downtoearth

Roubini's Wacky Wells Loss Estimate: It's Not Just Academic

the Time article was fun, mostly tabloid in its nature - as most of these type of articles are. Wells Fargo has a history of being considerably conservative with it's loan origination programs; that's why, in the third quarter (2008), when all of the other larger financial institutions were struggling or suffering, Wells reported an surprising and unexpected profit. However, where acquisition of Wachovia and all of its branches (mostly in the east and southwest) gives Wells a greater and geographically "coast to coast" presence, it does remain to be seen to what extent the Wachovia loan portfolio impacts Wells financial picture going forward. Chase made the same move by picking-up Bair's seizure and "flip" of WaMu - its branches, deposits, and its loans as well. Chase now too has the same "coast-to-coast" presence as a result of that acquisition, and they too are now beginning to feel the presssure of the WaMu loan portfolio they acquired.

Bottom line: It's tough business "guessing" what will happen to these banks - there are simply too many variables involved: how many more folks will become unemployed and not be able to pay their mortgages?; which banks will be the unlucky ones to have their loans impacted by the next "wave" of the unemployed?; to what extent will small or midcap (however we could define that now) or "mom 'n' pop" businesses with now weaker income statements be able to convince banks to extend new or replacement loans or lines of credit?; and if the bnaks do not lend for this reason, will their only income be limited to existing potentially risky or problem loans?; and when the stock prices of the banks reach certain low single digits will Moody's or S&P significantly reduce their credit status to "junk", like they did with WaMu, and thereby create an identical "run" on the deposits such as that which caused WaMu's Tier 1 melt-down and eventual seizure?; etc. ad infinitim, ad nauseum.

You can argue both sides, all aspects - endlessly. And each day brings a new piece of information which just adds to the quagmire analyses.

In the end I believe that all of these larger banks are "too big to fail" and that the federal government will continue to "prop them up" as needed; not that such will, in the long run count for much, as I see in all of this a much larger threat to the dollar and the basis of value in this country.

There is no doubt that we can continue to paint and reconstruct and refurbish and argue about the various structural aspects of those deck chairs...... In the end, Roubini may be right, if for no other reason, because he seems to be focused on the iceberg.

WaMu Shows, Again, Smart Money Can Be Wrong

or consider the case of naked short sellers who have been hammering all of the financials. you take alot of money, pretend to sell something you don't have, and keep driving the price down with more huge sell orders, the volume of the ever lowering sell orders drives the price down, and then you buy back in at a really short price and settle up. It's market manipulation, and it's fraud, plain and simple.

How can you justify selling something you don't have?

Especially when you are doing it to destroy the mom and pop investors who just want to invest in American companies and hope they'll grow in the usual sense. The short sellers and hedge fund managers who pursue this activity are criminals in a real sense, and eventually when they are identified, there will be incredible class action litigation - which should strip them to the bone.

Stealing is stealing - no matter what lipstick you paint it with

Tick, tick, tick.....

Kicking People Out - Cramer's Stop Trading! (9/24/08)

fell the pinch AFTER the plan; that doesn't make sense to me; it seems they would feel a more immediate "pinch" if WaMu fails (FDIC takeover, Chapter 9, whaever); i.e. if the largest thrift fails; people will be lining up at their comparatively "smaller" banks by the droves....

Kicking People Out - Cramer's Stop Trading! (9/24/08)

Hmmmmm (continued)

And why did Paulsen last Friday state that only US banks would be entitled to the TARP program's benefits, and then on the following Monday state that foreign banks who employed United States citizens would also be eligible?

Could it be that either that spanish bank Banco Santander, or Toronto Dominion are the ones who are now the highest bidders for WaMu?

the pieces of the puzzle are beginning to fall together......

Kicking People Out - Cramer's Stop Trading! (9/24/08)

WaMu isn't going anywhere (but it could be sold).

With all the recent bad news about it, WaMu's retail deposit base must have been diminished enough so that by now, If the FDIC had a mind to take it over (since it is watching it "closely"), it would have done that by now. Why hasn't it? Again, why hasn't it?

This delay tells volumes.....

Add to this the following:

If the TARP program is passed (which it will be now, because if it isn't, and after what the president and Buffet and Paulsen and Bernanke said today, there will be a bank run for sure), the FDIC will NOT shut-down WaMu. If they did grab WaMu after TARP is passed, it would be the biggest political disaster and embarassment for Congress (let alone the President) (i.e "we just committed your money to a "fix", but, sorry, the biggest Thrift failed anyway??? Ouch, and then another bank run for sure.

