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So Wamu Failed With $4 Billion In Deposit?

*This is essentially a brief, updated summary of all my posts on the FDIC*

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“Washington Mutual Inc. has tentatively resolved disputes with JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. over some $4 billion at issue in the bank holding company's Chapter 11 bankruptcy, a WaMu attorney said Friday.
The FDIC seized Washington Mutual's flagship bank in 2008 and sold its assets to JPMorgan for $1.9 billion. The sale resulted in the two banking companies and the government agency trading lawsuits over roughly $4 billion in disputed deposit accounts.”
Wamu was taken over by the FDIC due to "liquidity pressure," but according to this settlement proposal, it actually had $4 billion in deposit at the time of seizure?  It was then sold to JP Morgan for $1.9 billion, with the bank run already slowing down and passage of TARP within days of its collapse?

Personally, I have no idea why nobody important and influential in our government has stopped the FDIC from power grabbing and forced this insurance corporation to focus on its Congressional mandates on deposit protection, bank supervision, and proper management of receiverships.
Bear in mind this was the same regulatory agency which had no trouble wiping out billions in pension fund investments in Wamu, yet merely days later and in complete contradiction to its earlier action, launched TLGP to protect new bondholders at Goldman Sachs and Morgan Stanley:
"The Washington State Investment Board's funds will lose about $47 million because of the failure of Washington Mutual, state officials tell KIRO 7 Eyewitness News… Florida's Pension, Hurricane Funds Have Millions In WaMu Holdings… Pension fund (Florida Retirement System): $42.18 million in WaMu holdings... Florida Hurricane Catastrophe Fund: $41.28 million... At least seven pension funds lost their private equity investments in Washington Mutual, following its failure and subsequent purchase by JPMorgan Chase... Investors in the $19.8 billion TPG VI include CalPERS, New York State Common Retirement Fund, Illinois Teachers' Retirement System, Washington State Investment Board, Los Angeles City Employees Retirement System and the San Francisco City & County Retirement System."
“The Subsidy That Won't Die… The big banks claim the government isn't helping them anymore. Not exactly. Check out this little-known subsidy… Under the TLGP, the Federal Deposit Insurance Corp., which is ultimately backed by the taxpayers, would guarantee debt in exchange for fees paid by the banks issuing debt.
The TGLP was ended to new entrants in June 2009 and thus far has gone without a loss. But the fact remains: Private companies were allowed to borrow massive amounts of money—$345 billion at the peak in May 2009—on the public's credit. At the end of the third quarter, there was still $313 billion outstanding.”
If people don’t start paying attention to Ms. Bair and her agency right now, soon there would be no money left in your savings or retirement funds. She would do anything to keep her agency running, even if it meant “ stealing a man’s wallet involved in a severe car accident or rolling a drunk passed out on the sidewalk outside of a bar.”
“Pension plan administrators have plenty to worry about between sub-par returns, unfunded payout liabilities, and illiquid assets stuck in their portfolios. Now they're being urged to compund past mistakes with even more stupidity:
U.S. regulators are encouraging public pension funds that control more than $2 trillion to inject capital directly into the banking system by buying failed lenders, said people briefed on the matter.”

The truth was, the FDIC not only underestimated the severity of the impending financial crisis, it also displayed brazen and reckless conceit when it waited until early 2009 to ask Congress for more money, despite warnings from media outlets as early as September, 2008:

“FDIC’s Bair Seeks $100 Billion Credit Line, May Cut Banks’ Fee”
“Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a ‘bailout.’”
The insurance fund is now in the red while the DIF ratio continues to plummet.

