WaMu Nearing the End?

WaMu is still making headlines, and in this case I don’t think any press is good press…

New York Times: Washington Mutual Is Said to Consider Sale
Seattle Times: WaMu scrambles to stay alive; it may be trying to find buyer

From the Seattle Times article:

With the wreckage from the nation’s worst financial crisis piling up around it, Washington Mutual strove Wednesday to salvage itself, reportedly considering all options up to and including a sale of the entire company.

WaMu declined to comment on what it called “rumors and speculation.” But its largest shareholder granted it a key financial concession — clearing the way for anything from a big capital infusion to an outright sale — and both The New York Times and The Wall Street Journal reported investment bank Goldman Sachs has been shopping Seattle’s biggest financial institution to potential buyers.

Any purchase of WaMu likely would lead to the loss of thousands of jobs in Seattle, at a time when unemployment is rising and the local economy is generating few new jobs.

WaMu employs more than 3,500 people at its headquarters at Second Avenue and Union Street, along with 800 people elsewhere in Seattle and 1,500 people elsewhere in the state.

WaMu’s options seemed to be narrowing almost hourly. With other troubled financial firms seeking buyers to avoid bankruptcy or federal takeover, fewer and fewer companies have both the means and the potential desire to buy WaMu.

If my basic understanding of the process is accurate (big if), any potential buyer of WaMu would be forced to “mark to market” WaMu’s entire portfolio after a sale, which means immediately taking billions of dollars of losses.

I would think that if there were a bank out there that was capable and interested in buying WaMu, they would have come forward by now.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

82 comments:

  1. 1
    mark says:

    TPG’s $7 Billion investment has taken around a 75% hit. Smart money!

    I would be very surprised to see WM taken over by the FDIC. I’ve read that WM has uninsured deposits that could be as high as $40 Billion. If the FDIC covered around half of that amount, as they did with Indymac, that still leaves around $20 Billion of depositor money that has gone to money heaven. That would be disastorous for the confidence that the whole system relies upon.

    My bet is that there is some kind of government guarantee for whoever steps up and aquires WM.

  2. 2
    mark says:

    Any new thoughts on DOW 10,000? We’re now only one bad day away.

  3. 3
    shane says:

    DOW 10,000? Don’t be so pessimistic, this is definitely the bottom. I’m for real this time. Also, buy RE.

  4. 4
    Amy M says:

    Bloomberg reported yesterday after the close that Citi and Wells Fargo are both interested in WAMU.
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aBYnQKWqoa3w

  5. 5
    DavidB says:

    The collapse of WAMU has got to have a serious impact on Seattle’s economy. It’s not likely that a local bank will buy them so that will mean many jobs will be lost! It won’t be surprising to see double digit price declines in Seattle in the next few months!

  6. 6
    Sniglet says:

    The chances are exceedingly slim that any kind of WaMu buy-out will be arranged. WaMu has a tantalizing retail banking base, but it also has a toxic loan portfolio with unknown (or determinable) losses. One way or another the government will have to step in either through an FDIC conservatorship or some kind of financing package to make it more attractive to a buyer.

    Potential WaMu buyers would be smart to just wait until it goes into conservatorship and then offer to buy the retail banking division from the FDIC on the cheap. The government will then remain saddled with all the loans.

  7. 7
    Scotsman says:

    Several potential buyers have been watching WAMU for months. If there was any real interest in buying them by anyone who had the moneyto do so, it would have happened by now. At this point the potential for losses on the portfolio exceed the value of the retail market penetration.

    Without government loans to sweeten the deal, no one can afford them or the risk they bring to the balance sheet. Unfortunately, the .gov can’t afford them either, since FDIC doesn’t have the resources to execute a seamless takeover. Delay and pray is the name of the game, but eventually TSWHTF.

  8. 8

    WHEN THE DUST SETTLES, NO ONE IS IMMUNE

    The Dems blame the Reps for no regulations and the Reps blame the Dems for wanting it that way. So who’s to blame?

    Most of America did nothing when our country had uncontrolled [mostly unskilled] population growth since 1990 and then lent money to much of this in-sourced growth for home purchases…..now we’re reaping the harvest of our brainless denial.

  9. 9
    El Pollo Poco says:

    What, you think somebody’s going to pony up for Wamu with their own money?! They’re holding out for the government loan guarantee that absolutely will come. It’ll be Uncle Sam’s Discount Moral Hazards to the rescue, as usual.

  10. 10
  11. 11
    rafael says:

    I have been reading this blog for a while and i remember when people were being ridiculed for speaking about this bubble. There were people like “softwarengineer” who were right on and knew their fundementals. What a mess we created and no one listened to you guys and now i am not seeing any comments from those bubble lovers who thought everything is fine and everything just keeps going up!

  12. 12
    NotaBull says:

    “I would think that if there were a bank out there that was capable and interested in buying WaMu, they would have come forward by now.”

    Why buy it two months ago if it’s cheaper now? Why buy it today if it might be cheaper tomorrow?