Now the contenders: Goldman Saks? Think about it. GS is now a new "retail" bank which needs retail outlets and would no doubt like expansion potential; and has new capital; Does Warren really have his sights on another west coast banking franchise?

Or how about that Spanish bank (the name escapes me presently). WaMu's numerous branches are in California, Florida, and Texas. See a pattern? One which a "spanish" bank might find attractive?

And I could go on.

But the bottom line is that WaMu will not be grabbed by the FDIC (nor will its share price therefore be reduced to zero) at this point in time. Such would not only be a financial and economic disaster, but even more significantly now, a political nightmare as well.

But what's going to be the ending value? What will be the sales price?

Hmmmmmm

Mike

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

I also find it somewhat amusing that not much of the nation seems to care right now what the candidates (who are they, again?) are saying.

They are the "second act".

I also find it interesting that our Congress is finally having to do what we hired them to do - - make a decision and take the responsibility for it - like what the rest of us do every day.

Congress is usually so quiet around election time - they let the presidential candidates talk loudly - but they stay noticeably mum; they will rarely mention items like taxes, or social security, etc. - because the more they talk, the more likely they are to be repeated, in newspaper print - which can cost them an election.

What a nightmare for them this week.

"Oh my gosh, I have to make a decision on a very big issue, a very public and expansively disseminated issue, and then go home this Friday and explain my decision to my constituents."

It's tough when you finally have to start "doing your job".

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

Proven:

Boy, you are not kidding!. Tthe dominoes were already beginning to cascade last week.

But, for those skeptics out there..... let's take the proposed TARP-fix, and an example:

WaMu has $18.241 billion dollars of MBS's on its balance sheet (per of the 8-K filed July 22, Exhibit 99, page WM-4) that's 7.6% of its $239.627 billion loan portfolio (ibid). These MBS's earned $335 million of interest income (1.8%) for the quarter (ibid, page WM-2)

If the Treasury were to purchase these MBS's from WaMu for, say, just 50 cents on the dollar...... that would be $9 billion in cash to WaMu and elimination of the "bad paper" from their balance sheet. They would look better, financially; they might even get an improvement of their Moddy's rating; they might even be inclined to make a loan of some or all of that new $9 billion at current 5.9% (plus or minus) rates (if on the full $9 billion, they'd be making $531 million of interest income at 5.9% compared to the $335 billion they were receiving before this exchange arrangement).

Now, for Treasury's perspective: Treasury owns a $9 billion array of MBS's which are paying not 1.8% to the Treasury, but because of the 50% discount, a net rate of 3.6% - that's better than what the Fed is getting on its discount from member banks (2%). Nice.

If one or more of the securities ("securities" here meaning a property which secures a portion of the tranched MBS package) needs to be foreclosed due to severe non-performance, the Treasury will be holding onto a home which, in effect, it purchased for 50 cents on the dollar (more or less, depending on the LTV of the original loan, or how badly negatively amortized, or, on the other hand, and to WaMu's eventual credit...is located in California or Florida where real estate value recovers faster than anywhere else). In any event, there would be a significant if not considerably large value "cushion" which works to the Treasury's benefit when it sells the property at auction. Again, nice.

In effect, what Treasury is doing, is what the banks and the investment banks used to do (before those banks and investment banks got a little "loose" with their lending standards, and then freezed-up because their "let's make a loan" game began to disintegrate before their very eyes). The Treasury will buy and move these securities at "market" prices - and keep the credit "blood" flowing in the economic body.

Paulsen and Bernanke are correct. The risk to the taxpayers is minimal because the Treasury will receive value on the purchases.

The alternative is simply unimaginable.

Mike Hanson - long on this country - and the financially savy Paulsen, Bernanke, and Cox who are answering our 3 a.m. phone call.

Robin Hood in Reverse: In Defense of the U.S. Taxpayer

It might not be so bad. If the Treasury is buying poorly performing debt instruments at 30 cents on the dollar, and can actually find and negotiate with the borrowers in these CDO's and MBS's, telling these borrowers that they need only make payments at a 2% rate for awhile....great for the borrowers (workable for the borrowers) and great for the Treasury - since the effective rate on the deal would be 6.67% to the Treasury.

I want to be a stockholder of the Treasury.

Wait a minute..... I already am !