“The Federal Deposit Insurance Corp. said that its deposit-insurance fund fell to minus-$20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was minus-0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund.”
So how does the FDIC guarantee trillions of our deposits with a negative balance?
Make no mistake.
The FDIC has basically delayed its own demise by not doing its jobs and blaming and stealing from all bank stakeholders. Although it eventually received up to $500 billion in credit line from Congress, in order to maintain a positive public image as an independent and effective entity, the FDIC has refused to use this taxpayer-backed fund.
However, as some gradually came to realize, the only reason the agency has not used that money was because it has been avoiding its duty in closing insolvent banks. How ironic that the zombie banks themselves had to resort to using official SEC filings to gain regulatory attention, which resulted in higher losses to the insurance fund when they were finally shut down.
“In their filing, the Corus officers even went so far as to remind the FDIC of its regulatory obligations:
[T]he Bank reported negative equity capital as of June 30, 2009. As such, the Bank expects to be notified by the OCC that it is ‘critically undercapitalized’ within the meaning of PCA capital requirements.
Under the FDI Act, depository institutions that are ‘critically undercapitalized’ must be placed into conservatorship or receivership within 90 days of becoming critically undercapitalized”

"FDIC Sold $470 Million Commercial Loans In March At 46.4 Cents On The Dollar... The facts: in April, the average auction clearing prices on the 331 loans the FDIC sold in January and February was 49.3%.  In March, the number of loans FDIC sold... with the average price dropping even more: the latest being 46.4%."


From the numerous reports released by the Office of Inspector General, the public also learned that all of the financial regulators, including OCC, OTS, the Fed, and the FDIC, conducted poor oversight and contributed to this system wide collapse in the banking industry.
Yet when Ms. Bair testified in Congress against the Fed, did she bother to mention that the FDIC was the primary federal regulator for Class NM and SB banks, many of which also failed due to participation in reckless lending? I didn’t think so.
Why were the interests and welfare of taxpayers sacrificed to rectify irresponsible actions and mistakes by government regulators?
For example, take a look at the IndyMac uninsured depositors who lost millions of dollars. True, those were uninsured deposits, but why should these innocent people lose their savings because the regulators allowed illegal backdating of capital infusion to keep an insolvent bank open longer and allow it to attract more deposits?
“In a Jan. 30 letter to Treasury Secretary Timothy F. Geithner, Reich said that IndyMac's independent auditors and the FDIC also knew about the backdating plan and ‘raised no objections…’
OTS, in its role as the lead examiner, could have stopped the bank from offering those high rates.
But IndyMac was allowed to bring in at least $90 million in new uninsured deposits from people like Hodgson, right before it collapsed.”
Then there were the Colorado farmers and ranchers who faced liquidation of their assets unless they found new loan servicing after New Frontier Bank failed. The FDIC initially gave them 30 days. Yes, only 30 days in the midst of the worst credit crunch after the regulators finally decided to do their job and shut down the bank.
“FDIC Watched as ‘Hot Money’ Boomed at New Frontier…
While Greeley, Colorado-based New Frontier’s loan losses rose, it took almost two years for state and federal regulators to shut the bank -- a delay that may have made the closing more costly.”
By the way, have you read about the sweetheart IndyMac sale mediated by the FDIC to OneWest?
“The blog, which ended up being the basis of the recent video produced by Think Big Work Small (without my knowledge or consent, by the way) deals with a transaction I handled for one of my clients with OneWest Bank… it centered on shared-loss deals, and how they are creating a disadvantage for consumers trying to accomplish loan modifications or short sales.”
Of course the agency denied the allegation and claimed the deal to be the least costly solution. However, the FDIC did not tell you that this and other loss-sharing agreements had to be so freaking generous because the regulators failed to conduct prudent supervision or follow Prompt Corrective Action. 
""Loss-Share': FDIC Offers Billions in Guarantees For Buyers Of Failed Banks"

Now according to the FDIC it has not paid OneWest a penny yet. However, LA Times pointed out that the agency might still lose billions.
“OneWest bank profit: $1.6 billion… As IndyMac, it sold last year for less than that. Investors win, but the FDIC could still lose nearly $11 billion on bad loans that the Pasadena institution made before its sale”
This "not a penny yet" argument sure sounded a lot like that incredulous “no-risk insurance” excuse given to the NY Times from the FDIC on providing financing for PPIP. 
" 'We project no losses,' Sheila Bair, the chairwoman, told me in an interview. Zero? Really? 'Our accountants have signed off on no net losses,' she said. (Well, that’s one way to stay under the borrowing cap.)
By this logic, though, the F.D.I.C. appears to have determined it can lend an unlimited amount of money to anyone so long as it believes, at least at the moment, that it won’t lose any money."
No wonder Bloomberg cynically defended troubled banks for using accounting tricks to hide their true financial states.  They learned from the best!

