More on the Washington Mutual failure

Tonight has seen the biggest bank failure in United States history. From the New York Times:

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

Washington Mutual is by far the biggest bank failure in history, eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago, an event that presaged the savings and loan crisis. IndyMac, which was seized by regulators in July, was a tenth the size of WaMu.

How does a bank fail? Well, there is a run on the bank and depositors pull out their money leaving the bank with more debts than assets and insolvent. From WSJ:

Federal regulators said WaMu has suffered an exodus of $16.7 billion in deposits since Sept. 15, leaving the Seattle thrift “with insufficient liquidity to meet its obligations.” As a result, WaMu was in “an unsafe and unsound condition to transact business,” according to the Office of Thrift Supervision.

After the FDIC took possession of the bank, J.P. Morgan Chase purchased the assets of WaMu and for everyday depositors, it’ll be business as usual. For the rest of us? Yet another sign of the mounting economic woes that the next President will face. The American people deserve to hear from both Barack Obama and John McCain on how they’re going to handle this crisis – the American people deserve a debate tomorrow night.

One interesting side note, JPMorgan had tried to buy WaMu earlier in the year for $8 a share – the deal fell through on price and in part because WaMu’s CEO was going to lose his job. Today WaMu shareholders are left with nothing. That’s the price of greed for shareholders and taxpayers are left holding the bag.

Share This Post

© 2021 AMERICAblog Media, LLC. All rights reserved. · Entries RSS