FDIC Won't Run Out of Money, But WaMu May Be Toast

My New RTC

They purchase loans for pennies on the dollar....

lower the interest rates so that the borrowers can comforatbly pay, say 2% (much more considering the discount)

with foreclosed properties, they sell them at a nice (and higher, market-stabilizing) price, and on great (discount) terms with "ready Freddie" (and Fannie) at their side.

This is looking great.

I want to be a stockholder in this.

Wait a minute...... I already am !

FDIC Won't Run Out of Money, But WaMu May Be Toast

Mr. Whalen:

Actually on a second read of your article, there are adequate facts included, so I owe you an apology.

However, I guess we have to disagree on the eventual outcome as evidenced in your title, that being the sensationalist title of "toast".

WaMu in my estimation has considerable options on the table at this point. Merger, recapitalization, and, preferably, the soon to be established RTC II which will, hopefully, purchase much of the troubling debt which WaMu carries on its books.

And reading back over my own analysis, I would think WaMu could actually negotiate 50 cents on the dollar on this debt. After all, the securing properties are primarily in California and Florida (better locations for eventual recovery), and a 50% discount is more than adequate to protect the new RTC II - as a lender, or as the holder of a foreclosed property.

But, again, will there be that many foreclosures?

The new RTC II, if it holds a loan, can negotiate new and more favorable terms with the borrowers involved. If RTC II negotiates and obtains even a 2% payment on a loan they acquire from WaMu, they will be receiving what the Fed wants for its loans - 2% (i.e. therefore no loss to the federal government as a whole - at this point - certainly inflation later). If the 2% rate being received is on the full value of the loan (which has been discounted 50% on its acquisition) the actual realized interest rate to the Treasury is 4%. Nice.

Now if RTC II owns foreclosed real estate, it can also sell it under very favorable rates - with Freddie and Fannie at its (immediately available side). Utilizing those very favorable rates in the sales will (1) help to sustain a higher (not as high as I would like to see, but at least a stabilizing) price for the real estate market, and (2) start the movement of cash/blood in the economy/body again.

For all we know, the government may actually make a profit on this deal.

The RTC II assumes loan receivables at a 50% discount, makes a great rate after negotiating the loan payments down to the lowest possible rates, and if a borrower defaults, the RTC, forecloses and sells the property using its ready reserves. "Creating Wealth" advisor Robert G. Allen would be salivating at the thought.

FDIC Won't Run Out of Money, But WaMu May Be Toast

Mr. Whalen:

There is an "un-toast" manner in which you can analyze this situation (with the background facts) as well:

Here are some WaMu details which actually indicate the soundness of WaMu.

WaMu’s retail deposits at the end of August were $143 billion (SEC Form 8-K and related press release of September 11, 2008). But I'll grant you they might be less than this now in light of the media's analysis of Wamu - based not on fundamentals, but on short-sale price results and the ever so trustworthy results of the unregualted, unknowable CDS "market")

Wamu’s Tier 1 leverage and total risk-based capital ratios as of June 30, 2008 were 7.78% and 13.98% (SEC Form 8-K reported July 22, 2008, Exhibit 99.2, page WM-1). Compare these to the June 30, 2007 (year before) ratios of 6.07% and 11.04%, respectively (ibid). These figures are significantly above the regulatory requirements for well capitalized institutions.

The Fannie and Freddie bail-out hit WaMu to the extent of only $280 million (WaMu's press release of September 11th); recent news articles repeat Wamu’s statements to the effect that the company had “de minimis trading exposure to Lehman Brothers Holdings and no trading exposure to AIG." Downgrading WaMu’s credit rating primarily due to market conditions, Standard & Poor’s nonetheless acknowledged that WaMu had enough cash to get through 2010 (the press didn't mention this but tangentially).

WaMu’s exposure to the type of bond investments which killed Lehman and almost killed AIG is limited. Of the $239.6 billion of loans held in WaMu’s portfolio, only 18.2 billion (or 7.6%) are the dreaded “mortgage backed securities” (SEC Form 8-K reported July 22, 2008, Exhibit 99.2, page WM-4). And these MBS’s still generated $335 million of income in the second quarter (ibid, page WM-2). (However, I would love to see the new RTC purchase these for even 30 cents on the dollar as that would add another $6 billion to WaMu's cash).