"Fudging Losses Is Easy When the FDIC Does It, Too"

Do I need to repeat the fact that the FDIC insurance balance is now negative? Where did it get the money for these ZERO PERCENT INTEREST, NON-RECOURSE loans for deals with private investors like Lennar?
“Lennar... has purchased a 40% interest in the loan portfolios, while the FDIC is keeping the remaining 60% equity interest. The FDIC provided $627 million of financing at no interest for seven years.
With FDIC kicking in about $365 million in equity, Wall Street analysts pegged the portfolios' overall purchase price at $1.22 billion, or 40 cents on the dollar"
Why were these unelected government officials not held accountable for their negligence in supervision and incompetence?
The FDIC was created to ensure public confidence and promote stability in our financial system. Unfortunately, many of Ms. Bair’s actions were counterproductive and often introduced chaos to and panicked both Wall Street and Main Street. The seizure of Wamu based on liquidity pressure, when the bank's numbers for meeting regulatory requirements were better than many other banks', and the decision to wipe out its bondholders, near the very beginning of the current financial crisis, were clear examples.

"Washington Mutual had a Tier 1 capital ratio of 8.4 percent on Sept. 30, well above the 6 percent threshold that regulators use to classify a bank as well capitalized. JPMorgan Chase (NYSE: JPM), which purchased WaMu had a similar ratio of 8.9 percent. Wachovia... had a capital ratio of 7.5 percent as of Sept. 30, compared to Wells Fargo’s 8.6 percent. And National City had an 11 percent capitalratio, and yet had to sell out to PNC Financial Services (NYSE: PNC). By comparison, Bank of America (NYSE: BAC), considered one of the bedrock financial institutions, had a capital ratio at the end of the third quarter of 7.6 percent."

"Washington Mutual, which already essentially 'went under' by nature of forced acquisition, has a tangible book/asset ratio of 3.66. And that number is on the higher end of the scale/list. So, the thinking would be that many of the institutions with ratios lower than that could potentially be in trouble as well.
The US banks & their tangible book/asset ratios:
BB&T (NYSE:BBT) 6.86
PNC (PNC) 5.87
Northern Trust (NASDAQ:NTRS) 5.51
Goldman Sachs (GS) 4.86
Morgan Stanley (NYSE:MS) 4.35
JPMorgan (JPM) 3.83
Washington Mutual (NYSE:WM) 3.66
Wells Fargo (WFC) 3.50
Merrill Lynch (MER) 2.84
Bank of America (BAC) 2.83
US Bancorp (NYSE:USB) 2.74
Lehman Brothers (OTC:LEHMQ) 2.39
Citigroup (C) 1.52"

"Right before Washington Mutual failed, its TCE ratio was 7.8%."