    Sniglet is also correct that the toxic loan portfolio is something nobody would likely want to take on, except in the case of a government assisted purchase, a la Bear. Perhaps you get favorable tax treatment on your losses if you buy, or a low interest government loan? Or perhaps the government takes all the loans, and you get to buy the company without it.

    When it comes down to it, the potential buyers know that Wamu is “too big to fail” and the government will do *something* to help grease the wheels, so why purchase before that endgame is reached? It appears that we’re reaching that endgame now and I’m *guessing* that Wamu will have a new owner (perhaps the government) within a couple of weeks.

    As to the impact on Seattle employment and real estate, I think that it very much depends on the new owner. If that new owner already has a retail deposit business then they’ll probably take a year or two to absorb Wamu into their current operations and massive layoffs will occur over that period. If it’s a government takeover, they’ll probably be some layoffs but not many at all – someone has to keep the business going and they’ve already shuttered most of the mortgage origination, AFAIK.

  13. 13
    Yesler Hill says:

    I’m guesssing the US taxpayers will take on WaMu’s worthless debt so the retail banking part can be bought by someone else. It’s only way I can see WaMu being an attractive purchase? And in this day and age, I can’t see a purchaser of WaMu doing anything but shedding the WaMu employees. Retail banking is contracting rapidly, a new owner is not going to want to carry many thousands of extra workers?

  14. 14
    david losh says:

    First wamu purchased Great Western Bank, a Savings and Loan Company. Then they bought H.F. Ahmanson & Co., and Long Beach Financial.
    All in the span of a few years Washington Mutual took on staggering debt.
    Today, without missing a beat, without any consideration, WaMu is looking for a buyer to take over that debt and then some.
    Why? Why would anyone take on the WaMu mess?
    This is clearly a business decision to expand beyond the ability to manage. This was a choice or series of choices. In other words with this much risk and exposure it was irresponsible to have toxic loans, make toxic loans, or hope those loans would bail the company out of debt.
    BTW when you say toxic loans I think preditory lending. I think con men, swindlers, bad loans, and good people being hurt. I’m thinking National Crisis with the tax payers footing the bill. I’m thinking up front fees, per centage points allocated to servicing, and loans that will never mature because they have to be refied before they amortize.

    In a very distant foggy past of a few months ago CitiGroup was the first to restructure. Losses were huge back in January. Now they are a player in a possible WaMu bail out.
    The London Times analysis in March speculated that CitiGroup just grew too large to be managed. Management of the diversified business models unwound. No one knew what the other was doing. Debt piled onto debt without a plan to structure a pay off.
    Today all financial institutions are playing the same game of buying into bigger messes.
    WaMu is a drop in the bucket. It should be allowed to fail. It should be the first salvo.

    My question has always been: banks are in business to make money by a variety of means. Mortgages are a part of that business. These are loans made to individuals. Why aren’t banks held accountable to the consumers. They created these products and sold them, why are they immune from product liability? Why aren’t they told to go back to the consumer and make things right?

  15. 15
    Michael says:

    The days of financial institution like WAMU gutting the accounts of their customers are over. Wait a minute, maybe the free market does punish offenders.

    BURN BABY BURN.

    I would also like to point out that I was ridiculed last year for saying that I was selling real estate and financial institutions short.

    SKF, SRS, GLD!!!! My portfolio. I’m off to the Cayman Islands to enjoy my newfound wealth with the WAMU, Lehman, Bush Administration and Bear executives. Don’t you love how everyone has found the bottom. Without any comprehensive banking, finance or political reform.

  16. 16
    singliac says:

    An acquaintance of mine was just fired from his executive position at WaMu. He is still blaming their sinking ship on those menacing headlines. I think that’s a funny notion, that somehow the negative media is to blame for all of this.

  17. 17
    singliac says:

    I mentioned this on the previous post, but the “Weekday” show on KUOW this morning was all about WaMu. The two guests (one with a direct interest in WaMu’s survival) both seemed to think that WaMu is NOT too big to fail. I didn’t catch why they believed that. Does anybody else think Wamu will go down like Lehman rather than IndyMac and AIG?

  18. 18
    Sniglet says:

    David wrote: They created these products and sold them, why are they immune from product liability? Why aren’t they told to go back to the consumer and make things right?

    I’ve already answered this question over at RainCityGuide, but here goes…

    Many struggling banks literally cannot afford to rework consumer loans. Reducing the principal of a loan will force immediate write-downs on the books, and many lenders have already written down their asset values so much that any more write downs will put them into insolvency.

    For these struggling institutions it is FAR preferable to let a home go into foreclosure since they can still keep the REO property on their books at an unrealistically high market value –just so long as they don’t sell it. This is one reason why we see many REO properties around the country sit on the market FOREVER. The banks can’t sell them at the true market prices because that will force them to make more write-downs and go into FDIC conservatorship.