WaMu’s gross interest income for the second quarter was $4.2 billion (similar to the quarter before), and after interest expense due on deposits and borrowings of $1.9 billion, yielded a net income of $2.3 billion for that quarter (ibid, page WM-2; it also reported additional net non-interest income of $561 million for the second quarter). The “loss” which WaMu reported against this income (which translates to a loss for the quarter) is a “PROVISION for loan losses”. That is not an actual out-of-pocket expense suffered by WaMu, but an amount set aside in anticipation of future loan losses based upon the statistics of non-performing loans measured during that quarter. However - and this is important - the loan loss provision of 5.9 billion dollars in the second quarter (ibid, page WM-2), has now been updated with a lower loan loss provision of $4.5 billion (as reported in the recent September 11th press release). WaMu is finally seeing the “bottom” of its non-performing loans. But more on those non-performing loans below.

Aside from the $18.2 billion of the mortgage backed securities, the majority of the loan portfolio owned by WaMu is proprietary in nature (i.e. WaMu owns them and services them) . The $52.9 billion portion of the proprietary portflio, those Option ARM loans in WaMu's portfolio, some of which are, no doubt, non-performing, or less than perfectly performing, are not threatening for two reasons:

(1) WaMu does not have to re-set a proprietary ARM. For instance, if WaMu is satisfied with its current overall income, and expects the California and Florida markets to recover (which they always do, and before all of the others), it need not “force” the higher interest rate on an ARM borrower, but instead agree to receive, for awhile longer, the lower option rate which was granted with the original loan (the borrower has a similar motivation to continue existing payments: the foreclosure alternative will affect the borrower’s ability to purchase another home for at least 7 years; it will also affect the borrower’s ability to rent a substitute home in the meantime (as landlords of the “better” homes do check a prospective tenant’s credit first); and who wants to move if they don’t have to?) In summary, there is no realistic threat from option ARM loans which WaMu can’t , in its own discretion, keep under control.; and

(2) if one or more of these Option ARM's becomes terribly non-performing, WaMu can pass it to the RTC - another 30cents on the dollar into the cash coffers.

In addition (though watering stock never quite assists the investor like it does the flowers in my backyard), WaMu does have an additional yet unissued 1.4 billion shares of capital stock - another way to generate capital and more cash for operating purposes.

So not all is lost.... wouldn't you agree?

And if not, be more specific with your facts, sir.

Generalized facts laced with hyberbole never helps the market or investors.

Michael Hanson, Tax Attorney

Trying To Find a Buyer for WaMu

TRJ27: maybe you shouldn't stop...even now.

If Mr. Paulsen can establish a new RTC and engender the transfer of WaMu's (and other banks') non-performing loans to the government's balance sheet, WaMu would instantly be a profitable company....in the high millions (almost a billion) per quarter (look at their last SEC filing and check the numbers).

I do find it interesting that although the financial impact on the government would be the same, establishing an RTC and moving "bad loans" into the government's hands has a much softer appeal than writing an $85 billion check here and there...and there again...and then some more.

It would appear like a "good parent" who simply says "I'll take care of it" and does so without the otherwise frightening appearance of writing large, bleeding checks which run the US coffers dry.

And, once the real estate market turns, which it will (or even before that), the government will be in an ideal position to both (1) convert those bad loans into workable loans with the ready assistance of their "left arm" Freddie and Fannie, or (2) sell foreclosed properties with their own new low-interest loans. Both should work wonders to stimulate the real estate market.... where all other banks now fear to tread.

The United States has always been better able to carry long term debt better than any financial institution or industrial or retail company.

They've been doing it since before you were born.

Paulsen's finally getting it right.

Trying To Find a Buyer for WaMu

Mr. G, you are on the mark! These days, constant and complete transperancy shuld be the rule

Trying To Find a Buyer for WaMu

A WaMu Pilot is Back on Board

A number of years ago one of my clients, a retired American Airlines pilot, was in my office to discuss his estate plan, relevant tax issues, investments, etc. The flow of our conversation digressed to his career – and the many flights he’d commanded on his usual route from Oakland to Chicago/O’Hare. Chicago always seemed to have its share of menacing thunderstorms; he always seemed to have his share of dealing with them when landing at O’Hare. He described a few of these “nerve-wracking” landings.

I asked him if the responsibility of some 180 souls in the seats behind him ever added to his stress at those times. His answer: “Nope…I just figured if I get my own butt onto the runway safely, the other 180 will follow”. I’m sure the 180 were glad their pilot was “on the job”.