Which bank would lend out money, and not hoard it as deposits at central banks, if their primary regulators and the FDIC were going to come along and take over even if the bank was not insolvent?
"The amounts deposited with the ECB [European Central Bank] rise from a daily average of 0.09 billion euros in the week starting September 1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."
12. Based on my review to date, there is no indication that the OTS performed a solvency analysis consistent with the test for insolvency specified in the Bankruptcy Code.’"
What investors would buy bonds to loan banks money if the FDIC could wipe them out even if their banks did not go bankrupt?
"’The first thing that happened this morning: credit-default swaps blew out on Wachovia... Wachovia bondholders are wondering if they're next,’ Sauter said. Translation: options on Wachovia bonds showed confidence in the securities had collapsed. ‘Wachovia is on the ropes now because their financing costs are going through the roof. It's an absolute reaction against how FDIC sold WaMu.’"
With its handling of the Wamu seizure alone, the FDIC essentially exacerbated the credit crisis, destroyed the bond market, and expedited the downfall of Wachovia.
Speaking of Wachovia, what in the world was the FDIC thinking when it decided to force such a large bank to sell itself in one weekend? How did Ms. Bair determine Citigroup was strong enough to “rescue” Wachovia?
The same Citigroup that needed government assistance just one month later?  No, the graph below is not a mistake.  The vertical axis that measures the amount of subsidy is in BILLIONS.
Why was Ms. Bair never asked about this by Congress or questioned by most mainstream media outlets?
This initial Wachovia deal rushed by the FDIC, in which the bank was sold for $1 per share, absolutely failed to promote any investor confidence:
“Wachovia saw its share price plummet 90% to below 70¢ when Wall Street opened today. Federal regulators helped to arrange a deal in which Citigroup will take on $42 billion (£23 billion) of losses on a $312 billion pool of loans held by Wachovia, which has a portfolio of risky mortgages.”
As if these actions didn’t destabilize the financial system enough, with its DIF ratio below the Congressional mandatory minimum since June 2008 and not enough money to pay depositors at future failed banks, Ms. Bair decided to sponsor TLGP, a bond guarantee program. 
Remember how Ms. Bair’s boasted that the FDIC was not in the business of saving Wamu bondholders?
Remember her adamant refusal to help Wachovia stay independent because the FDIC was not in the business of bailing out institutions on the verge of collapsing?
In the Wamu case, thousands of jobs were destroyed and billions of investments were wiped out:
"Up to 19,000 employees of Washington Mutual face being laid off this weekend as JPMorgan Chase turns up the synergy on its recent acquisition."
Yet all of a sudden, the FDIC changed its stance and decided the agency could save shareholders and bondholders after all. Yes, the FDIC, instead of seizing these banks and wiping out their bondholders like it did with Wamu, would now help newly converted bank holding companies such as Goldman Sachs and Morgan Stanley raise capital to fight liquidity pressure.
Great. Screw the ones (Wamu and Wachovia) that have been paying insurance premium (not that the FDIC collected any premiums for years but thanks to whoever got Congress to approve this power and to Ms. Bair for actually carrying it out) and save the ones that barely started.
“The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006… Congress did not grant the authority for the fees until 2006, just weeks before Bair took over the FDIC.”
Ms. Bair also helped JP Morgan raise over $40 billion via TLGP. This was another inexplicable action, since the agency sold Wamu to that bank for only $1.9 billion.
The FDIC currently backed over $300 billion of bank bonds for a select few “banks,” including GE and GMAC, and this blatant act of nepotism to the elite few continued:
“FDIC Postpones Capital Requirements for Wells Fargo (NYSE:WFC), Citigroup Inc. (NYSE:C), Bank of America Corp. (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM)”
Are you ready for more shocking news about TLGP?

We all knew Ms. Bair was anti-bonus, right?

“Wall Street watchdog Sheila Bair blasts 'shameful' bonuses”
Unfortunately, when her agency actually had some control over limiting executive compensation on the capital raised via TLGP, it didn't.