  19. 19
    david losh says:

    It’s interesting that I’ve had this time to watch the blogs while on hold with a lender concerning a short sale I have listed. They are not taking any low ball offers. So you are correct, lenders want close to or full mortgage amount before they will sell a property.
    Yes the REO inventory is growing. A property manager at WaMu told me two years ago they would rather rent out a foreclosed property rather than sell it.
    OK, so what? These banks are out of business. You don’t have an answer here. Trading debt for more debt isn’t an answer.
    At some point the consumer needs to be involved, engaged, and reconciled with. Consumer confidence is more than a statistic. The consumer needs to pay, either pay in person or by taxes. The banks need to go back to the consumer of these “toxic loans” and make them right. The lender needs to negotiate the debt to get it paid back. They should have to work for the money. They should be collecting the debt where the debt is due. They made loans, it’s thier responsibility to get the money back.

  20. 20
    Sniglet says:

    David wrote: “OK, so what? These banks are out of business. You don’t have an answer here. Trading debt for more debt isn’t an answer.”

    The end-game is that the struggling banks will go out of business eventually. The non-performing loans will wind up either in tax-payer hands or some other entity that buys them for pennies on the dollar. The owner of these dud loans will then start getting down to the real business of doing work-outs where it makes sense.

    In the meantime we are just waiting for these zombie lenders to finally go into that good night (or for the FDIC to have the guts to close them). Right now I suspect that everyone is just playing chicken, and hoping for some miracle. The government just does not want to take all these lenders into conservatorship (i.e. it would cost tax-payers a fortune), but they don’t want to force them into bankruptcy either due to the severe market distress that would occur when their assets are dumped on the market.

    So, we wind up with a bizarre situation where the regulators willfully turn blind eyes towards fictional bank book-keeping since they don’t want to know the truth, or suffer the consequences.

  21. 21
    98115renter says:

    from CNBC: http://www.cnbc.com/id/26769295

    “Washington Mutual can’t be allowed to fail because it owes $58 billion to the Federal Home Loan Bank System, Dick Bove from Ladenburg Thalmann & Co. told CNBC. “If Washington Mutual goes under then the Federal Home Loan Bank in San Francisco and probably the one in Seattle will lose $58 billion,” Bove said. “

  22. 22
    johnnybigspenda says:

    Michael at 15. … good luck with the SKF investment… not sure if your beach chair has an internet connection, but you may want to check your portfolio today

  23. 23
    david losh says:

    So, we wind up with a bizarre situation where the regulators willfully turn blind eyes towards fictional bank book-keeping since they don’t want to know the truth, or suffer the consequences.

    Lovely!

    A part of my charm, as long time readers here know, is that I spend time in developing countries. Not as much time as I would like.
    Cash is king. The majority of the world’s population lives by cash. That’s the majority of the world’s population.
    “Developed” countries have a type of Voo Doo economics. Today you’re saying we just can’t let the magic die.
    Well, yes we can.

    “Washington Mutual can’t be allowed to fail because it owes $58 billion to the Federal Home Loan Bank,

    Sorry, then FHLB will have to take over the debt and collect.

    All options have been exhausted, it’s time for these great corporations to go back to the consumers they lent money to and collect a debt. It’s business. It’s the banks business to lend money and collect a return on investment. It’s thier products. They, the banks, are responsible.

    I don’t know a lot of people who don’t want to pay. Most people would pay if it was a fair deal. Banks have played cons, swindles, petty theft, extortion, in a manner that makes organized crime look like a community out reach program.
    Who says wealth, money, and power are anything but a drug? To make a point let me say this banking scam is kind of like a crack dealer on a street corner taking the money back to a drug cartel.
    The consumer needs help. That should be the focus.

  24. 24
    NoMoreWork says:

    this is the real story for the rally, tim you should probably do a piece on this

    http://www.cnbc.com/id/26773689

    check out WM now, up over 55% as of this writing…

  25. 25
    Notorious ART says:

    Perhaps the new entity similar to RTC will take all the bad loans off of wamu’s balance sheet. Then someone like Wells Fargo could buy the retail branches.

    Barclays did the right thing by not buying Lehman. Why not let Lehman go into bankruptcy then buy up the assets it was originally interested for a cheaper price and no exposore to the liabilities. Brilliant. Companies like Wells and Us Bank will come out on top of all this mess.

    http://biz.yahoo.com/ap/080918/wall_street.html

  26. 26
    Notorious ART says:

    Perhaps the new entity similar to RTC will take all the bad loans off of wamu’s balance sheet. Then someone like Wells Fargo could buy the retail branches.

    New Entity

    Barclays did the right thing by not buying Lehman. Why not let Lehman go into bankruptcy then buy up the assets it was originally interested for a cheaper price and no exposore to the liabilities. Brilliant. Companies like Wells and Us Bank will come out on top of all this mess.

