumer. (I wish any other bank had bought WaMu.) Otherwise, no reason.

Is the thinking that if the FDIC can't protect my deposits they'll be safer in a credit union? I'm not sure I buy that.

I don't buy it either. The FDIC is exceedingly unlikely to fail. If it does, it will only be after the entire banking world is turned upside-down to such an extent that any current assumptions about the solvency of your credit union will be worthless.
posted by grouse at 9:57 AM on September 26, 2008

Because Chase sucks to deal with as a consumer.

Everyone I've talked to has said this. I think Chase is in for a shock when it discovers the sorts of people in Seattle that bank at WaMu.

Is the thinking that if the FDIC can't protect my deposits they'll be safer in a credit union? I'm not sure I buy that.

Credit unions are insured by the NCUA with the same deposit rules and guarantees as the FDIC ($100K, full faith and credit). If the FDIC can't protect you, then there's no way the NCUA can.

Credit unions have been failing at a faster clip than banks. Difference is that there hasn't been a WaMu or IndyMac sized credit union among the failures, as credit unions are generally much smaller than banks. The largest credit union in the US, Navy Federal, has assets of $38B -- about a tenth what WaMu ended with.
posted by dw at 12:12 PM on September 26, 2008

...it is for lack of a better term run by accountants. By the serious types. The types that don't politictize, they just run numbers. They are designed to be outside the political system, ever watching, ever evaluating, the banks.

Politics can be found everywhere, in every profession and every office, and accounting is certainly no exception. Financial accounting standards are just as much a product of political influence as they are of logic, research or number-crunching. The FASB, for example, has acknowledged that they took on projects due to political pressure.

That doesn't necessarily mean accounting standards are primarily politically motivated, however. It just means accountants are not "outside" the political system - they operate within the parameters of the system just like everyone else.

Nor does this mean confidence in the FDIC is misplaced. It just means such confidence should be based on something other than the notion that accounting is free of political influence.

Full disclosure: IAAAIT (I am an accountant-in-training).
posted by velvet winter at 12:33 PM on September 26, 2008

Hey guys, mystery solved. Turns out WaMu failed because it hired too many minorities
posted by delmoi at 12:40 PM on September 26, 2008

delmoi- like in all times of crisis, the most base and instinctual fears get brought to the surface as explanations for the failures. It is always the cultural other and the outsiders who have corrupted a beautiful system, not that the system was flawed in and of itself.

Racial tensions are going to get worse before they get better in this country, as the folks at the top have always realized the easiest way to keep the working class busy is to have them fighting amongst themselves with weapons you sell to both sides.
posted by mrzarquon at 12:55 PM on September 26, 2008

Ah, yes. I see you have captured my elusive Wall Street quarry at last. Well done, guards! You have greatly pleased your master. Bring them forward at once! I wish to speak with them face to face... before their annihilation.

So! It seems we meet again, my heroic WaMu friends. Before I destroy you, I must admit that you have proven to be a formidable foe—for businessmen. It will be bring me no small amount of pleasure to downgrade you to atoms, seeing how, puny as you may be, you have caused considerable inconvenience to my plan to dominate the financial world.

Over the slave pits of Standard & Poor’s, I was sure I had your bond credit in my grasp.
I would have mergered you into oblivion right then and there, had you not escaped at the last minute thanks to the treacherous Greenspan and his accursed LLC!
But no matter. I assure you, my helpless prisoners, that not even your friends can save you now!

Silence, dog! Guards, still these impudent rebel's tongues with a blast from the Federal Deposit Insurance Corporation! Ha, ha! See how they writhe in pain at my command! Guards, increase the preferred stock rating drop! I want to see if these prisoners can withstand the agonies of the dreaded junk status!

Ha! Ha! Ha! Not so lively with liquidity in your portfolio, eh? Guards, enough! Release them! I want the pain to linger. I want these troublesome gnats to suffer before they’re broke.

*Fzam! Vzz-Kpowbang! Pew! Pew! Pew!*

What? What?! A concealed financial sector bailout package ray? You dare defy JPMorgan Chase, Emperor Of The Financial Universe? Defaulting vermin, you shall die for this! Your entire staff shall be my slaves! Guards! Guards! Seize them!