Some good news for Wamu may have finally arrived. One of its pilots appears to be back in the cockpit, “on the job”, and making adjustments to help land the plane in this thunderstorm.

For the longest time now, many of the few who are still hopeful for the “long” smooth Wamu landing (as opposed to a “short” crash) have no doubt been watching, and with some understandable concern, what steps David Bonderman, and his TPG Capital investors might take concerning their significant stake in WaMu.

Motivation for the Pilot

Recall that in April of this year WaMu announced the existence of an “Investment Agreement” whereby WaMu issued to TPG Capital (TPG), 822,857 shares of common stock at $8.75 per share, and an additional 19,928 shares of a $100,000/share “Series T” preferred stock. The total infusion of cash from this issuance was $2 billion. In addition, WaMu entered into a series of “Securities Purchase Agreements” with a number of its major institutional investors. Under these latter agreements, 175,514,285 shares of common stock were issued to these investors at the same $8.75/share price, and an additional 36,642 shares of a “Series S” preferred stock were also issued at a $100,000/share price. This second infusion came to $5.2 billion. Total additional capital brought in was $7.2 billion.

In conjunction with these agreements WaMu sought shareholder approval to have the authorized shares of the company’s common stock increased from the existing 1.6 billion shares to 3 billion shares, and to have the TPG “Series T” shares and the institutional investor “Series S” shares both converted to common stock at the $8.75/share price. This proposal was ultimately approved by the stockholders of WaMu (June 24th), and approximately 646, 514,286 new shares of common stock were issued to TPG and the institutional investors . The total stock owned by TPG and the institutional investors, after this conversion was completed, was approximately 822,878,428 (roughly the same amount as the stock already then outstanding).

To protect WaMu, the Investment Agreement with TPG prevented TPG from selling its shares during the 18 month period following their acquisition (which means Mr. Bonderman and TPG are - - and this is important - - “on the hook” for the duration…). On the other hand, to protect Mr. Bonderman and TPG (because WaMu now had another 1.4 billion shares it could issue in order to raise capital), the Investment Agreement stated that (1) if WaMu, in that same 18-month period, sells more than $500 million of common stock or other equity-linked securities, or (2) engages in a change of control transaction which impliedly reduces the equity value of the TPG shares to less than $8.75, WaMu is required to pay TPG an amount to compensate it for the dilution sustained.

In addition to the shares held by TPG, David Bonderman himself was reported (in the Prospectus to the Special Meeting of Shareholders) to be the holder of approximately 1,280,008 shares of WaMu (as of June 30th he was reported to own 1,240,294 shares). Being either on or observing the Board of Directors meetings as the Investment Agreement allows (and we can assume otherwise regularly informed as to the on-going operations of the company), Mr. Bonderman is not likely to be selling much of his privately owned shares – where claims of exploiting insider information of WaMu would make him a ready target of litigation or, worse, prosecution. In short, he is “stuck” with those personal shares as well (most of which, by the way had to have been purchased in March - April when the price was about $10-15 share.

Mr. Bonderman and his TPG partners, James Coulter and William Price have a long, established reputation for generating significant profits for their private equity investors (one of which was, in 2002, the California Public Employees Retirement System). In June 2002 the San Francisco Chronicle reported TPG as having accomplished a “30 percent plus” average annual return. In 2005 and 2006, TPG was recognized by various members of the media for its stellar results. It was called "Firm of the Year" by Buyouts Magazine, "Best Global Firm of the Year" by Euromoney Magazine, and "North American Large Cap Private Equity Firm of the Year" by Global Finance Magazine.

Bottom Line: TPG, and Mr. Bonderman individually, have a sizeable 18-month monetary stake, and a reputation, to protect.

The Plane

Pilot or no, the landing can only be as safe as the airplane itself. So here are some of the facts which indicate the soundness (or un-soundness, your choice) of the WaMu aircraft.