  27. 27
    AndyMiami says:

    Wells Fargo is the natural buyer for WAMU and there will be guarantees from the government or the new RTC. In Seattle, where ever you see a WAMU branch, there is a Wells Fargo one. The consolidation of branches and deposits combined with parking the toxic loans in an RTC type vehicle will happen. Without the toxic stuff, the consolidation of both banks branch systems could mean a $5 to $8 price for WAMU…finally time to buy calls…

  28. 28
    Notorious ART says:

    AndyMiami,

    You beat me to the post. This RTC entity will allow a buyer to buy wamu’s retail branches.

    Barclays did the right thing by not buying lehman. Why not let lehman go into bankruptcy then buy the assets of interest without the liabilities and at a huge discount. Brilliant.

  29. 29
    Yesler Hill says:

    As I assumed. taxpayers foot the bill for the junk debt, leaving the profitable bits to be bought by some other corporation. What a rip off. If we are paying for these banks, we should take ownership of them outright. Create a new, publically owned, national bank.

  30. 30
    TJ_98370 says:

    Dow is up 410 today. The crisis is over. WaMu is up 49%. Buy WM shares right now and get in on the rally before it’s too late!

  31. 31
    Jonny says:

    “DOW 10,000? Don’t be so pessimistic, this is definitely the bottom. I’m for real this time. Also, buy RE.”

    i think DOW 5,000 to 7,000 are a more likely bottom. this is just getting started. what will change everything over the next 5 years? consumers will change their habits to an entirely new pattern of spending, resulting in…

    MASSIVE ASSET DEFLATION.

    the scary part is that after that, we may wind up with across the board deflation.

  32. 32
    Jonny says:

    “DOW 10,000? Don’t be so pessimistic, this is definitely the bottom. I’m for real this time. Also, buy RE.”

    this must be sarcastic. this is a short squeeze.

  33. 33
    wakeup says:

    >this must be sarcastic. this is a short squeeze

    Wake up, Man!

  34. 34
    wakeup says:

    This board is really a forum of “find whatever to make the seattle RE down”: job market is down, unemployment is high, WM is ending, stock is crashing, foreclosures are sky-rocketing..and the sky is falling.

    I am not saying Seattle RE will go up from here, but it definitely will not crash tomorrow morning. US gov will do whatever it can do to make the RE soft landing, meaning: even if the RE is going down, it will be slowly. You may have to wait for years to see a real bottom. Do not dream you can find a bottom tomorrow! By the way, the people bought in the bottom are just by chance, not because they are smart like many people on the forum.

  35. 35
    Nell Plotts says:

    “An acquaintance of mine was just fired from his executive position at WaMu. He is still blaming their sinking ship on those menacing headlines. I think that’s a funny notion, that somehow the negative media is to blame for all of this.”

    An acquaintance of mine was a family member of a very high level executive at WaMu. He related that there were huge fights (about 5 years ago). The executive left about a year later.

    One of the ways to predict a business’ future is to watch the movement at the top. Few want to be aboard when the ship is sinking.

  36. 36
    AndyMiami says:

    from Market Ticker Blog…

    Now there is a proposal out there that threatens to make a mockery of the foolishness already in the market and multiply it a few times over:

    “The action by the four banking agencies provides more favorable accounting treatment of so-called good will, an intangible asset that reflects the difference between the market value and selling price of a bank. The move is similar to a step taken in the midst of the savings-and-loan crisis that helped many institutions in the short run.

    Over the longer term, that decision increased the overall costs of the bailout after the government took away the good will benefits. Under the proposal issued this week, the regulators would permit buyers of banks and thrifts to count some of the good will toward meeting their regulatory capital requirements.”

    Let me decode this for you.

    If I buy a bank for $30 billion but the “net” value is only $20 billion, then there is $10 billion of “Good will” on the balance sheet. That’s the difference between what I paid and what “fair value” is for that particular transaction.

    What this proposal – which will be adopted after only 30 days of comment – will do, is encourage banks to overpay for other banks in deals, because they will be able to count this “phantom” value toward regulatory capital requirements!

    This is blatant, out-and-out fiction – another word for it would be “fraud”.

  37. 37
    Jay says:

    Rumors of creation of Entity for Bad Debt vaulted the market higher today. I think the possibilities of such RTC-like entity are quite high, and I thought something like that was nearly inevitable since FNM and FRE takeover. You see, if the housing collapses, the government will need hundreds and hundreds of billions to cover FNM and FRE mess, and eventually, the U.S. government itself could lose confidence of investors and become insolvent. On the other hand, housing recovery could provide the government with hundreds of billions in profits. Put it that way, it sounds like no brainer, but such a large scale bailout is a politically touchy issue (plus that the presidential election is just a few weeks away doesn’t help.. although republicans must be feeling the pressure to do something to boast about while they still have some control), and it would require forming of a consensus that something substantial must be done to avoid total collapse (well, or something as fearful as) of U.S. economy. I’m not sure that such consensus has been already reached, but I do feel that it’s quite near. The root of all problems, the housing market, is not showing any signs of turnaround, and in fact it probably is on the verge of even more spectacular falls in the months and years ahead. If the seriousness of the situation hasn’t hit someone already, it soon will, and then they’ll be saying “we gotta do something”.