"TO ESCAPE FEDERAL INTERFERENCE ON PAY AND OTHER MATTERS, Goldman Sachs and other big financial firms are eagerly seeking to repay the government's TARP equity investments.
But none of them are talking about leaving a Federal Deposit Insurance Corp. bond-guarantee program that benefits them much more. Goldman (ticker: GS) has issued $29 billion of low-cost debt through this FDIC program; Bank of America (BAC), $44 billion; and JPMorgan (JPM), $38 billion. In total, about $340 billion of debt has been sold under the six-month-old arrangement, called the FDIC Temporary Liquidity Guarantee Program (TLGP)."
Ms. Bair also made a speech noting the importance of “redefining Wall Street banks.”
“Bair stated that the term should describe only FDIC insured institutions who guarantee customers deposits, rather than Wall Street investment banks and financial firms which offer no guarantees concerning their customers money.”
However, she forgot to tell you that these investment banks actually had more money to place risky bets because they didn’t need “to hold any capital against TLGP-guaranteed bonds.”
Even more baffling, while the FDIC was willing to help banks raise billions of dollars with no restriction whatsoever on how the money was used or sign generous loss-sharing agreements, it refused to force new bank owners to guarantee CD rates for average consumers.
“When Banks Fail, So Do Those Promised CD Rates… An astonished Scott received a letter from the FDIC, similar to thousands that quietly have been sent to customers of failed banks around the nation in recent months: ‘Your deposit agreement with the Failed Institution is no longer in force.’”
Equally perplexing, as the rest of the government was trying to solve the credit crisis, the FDIC was conducting "bankruptcy lotto" that discouraged lending.

"Here's how the process works: On 'bank failure Friday, the FDIC matches banks with sufficient capital to failing banks, taking into consideration size, location, and assets.
By spreading out the number of bank failures over many months, the FDIC gives that small percentage of well capitalized banks a further reason not to lend for as long as the weekly lotto continues. Remember, the reason these banks are not in trouble in the first place is because they had prudent lending standards.
Now we have yet another reason: Why make loans when you might win a hell of a lot more in the Friday lotto by doing nothing?"

Recently the FDIC began doing a lot of hiring for increased bank failures. However, a growing number of people have started to wonder how many of these institutions didn’t really, or have to, fail.
“Realtor Peter Parnegg pulls no punches when it comes to his opinion of the Jan. 22 federal seizure and sale of Albuquerque’s Charter Bank to a Texas-based bank.
“This is as absolute a heinous crime as there is. They stole that bank – the government stole that bank from its rightful owners,” said Parnegg, CEO of Coldwell Banker Legacy, the largest residential real estate firm in New Mexico.”
“First Bank of Idaho/FBOP/San Joaquin Bank: Premature FDIC Seizures And Waste Of Insurance Fund”
I believe under Ms. Bair, the FDIC has focused on power expansion, instead of following its mandates to protect deposit, supervise banks, and conduct proper and fair management of receiverships.
Among the many questions that our government must address regarding the FDIC actions throughout this financial meltdown: 
First, did the FDIC have the right to back bonds and deals with money the agency didn’t have and that were essentially done with unlimited and implicit tax dollar guarantee? This happened even before Congress approved an extension of $500 billion in credit line to the agency.
Second, did the FDIC have the right to prioritize sustenance of its survival over the stability of the financial system for which it was created to protect, especially when the agency itself was partially responsible for its lack of funding and thus viability?
For instance, why did the agency collect prepayment from banks to boost its own insurance balance, in the red due to massive bank failures from poor regulatory supervision as well as years of lack of premium collection, even though this action might hurt some responsible banks as well as lending opportunities for consumers and small businesses in the middle of a severe credit crunch?
"Edward L. Yingling, president of the American Bankers Association... this prepayment will decrease the ability to lend"
Another example was the FDIC’s decision to allow JP Morgan to write Wamu assets down drastically without proper evaluation in its bank sale. This lack of understanding in the grand scheme of things on behalf of the insurance agency continued today, resulting in lowered asset values which negatively affected all banks and their balance sheets and disrupting the financial system further.
“A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger writedowns that weaken lenders nationwide… The FDIC is not in the business of managing loans, so they do have to sell them. But they also have to look at the bigger picture and take a global approach by liquidating those assets without hurting the banks that bought participations”
Third, did the FDIC have the right to offer generous loss-sharing agreements behind the scene, essentially sabotaging troubled banks’ attempts to raise capital to remain independent, or to find new buyers? What was worth noting was that many of these banks were important to their communities, and dreadful consequences often ensued their failures in the local economy.
Fourth, did the FDIC have the authority to sell banks and reach its least costly solution without following any strict guidelines, where millions of bank stakeholders could either be rewarded or sacrificed at random?  It is important to note that the agency’s actions and decisions have been arbitrary and inconsistent, lacking transparency and open formulas.  For example, the FDIC spent months finding what it deemed to be the best deal for BankUnited, even rejecting a higher bid, and yet it sold Wamu in a one day fire-sale.
“Flowers’s Higher Bid for BankUnited Assets Lost to Kanas Group”
“While the FDIC is tasked with selecting the ‘best’ offer for failed banks, and regularly certifies that the bid it selects offers the “least costly” resolution, the BankUnited bidding records illustrate that the actual process is less transparent and more complex than simply comparing asset discount rates and deposit premiums.”