WaMu’s retail deposits at the end of August were $143 billion (SEC Form 8-K and related press release of September 11, 2008)

Wamu’s Tier 1 leverage and total risk-based capital ratios as of June 30, 2008 were 7.78% and 13.98% (SEC Form 8-K reported July 22, 2008, Exhibit 99.2, page WM-1). Compare these to the June 30, 2007 (year before) ratios of 6.07% and 11.04%, respectively (ibid). These figures are significantly above the regulatory requirements for well capitalized institutions.
The Fannie and Freddie bail-out hit WaMu to the extent of only $280 million (press release of September 11th); recent news articles repeat Wamu’s statements to the effect that the company had “de minimis trading exposure to Lehman Brothers Holdings and no trading exposure to AIG." Downgrading WaMu’s credit rating primarily due to market conditions, Standard & Poor’s acknowledged that WaMu had enough cash to get through 2010.
WaMu’s exposure to the type of bond investments which killed Lehman and almost killed AIG is limited. Of the $239.6 billion of loans held in WaMu’s portfolio, only 18.2 billion (or 7.6%) are the dreaded “mortgage backed securities” (SEC Form 8-K reported July 22, 2008, Exhibit 99.2, page WM-4). And these MBS’s still generated $335 million of income in the second quarter (ibid, page WM-2).
WaMu’s gross interest income for the second quarter was $4.2 billion, and after interest expense due on deposits and borrowings of $1.9 billion, came to a net income of $2.3 billion for the quarter (ibid, page WM-2; it also reported additional net non-interest income of $561 million). The “loss” which WaMu reported against this income (which translates to a loss for the quarter) is a “provision for loan losses”. It should be noted that this is not an actual out-of-pocket expense suffered by WaMu, but an amount set aside, prudently, in anticipation of future loan losses based upon the statistics of non-performing loans measured during that quarter. However - and this is important - the loan loss provision of 5.9 billion dollars in the second quarter (ibid, page WM-2), has now been updated with a lower loan loss provision of $4.5 billion (as reported in the recent September 11th press release). Is WaMu seeing now, finally, the “bottom” of its non-performing loans (i.e. is the plane is pulling out of the dive)?.
Excepting the $18.2 billion of the mortgage backed securities, the majority of the loan portfolio owned by WaMu is proprietary in nature. This would mean that the $52.9 billion of Option ARM loans need not be recast. For instance, if WaMu is satisfied with its current overall income, it need not “force” the higher interest rate on an ARM borrower, but instead agree to receive, for awhile longer, the lower rate option which was granted with the original loan. The borrower has a similar motivation to continue existing payments: the foreclosure alternative will affect the borrower’s ability to purchase another home for at least 7 years. It will also affect the borrower’s ability to rent a substitute home in the meantime (as landlords do check a prospective tenant’s credit). And who wants to move if they don’t have to? In summary, there is no realistic threat from option ARM loans which WaMu can’t , in its own discretion, keep under control.
The Weather Outside, and Other Factors
The Media Storm. Continues unabated - with its hyperbole, sensationalist headlines and articles. Not too much of it is “balanced”. And all of it making the long and soft landing of WaMu (and any other financial institution or investment bank)) more difficult that it has to be. Does the media actually want the financial sector to fail? Do they actually want to see a larger crash? Kim Jong Il, Mahmoud Ahmadinejad, the nihilistic media.
The “shorts”. Best compared to the gremlin who, in that Twilight Zone episode, was ripping at the wings of the aircraft. The ultimate question is whether SEC chairman Christopher Cox will continue to allow this form of market manipulation – which is, like that gremlin on the wing and “out of reach” (and in this writer’s humble opinion), an unfair assault on all arguably “troubled” and even some otherwise “stable” companies. Nonetheless, in this case, the gremlin is already busy.
The Pilot is Adjusting for Final Approach
David Bonderman has just recently waived the anti-dilution provisions of the original WaMu/TPG Investment Agreement. This opens the door to another investor or investors. It is not an abandonment of WaMu to federal regulators or another Resolution Trust Corporation. Mr. Bonderman could achieve those results by simply doing nothing.

The ultimate question now is what runway awaits the WaMu landing.

Will the remaining 1.4 billion shares be issued to a sovereign fund? To the Fed, to secure another AIG-type bridge loan? To J. P. Morgan to expedite a merger?

It’s going to be one of these.

You guess…and then guess the price.

Credit Default Swaps: The Show Isn't Over

I don't agree that these CDS's are a true measure of anything other than the over-emotional reaction of some regarding the status of debt. The CDS market is not regulated or monitored by any official agency. How is this then any different from tarro cards or crystal ball readings.... or the more precise astrological interpretation of the heavens?

How do we know that WaMu isn't selling CDS's on its own debt just to make an extra buck? They could just keep selling them at greater incremental spreads, day after day, each sequential CDS at a higher premium that the day before. Fuel the fire each day with a higher priced CDS...and clean-up on your own debt. Beautiful!