  38. 38

    THE ENTITY: IS THIS LIKE A HORRIFYING DEMON?

    Its real Jay, from CBS market watch just now:

    “…Top Stories: Dow Surges 400 on Report of Entity for Bad Debt- AP Wall Street has ended a volatile session sharply higher after a stunning late-session turnaround that sent the Dow Jones industrials up about 400 points. The big comeback followed a report that the federal government may create an entity that will take over banks’ bad debt….”

  39. 39
    Eleua says:

    Ratings Watch: “Evolving”

    I have no idea what that means. Fitch must be making things up to prevent rating this from “Toxic Waste.”

    Also, WM was shopping itself, and came back: “NO BID.”

    Smart money says zero.
    Idiot shareholders say $3

    You can’t make this stuff up.

  40. 40

    Eleua,

    I just posted this over at RCG:

    Story earlier from the FT said there were no WaMu bidders. Now Bloomberg says there are multiple bidders. Hmmm.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=a4qndSqG.5ts

    http://www.ft.com/cms/s/0/8324772c-85af-11dd-a1ac-0000779fd18c.html?nclick_check=1

  41. 41
    Nell Plotts says:

    ” Under the proposal issued this week, the regulators would permit buyers of banks and thrifts to count some of the good will toward meeting their regulatory capital requirements.”

    YAH, SHURE! That is what they told Benjamin Franklin Savings And Loan of Portland during the S&L crisis to get them to ‘acquire’ a troubled institution. They were subsequently closed because the regulators changed their mind about good will.

    Never trust a desperate regulator.

  42. 42
    unearthly says:

    Update: Five banks exploring WaMu records

    Five banks have come forward to evaluate Washington Mutual’s financial records as part of an auction process run by WaMu’s adviser, people familiar with the matter said on Thursday.

    WaMu shares rose 14 per cent on Thursday after news it had put itself up for sale. The five banks that have looked through the WaMu materials include JPMorgan Chase, Wells Fargo, Citigroup, HSBC and Banco Santander, the people familiar said. It was unclear whether any of them intended to make an offer for WaMu.

  43. 43
    EconE says:

    With the common consensus that housing prices are dictated by income, is this latest flavor of bailout really going to “buoy” housing prices, or was it created in order to save the 401k’s, Pension Plans, etc. etc. for all of the institutions (companies, cities, states, schools, countries etc etc) that are holding their own respective cup of the “toxic derivative” soup?

    I think that it’s more about saving the derivatives market than the housing market.

    JMHO

  44. 44
    NoMoreWork says:

    Evolving is nothing out of the ordinary, they are saying that there will be significant events in the near future that will change the outlook on WaMu, good or bad. Like a buyer or a merger, they only did this because WaMu is for sale and TPG waved their price reset rights.

    The more important issue is the RTC that could be setup. Now banks can walk away from their bad debt too? Wish I could do that! I guess I could and my credit rating would plummet… hey, WaMu’s in that same boat! Already junk status.

  45. 45
    uptown says:

    “One of the ways to predict a business’ future is to watch the movement at the top. Few want to be aboard when the ship is sinking.”

    Another way, for us outsiders, is to watch for companies building shiny, new headquarters. The top management always seems to get distracted when designing their new offices.

  46. 46
    uptown says:

    Sure is a lot of talk in the media about WaMu; makes me suspicious. You didn’t hear that much before others imploded. Somebody might be trying to distract the financial media (WaMu is a long way from New York).

  47. 47
  48. 48
    AndyC says:

    The RTC has nothing to do with saving the housing market and everything to do with creating some market stability. My guess is that if the Fed does indeed set up an RTC, we will see WaMu survive. If they don’t? I see Citibank or JPMorgan Chase buying WaMu for $4-5/share allowing them an opportunity to expand to the West Coast.

  49. 49
    mark says:

    The markets rallied today based on the possibilty of RTC2 fix for the bad loans on the books of the banks.

    So far the PTB have:
    Provided a $160 Billion dollar stimulus package.

    Engineered the takeover of BSC at $10 per share by JPM with the JPM taking the first billion dollar hit and the Fed backstoping $29 Billion of potential losses.

    Raised the jumbo loan amounts for FRE & FNM from $417K to $730K.

    Congress passed and Bush signed the housing bailout bill this past July. That piece of legislation also authorized the issuance of 1 bazooka and 1 round of ammo to Henry Paulson to use as he saw fit.

    Less than 2 weeks ago Henry Paulson used said bazooka and his 1 round of ammo on FRE & FNM.

    The markets have rallied each time one of these fixes has been attempted only to sink further with the passage of time. The latest rally occured less than two weeks ago. On monday, 9/8/08, following the takeover of FRE & FNM the DOW was up over 300 points only to give up all of its gains the following day. The following weekend LEH filed for bankruptcy and MER was taken over by BAC.