The fact is, this government insurance corporation should focus on protecting our savings and carrying out the rest of its mandated missions.  It should not be in the business of loan modification. It should not be in the business of backing bank bonds. Most certainly it should not be in the business of financing zero-interest, non-recourse loans for private investors.
Worse, many of the agency’s pet projects (e.g. loan modification) that it deemed beneficial to the public and to be within its jurisdiction (through the FDIC's own loose interpretation of its power) actually failed, including some that were in conflict with Ms. Bair’s effort against foreclosure.
“The Federal Deposit Insurance Corporation's (FDIC) two-year small dollar loan pilot program is proving to be a failure after one year, according to a recent critique of the program issued by Financial Service Centers of America (FISCA)."

"Half of U.S. Home Loan Modifications Default Again"

“What you probably haven’t heard before is that these victims are being foreclosed on by the Federal Deposit Insurance Corp., a federal agency that generally pushes to keep people in their homes by reworking loans rather than foreclosing them.”
You can continue to listen to the sweet melody coming out Ms. Bair’s mouth and support the Congress to give her more power, or you can open your eyes real wide and assess the effectivenss and fairness of her actions and the truthfulness of her words.
“It would enable the government to come in, repudiate employment contracts, pick and choose who you want to keep, who you want to get rid of, what you want to pay them, replace the management, get rid of the boards and bring in better management.”
Are you kidding me? 
Do you believe this is the correct current interpretation of authorities granted to the FDIC over even financial institutions?
No government agency could always be right, and one judge agreed:
“The Federal Deposit Insurance Corp. (FDIC) suffered a rare court defeat Tuesday, as a federal judge sided with a bank that had challenged an enforcement order.
The FDIC had attempted a preemptive order against the $10 million-asset Advanta Bank in December to prevent dealings with its bankrupt parent from harming the institution, citing special authority to preclude Advanta from challenging the order.
But U.S. District Court Judge John Facciola agreed with Advanta, a limited-purpose bank based in Delaware, that the FDIC misused its authority.”
How many cases like this are out there? Our Congress needs to stop the tyrannical powers by our financial regulators, NOW. A prudent financial reform bill must include strict oversight on these same individuals. No unelected officials should be able to wipe out billions of dollars in investments and savings and destroy thousands of jobs because they themselves failed to follow rules and do their jobs in a proper and fair manner, as well as without performing meticulous evaluation of the institutions they regulate and taking into account the economic pressure and circumstances surrounding the failed banks.
Unfortunately, Senator Chris Dodd’s newly proposed financial regulation bill still does not address this particular area. If bank stakeholders must “bear losses,” then the ones policing the banks should also share the blame. For, if these government financial experts are so incompetent that they are unable to prevent banks from collapsing overnight following years of supervision, then why do we even need regulators in the first place?
“Orderly Shutdown: Creates an orderly liquidation mechanism for the FDIC to unwind failing systemically significant financial companies. Shareholders and unsecured creditors will bear losses and management will be removed.
Liquidation Procedure: Requires Treasury, FDIC and the Federal Reserve all agree to put a company into the orderly liquidation process. A panel of 3 bankruptcy judges must convene and agree - within 24 hours - that a company is insolvent.”