Insiderman

Why Lehman Wasn't Saved

I find it interesting that WM is even included in the discussion. Lehman bought and sold securities with underestimated or indeterminate risk, as the result of everything from GSE backing to originator misrepresentation. WM has loans that they made and better understand the risk of failure for these securities. They have reserved for the losses, have plenty of capital (almost 8% relative to a 6% "good" level), and in spite of blog postings to the contrary, don't appear to be seeking a buyer.

At the very worst, WaMu investors have a really good basis for lawsuits if new CEO Fishman's statements to date are just smoke. And he is no dummy, so I'm guessing he knows what he's talking about.

Most of WM's problem appears to be option ARMs, most of which have about two more years to reset, and many of which are in the process of renegotiation rather than going bad. About 6% of $52 billion in option ARMs appear to be non-performing.

One move that WOULD push non-performance is the prospect that the Federal government will bail out non-performing homeowners. Talk about moral hazard! (But, then, we take care of medical care for illegal aliens and drug abusers that can't pay their own freight.)