    Which takes us to this week. On monday AIG plunged to single digits in the search for capital in an attempt to stay solvent. WB sunk back to the single digits after a spectaluar rally off of its july lows. WM plumbed new depths falling well below its recent lows of $3.03 per share to drop all the way to $1.50 per share at one point. All of this with the backdrop of the DOW falling 500 points on monday and an additional 450 points on Wednesday with a small rally of 140 points on tuesday. Today the Dow was up 410.

    So the questions.

    What will an RTC2 look like?
    Will the banks be permited to just dump their bad papaer on the taxpayer?
    Will the banks be required to pay for their mistakes?
    Will this latest plan be any more successful than what has been tried already?
    What will this do to fix the real estate market?
    How will this make real estate affordable?

    My guess is that the shareholders of the banks still have a fair amount of pain in their future based on what has happened in the past. The taxpayers are probably going to feels some pain also. This probably won’t do anything to get the real estate market moving again – it’s still an affordabilty issue.

  50. 50

    WSJ says the SEC is planning to temporarily ban short selling stocks:

    http://online.wsj.com/article/SB122178234612954617.html

    Oh no.
    This can’t be good news for the stock market.

  51. 51

    It doesn’t strike me that banning short selling is going to do any good. Just as often as a short seller making money are the cases where the company outperforms expectations and the investor has to cover the short, and, as it were, take it in the shorts.
    So who is this really going to protect?

  52. 52
    p says:

    When I worked for Wamu 4 years ago, I told my boss at the time that it seemed like it might start being a good time to get out of banking. It just seemed like the party was soon going to be over.

    The executives should have known that the option arm loans were a bad idea for the everyday borrower.

  53. 53
    jonness says:

    It’s looking like the government is going create an agency to buy up to 2 trillion of bad debts from banks in an attempt to restore liquidity. The hope is that the government can sell the assets back into the market when house prices recover in 20 or so years. Meanwhile, house prices will stay artificially inflated in the meantime, and people can continue to pay 2x what their real value is.

    It’s becoming increasingly clear that the govt. is convinced we are headed toward a full-blown depression. So they are pulling out every trick in the book in an attempt to artificially inflate house prices so we don’t end up with a national bank run.

  54. 54
    Markor says:

    I have a different take. Now that an election is looming, it’s time to saddle the taxpayers with all the losses from every major corporation. Like the Detroit automakers. They are screaming for a bailout too, $25 billion. They are scared that with so many other hands out, they won’t get their check before January.

    It’s amazing what’s happening. Will voters really have to face starvation before they realize that there are serious consequences to supporting unlimited borrowing, esp. just to make the rich richer?

    I doubt these bailouts will prop up house prices. The intention is certainly not to save homeowners, or even the economy per se. This is about maximizing ill-gotten profit for the rich, period. Bank CEOs will be protected from home price decreases, not homeowners, who can eat cake.

    Nor will these bailouts protect us from Great Depression II. It might delay it for a year or so, but then it will be worse. Part of the plan, no doubt.

  55. 55
    Markor says:

    Ira Sacharoff: It doesn’t strike me that banning short selling is going to do any good. Just as often as a short seller making money are the cases where the company outperforms expectations and the investor has to cover the short, and, as it were, take it in the shorts.
    So who is this really going to protect?

    It’s like Vegas. If a player can predict the outcome, they are kicked out of the casino. Only the house is allowed to know the outcome and profit from that. The market’s fall is a foregone conclusion, so no short selling until it reaches equilibrium.

  56. 56
    Comrade Chairman Greenspan says:

    “WSJ says the SEC is planning to temporarily ban short selling stocks:

    http://online.wsj.com/article/SB122178234612954617.html

    Oh no.
    This can’t be good news for the stock market.”

    Oh come on. Planned economies have worked so well everywhere else they’ve been tried.

  57. 57
    Michael says:

    johnnybigspenda

    So tell me if my numbers are wrong?

    Current amount of outstanding Credit Default Swaps – 48 TRILLION. (I guess Hedge Funds providing insurance is a great idea.)

    Current amount of capital backing credit default swaps – (approx) 1 TRILLION.

    Current amount of FDIC insurance fund 50 billion.
    Size of largest off book SIV at Citigroup – 1 TRILLION. (Maybe that is why they have been lobbying congress to change accounting rules. Bush is all for it!)

    US Consumer and Government debt – 65 TRILLION.
    US GDP $13.13 TRILLION. (2006 est)

    Derivatives market larger than the stock market.

    Did anyone notice the swaps on T-Bills are starting to look a little off? What happens if treasuries lose that AAA credit rating?

    Something tells me that time is on my side.

  58. 58
    gortnerp says:

    Am I right to put some blame on this nation’s ridiculous bankruptcy laws??

    Correct me if I’m wrong, but if a borrower cannot (or will not) pay off a loan that he aggreed to pay off, then the loan and the property return to the lender. The lender loses a ton of money in this process, and if this happens enough times (as is now happening), these big lenders fall into insolvency.

    OK, I get it. Blame the lender. But I just can’t get past allowing a borrower to get a small dent in their credit rating, and just walk away, with maybe massive funds left over in retirement savings (IRAs & 401Ks and the like).

