Insiderman

Did the FDIC Sabotage WaMu's Management and Erode Investor Confidence?

Steve Liesman of CNBC has interesting commentary on Treasury possibly forming "The Club" of banks that are 'helping' by taking over the troubled banks. He included Bank of America, Citigroup (now that they are taking over Wachovia), JPMorgan, Goldman Sachs, and Morgan Stanley. If you're in the group, you're safe.

That effectively means that no company outside the group can raise capital. Only the big five will be able to raise capital to fund their purchases (at bargain basement prices).

If these are the smartest guys in the room, I'm in the wrong room.

WaMu Shows, Again, Smart Money Can Be Wrong

The whole WaMu takeover is so bizarre.

First, FDIC seized WM on a Thursday and immediately gave it to JPM. This implies that FDIC had agreement from JPM to do the deal. WM was in the process of finding a suitor, and JPM was one of the suitor candidates earlier in the process. JPM must have been contacted shortly after they did their due diligence because they had an offer ready. This means that FDIC KILLED any prospect of JPM purchasing the company before seizure. There ought to be a lawsuit against somebody in there somewhere.

Second, FDIC was out of money. They get $1.9 billion in the deal to help bail out other troubled banks. That's not how the FDIC system was supposed to work. FDIC's funds were supposed to come from insurance premiums, NOT from equity shareholders and subordinated debt. Low premiums created a moral hazard for this situation within the FDIC, who desperately needed more money to cover potential upcoming closures.

Third, Warren Buffet and Jamie Dimon are totally dependent on the $700 billion Washington financial system bailout for their deals to bear real fruit. This means that there is ... once again... tremendous pressure on Barney Frank and Chuckie Schumer to come through for their buddies on Wall Street. Every Democrat in Washington (well almost every Dem) gets contributions from these guys.

Fourth, letting the beneficiaries of Wall Street contributions (Frank, Schumer) manage the bailout deal is so incredibly remarkable! No wonder that the part of the country 20 miles away from Wall Street is ready to cut off their own noses to spite their own faces and let Wall Street fall into the Atlantic.

Fifth, all the major offenders in this situation got up in Switzerland and spoke about how THEY controlled risk. Frank and Schumer have done nothing as heads of their committees to ensure that this was actually taking place. Paulson and Bernanke have known about the Level III asset risk forever and have done nothing.

So government was the problem when they said we have to subsidize home ownership for low income and minority buyers who couldn't come up with enough down payment/ monthly payment/ funds to fix up their property. Government was the problem with a system where contributions bought concession on regulation of risk. Government was the problem when contributions bought concession on oversight to ensure markets stay free. Now the recipients of these contributions think we should bail out the companies that took advantage of this system.

The original deal doesn't even pass the smell test.

Credit Default Swaps: The Show Isn't Over

Maybe part of the answer would be to require derivatives trades to match up, much like short sales are supposed to (within 13 days, anyway), with the underlying. Let's say there is one share left after all the puts and shorts are taken into consideration. Why does it somehow make sense to let someone buy/sell a put for 100 shares, 99 of which are already "net" gone?
I guess one of the big reason options models don't work all that well is that they fail to address demand/supply constraints.

WaMu Racing Toward Nowhere

How ridiculous that you would imply that there are sanctions against WaMu. They signed a memorandum of understanding that essentially required them to do nothing important.

newsroom.wamu.com/phoe...

WaMu Provides Update on Expectations for Third Quarter Performance
-- Provision expected to be approximately $1.4 billion less than
second quarter while company continues to build reserves

-- Long-term credit outlook unchanged

-- Liquidity stable at approximately $50 billion

-- Capital significantly above "well-capitalized" levels

This report showed 7.76% Tier 1 leverage. 6 is good and 8 is grand.

Seems to me you're doing a "Palin" on this stock without position disclosure.

Two Fight Back - Cramer's Mad Money (9/11/08)

WaMu says they have capital. Cramer says they don't. Which one do you believe?

I believe the possibility of WaMu doing a "Bad Bank" much like Lehman is doing by separating their Commercial business and CMBS.

Cramer is an idiot with an occasional good idea and a tight stop loss for all his bad ones.

WaMu Leads Regional Banks to Painful Sell-Off

And let's say an acquirer buys at 0.27 on $1 par (which Citadel paid earlier in the year). They show the assets at cost and write down only if necessary. This 0.27 assumes a 73% failure rate. Does anyone think that 73% of loans will fail?

WaMu Leads Regional Banks to Painful Sell-Off

Seems to me like an international firm could purchase WM without having to write to market under IAS 39 (see exception "a"):

"After initial recognition, an entity shall measure financial assets, including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except for the following financial assets:
(a) loans and receivables as defined in paragraph 9, which shall be measured at amortised cost using the effective interest method;
(b) held-to-maturity investments as defined in paragraph 9, which shall be measured at amortised cost using the effective interest method; and
(c) investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, which shall be measured at cost (see Appendix A paragraphs AG80 and AG81)."

WaMu's Fishman Already Misses the Mark

WaMu said it has agreed to provide the OTS "an updated, multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance." The company said the plan will not require it to raise capital, boost liquidity or change customer products and services. - marketwatch.com

WaMu: Speculative Value Play

For wamuhomeowner: Where was your attorney in all this?

What about government intervention? Any thoughts about the government letting the largest thrift fail?