Seize them, you fools! They’re getting away! After them, my precious FDIC-troopers! Hurry!

Quickly! They’re heading for the third quarter, no doubt with the intention of freeing LEH and their AIG comrades from the spaceship "Stimulus"!

Activate the Treasury-Drain Web! Release the poisonous currency-balloon monster from the foreign banks! They must not slip through my fingers again! Do whatever it takes, only seize them!

Fools! Seize them! Do you know what this means? If they can get their friend Treasury Secretary Paulson to the central banking grid, they just might be able to disable the hypno-panic generators and thwart our invasion of Earth’s financial markets! Seize them, you fools!

Are your puny minds filled with gold dust? Seize the prisoner, or I will vaporize all your assets in the same deregulation-chamber in which I shall soon hold them and their pitiful stockholders.
We must not let them escape! JPMorgan Chase commands you to seize them!

Oh, I see... You think that once you find the prisoners, they will use their barbaric economic skills and crude Wall Street creditors to cut you down like barefoot pilgrims?

Nonsense! You are the elite guard of JPMorgan Chase, Emperor Of The Financial Universe! Do as I say! Seize them!
Do you hear me? Attention all FDIC-troopers! The WaMu intruder is once again loose in the boardroom of JPMorgan ChaseThe Mighty! Seize them! Seize them! Seize them!
via
posted by Smedleyman at 2:13 PM on September 26, 2008

But I hear you can exchange five fresh fish for a loonie.

Well played, sir, well played indeed!
posted by five fresh fish at 7:33 PM on September 26, 2008

Aww. WaMu was always a good place to work, for a bank. It brought an independent and quirky spirit to MegaCorporate banking that was refreshing. It was fun to watch all the east-coasters during our merger reviled by the bank's west-coastness. Only a few months later it was business as usual. Shame that they got greedy like all the rest. I hear one of our local competitors is doing well, though.

Sometimes I think back and hope all my customers are satisfied with the loans they got through me. I think taking the extra time to explain all their options, the terms (both meanings; vocab and conditions), and most importantly the rationale, have left my former customers financially secure. Hopefully, they're better off than they were. I know for a fact that at least one family is; after successfully funding their international adoption with their line of credit, they went back for another kid. So yeah, at least some of us at WaMu were changing lives for the better and making a permanent impact on our community. It wasn't all propaganda.
posted by Eideteker at 10:09 AM on September 27, 2008 [1 favorite has favorites]

I have friends who are working there. They will have 1 year relief and then who knows what happens...hope they'll be fine.
posted by mg1313 at 1:46 AM on September 28, 2008

Dear Sir,

Confidential Business Proposal

Having consulted with my colleagues and based on the information gathered from the United States Chambers Of Commerce and Industry, I have the privilege to request your assistance to transfer the sum of $800,000,000,000.00 (Eight Hundred Billion United States dollars) into your accounts.

I am ministry of the treasury of the Republic of America. My country has had a crisis which has caused the need for a large tranfer of fund totalling 800 Billion Dollars United States. If you would assist me in this transfer, it will be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS who will be my replacement as ministry of the treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the late 1990's. This transaction is 100% safe for your monies.

However, this is a matter of great urgency. We need a blank check from you. We need these funds as quickly as possible. We cannot directly transfer the funds in the names of our close friends because we are under constant surveillance. We have learned that you are a trustworthy and reliable citizen so we are extending this offer to you and need your co-operation right away.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grand-children so that we may transfer your commission for this transaction. After we receive this information, I will respond with detailed information about the safeguards that will be used to protect these funds. Most of the funds will be used to buy bad debt from banks that issued credit to people that were not qualified for this credit. Those debts are worthless now. However, we expect to hold on to them for an unspecified period of time after which they will make a profit. You can trust us on this!

Yours faithfully,

Minister of Treasury Paulson
posted by five fresh fish at 6:05 PM on September 28, 2008

credit
posted by five fresh fish at 6:06 PM on September 28, 2008

Going all in on gold Friday certainly worked out for me. Jesus. I feel like I'm fiddling while Rome burns. It's a pretty tasty flavor of guilt, though.
posted by Ryvar at 12:01 PM on September 29, 2008

Ahem, five fresh fish.
posted by grouse at 12:57 PM on September 29, 2008