    Why wouldn’t we be better off holding these irresponsible borrowers accountable for their commitments? I don’t think we as a nation should let them file bankruptcy and walk away from their obligated debts and retain their cushy retirement wealth. This just leaves lenders (and now tax payers) holding the bag.

    As Charles Dickens wrote in David Copeprfield, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

    I say let these irresponsible borrowers be miserable. Better them than me.

  59. 59
    Ray Pepper says:

    Shorts on the street will have their heads handed to them yesterday and today……….COVER!!! WB, WM, WFC, NCC, ABK, MBI, …….should I go on. Life is good!…………Bye Bye shorts …………In two days I’m showing a virtual double in my portfolio……Better then the tech boom!

    God Bless the FED!

    I must find a Bernanke Poster and place it in the office.

  60. 60
    Ray Pepper says:

    WOW…1 word for today…COVERRRRRRRRRRRRRRRRRRRRRRRRRRRRRRR

    650 mill shares in 10 min ……..

  61. 61
    Ray Pepper says:

    look at COLB (Columbia Bank) up 11.86…print that tape!.. I’m out.

  62. 62
    shane says:

    China doesn’t allow shorting and look at their markets performance over the last year. The last week or two has been a sad episode for this country. People cheering what the .gov has done are cheering the destruction of their country. Thanks for cheering on Wall Street looting this country Ray. I hope you get hit by a bus.

  63. 63
    Ray Pepper says:

    Shane..I gambled up this week. Took profits ! Now I watch how the game is played out. Looting? I call it significant profits for my childrens college fund . Family first my friend. My 3 kids will go on to help this country far more then I can. I will stay clear of any buses.

  64. 64
    David McManus says:

    Um…..Who’s going to pay for this?

    Actually….HOW are WE going to pay for this?

  65. 65
    Ray Pepper says:

    Words of advice to WM now…Sell those OPTIONS ARMS!.. Now you will have Buyers!

  66. 66
    Markor says:

    Will Fed’s Huge Liquidity Move Save World? Unlikely:

    The world’s central banks pumped $180 billion of liquidity into the world financial system last night. Will this mark the bottom in the stock market?

    In the short-term, possibly. In 1929 and other financial crises, massive liquidity injections often turned short-term sentiment. But when the fundamentals are bad enough–as they are today–the market usually quickly returns to trend.

    This was just what we can expect when the foxes are in the hen house. Big shareholders who didn’t get out yet sell into the rally, soaking up a lot of that $180 billion in just minutes. WM is down 20% from the opening bell.

  67. 67
    johnnybigspenda says:

    michael,

    The fed went and changed the game. Essentially, the banks have been getting margin calls on all of their loans… they are required to have reserves to cover at all times. Everyone was worried that the assets they had were not valuable enough to cover those reserve requirements. These assets were loaned out at 20:1 or higher… that means the fed really only has to guarantee 1/20th or less of the $1Trillion. They don’t actually have to have $1Trillion… they just need to have adequate reserves to back up those loans. The fed basically has now guaranteed that the banks will have adequate reserves.

    Even if housing values continue to fall (until they hit historically reasonable levels) it doesn’t matter as much now… the bank’s assets are not tied to this anymore. They don’t need to raise capital to compensate for these losses.

    I agree that the whole leveraged banking setup is a giant house of cards, but its a house of cards that will continue standing because thats what the fed wants.

    If that is what the fed wants (and they can change the rules at anytime to make sure they win the game) I wouldn’t bet against that.

  68. 68
    Michael says:

    I’m actively betting against the Federal Reserve for several reasons:

    1. It is damn near impossible to tell who actually owns a single mortgage since it is divided into into credit Traunch and then splintered into a million different CDOs. So unwinding this is going to be impossible. In other words the mortgage backed securities act like counterfit money. As long as you can buy something with it then it has a value but as soon as somone tries to verify the value the value drops to zero. Mortgage backed secruities have no value because the value can not be verified.

    2. It is equally difficult to find the swaps on the CDO since they are bought sold and then subdivided. The swaps seem to be more than the original asset (the CDO) as indicated by the size of the derivatives market. It appears to me that more people bet on how credit worthy a CDO was than actually bought the CDO.

    3. The CDOs DO NOT appear on the balance sheets of the banks. At least the really toxic stuff does not. The worst debt is sitting in the “virtual banks” – structured investment vehicles. The banks have been lobbying congress to change accounting rules so they are not required to use mark to market accounting principles with these assets. Bush has managed to push off these changes until the next administration.

    What the Fed is about to discover is that they don’t have the money to bail us out. The Fed will continue printing money at an expanding rate and devalue the dollar at a record rate as soon as they figure this out. We avoided a severe recession now to buy a depression later.

    One word: Treasury Inflation-Protected Securities (TIPS).
    or GOLD, GUNS and FOOD.

  69. 69
    Michael says:

    Wierd I gues you can’t say damn? or Fuck or probably Shit?

  70. 70
    Markor says:

    Michael: One word: Treasury Inflation-Protected Securities (TIPS).

    or GOLD, GUNS and FOOD.

    I doubt TIPS are better than CDs now. Inflation is underreported by the gov’t now, just like gov’t trumps science now. My bet is that the dam will break and CD rates will increase to truly cover inflation and then some. 3-month CDs hit 16% in the 1980s.

  71. 71
    Michael says:

    Good Point. What about gold. I heard a very interesting theory on gold. Since gold really doesn’t do anything its value is a measure of insecurity. What do you think?

  72. 72
    Lake Hills Renter says:

    To paraphrase Proximo – I love my country, but she’s become a whore. I am ashamed of what this country is becoming.

  73. 73
    Markor says:

    Michael: Good Point. What about gold. I heard a very interesting theory on gold. Since gold really doesn’t do anything its value is a measure of insecurity. What do you think?

    I’m too chicken to play with gold as an investment. It’s so volatile (big price swings), and I’m not convinced it’s the be-all hedge against a depression. I may regret my stance though. Peter Schiff, who called a lot of the current mess a couple years ago, thinks gold must skyrocket before the dust settles.

  74. 74
    Michael says:

    Markor

    Ok, What about Costco and Wallmart. Whatever happens it is going to kill the consumer and people are going to need a cheap way to buy food.

  75. 75
    TJ_98370 says:

    The Dow is up another 369. WM is up another 42%. You had better jump under the bandwagon before the train leaves the station!

  76. 76
    Markor says:

    Michael,

    It’s hard to say. Are Costco and Wal-Mart overpriced now, from other people concluding the same thing earlier? I’m not the best person to ask, since I’m more of a risk avoider. I got out of housing and the stock market when losses looked inevitable. Houses prices are falling at about 1% per month; that’s good enough for me for now. I don’t want to chance not having the money to buy again when the housing bottom hits. At the bottom, buying a house can be a good investment as an inflation hedge, including currency devaluations (a la Argentina). If it comes down to gold, guns & food, most of us won’t last long anyway.

  77. 77
    Markor says:

    TJ_98370: WM is up another 42%. You had better jump under the bandwagon before the train leaves the station!

    Look at the chart. Nothing but sellers since the opening bell. The buyers were the market makers.

  78. 78
    John says:

    The world doesn’t care about shorts. Most people don’t short and don’t know what shorting is and once they find out, they would be like, “Oh, those people.” Not much different from the general public reaction to a blog like this one. As much as I enjoy being a bear, I know fighting against the government is not a wise financial move. So in short, hold your noses and don’t be afraid to go long, a bit late for that but who knows, maybe the rally has another 500 points to go.

  79. 79
    richie says:

    Citi, JPM are willing to pay premium for WaMu’s retail banking and networking business. However, nobody wants to buy the toxic assets to sink their heads to the sand. At the end, the company has to split to two. Toxic one goes to the government; Healthy one goes to Citi or JPM. The proceeds will go to the government as collateral because the one knows the exact amount of liabilites. Shareholders will be lucky to see a dime.

  80. 80
    TJ_98370 says:

    Markor –
    .
    The horrible mixed metaphor I used should have been a clue that I was attempting to make a joke.
    .
    Anyone investing long term in the financial sector right now had better know what the heck they are doing. I own some JPM and I am really conflicted as to what to do with it.
    .

  81. 81
    Angie says:

    Michael @68 says:

    1. It is “golly” near impossible to tell who actually owns a single mortgage since it is divided into into credit Traunch and then splintered into a million different CDOs.

    That’s not true for every mortgage. The mortgages on both my houses are held by local credit unions, and they don’t sell their mortgages.

    Credit unions have always been the best deal in town, since they’re oriented toward their members’ benefit rather than “shareholder value” (i.e., picking your pocket to pay the shareholders). There’s a story in the Times today about how credit unions are not at all shaken in the current financial turmoil.

    My only quibble with the above article is that credit unions “can’t compete on rates”. BS. When I have shopped for mortgages, the only institution that reliably had better rates was WaMu (and look where that got them)–I’ve written elsewhere about WaMu’s bungling of my first mortgage which meant we wouldn’t give them further business. Anyhow, CU morgage rates have definitely been competetive in the past several years–the loans on our 2 houses are fixed at 5.75 (15 year) and 5.0 (30 year)–though CUs were regarded as having stricter lending practices, which now seems to have been rather prudent. As far as other interest rates (saving, checking, CDs) they’re always better than banks’. And they don’t have sneaky policies intended to rip you off.

    Check credit unions out–and then move your checking account from Wamu to Boeing Employees, Watermark, or Verity. Memberships at these CUs is open to anyone who lives or works in Washington state. And because most if not all Credit Unions are in the CU Network you can make deposits and withdrawals at a branch of pretty much any CU, not just the one that you belong to specifically. (You can also make free atm withdrawals at an 7-11 store.)

  82. 82
    Markor says:

    TJ_98370 – Ah so, I see the mixed metaphor.

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