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Old 05-19-2009, 11:01 PM   #1
orthodoxymoron
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Default The Washington Mutual Story

The following link is to a site devoted to a post mortem of the forced demise of Washington Mutual: http://www.wamustory.com/ Maybe it's good to take a 'break' from all of the esoteric and sensational topics...and simply begin to look at the details of the Financial 9/11 most of us have been subjected to. 9/11/2001 seems to keep being swept under the rug...and I suspect that the Financial 9/11 will also be swept under the rug. However...we should not be ignorant of the true facts of each event. The following is the short version from the linked site which details what happened behind the scenes, and reveals the how and why of this robbery that hides behind the word 'seizure':

The history of the seizure of Washington Mutual is a long and complex story that appears to have started in April of 2008, when WMI/WAMU bank found the need to raise capital due to bad loans. JPMorgan made an offer, at that time, to buy Washington Mutual for $8 per share (1.7 Billion shares ourstanding equals $13.6 Billion). JPMorgan wanted to expand their banking operations to the west coast. This offer was rebuffed by Washington Mutual as being too low, and instead WAMU got the funds it needed through private equity. TPG and several associates pumped about 7 billion dollars into Washington Mutual.

Many banks were coming under fire from short selling in the summer of 2008, and 19 banks were put on a list not to be shorted in July 2008. Washington Mutual asked to be put on that list and was refused. The American Bankers association also complained that more banks needed to be put on the “no short” list, as they feared banks not on the list would become targets. Paulson later admonished Washington Mutual executives that they should have sold to JPMorgan and that things would get a lot worse for them. One wonders if this was a prediction or a threat, given the things that happened to Washington Mutual within a few months.

In September, many banks and other financial institutions began to have financial difficulties. Several had failed, and several had been saved in late September. (Later the determination of who would be saved became even more unfair as the government sunk $300 billion into Bank of America ) Washington Mutual was in the news often, after the failure of Lehman Brothers--reporters shifted gears to put the focus on Washington Mutual, claiming the bank was in serious trouble, and later reporting that the FDIC had announced WAMU had to sell itself. One CNBC account showed a long line of depositors at a bank, claiming it was Washington Mutual. By the time they corrected their error, one commercial later, the damage had been done. In the next 10 days, 16.7 billion dollars was withdrawn from Washington Mutual accounts.

The OTS website press release reported that most of the money withdrawn was from accounts that were over the $100,000 FDIC insurance threshold. If this is true (and why would one doubt the OTS who had a birds eye view of what was happening) then the bank run would seem to be a self limiting event. Regardless, Washington Mutual came under fire from the OTS, after pressure from the FDIC and was seized and sold within a matter of hours. News later surfaced that the FDIC and JPMorgan had been in discussions about the seizure/sale for 3 weeks.

Although is was never suggested that Washington Mutual was undercapitalized (in fact their capitalization ratio was 8.4% -- well above what was required), the OTS seized Washington Mutual on the basis that liquidity had become a problem and it contended Washington Mutual was operating in an unsafe and unsound condition. The OTS has never published any specific information on that, and indeed evidence filed in the Chapter 11 bankruptcy shows that not only did Washington Mutual have 4.4 Billion dollars in cash, it also had access to borrow 50 Billion dollars from a secondary window at the Federal Reserve in San Francisco. The Landefeld Amendment appears to demonstrate that indeed liquidity was not an issue at all. The question that remains in shareholders minds today is why was a bank that was liquid and well capitalized seized?

The OTS ordered the bank to sell itself, but while Washington Mutual was trying to sell itself, the 700 Billion dollar bailout was pending, and banks were hesitant to make a bid, given that unknown. Additionally, the FDIC was going behind Washington Mutuals back and trying to solicit bids for the bank, offering those banks a better deal than Washington Mutual could. Two factors were working against Washington Mutual in the sale. The pending bailout, and the FDIC soliciting bids. The FDIC had apparently already made up its mind that it was going to auction off Washington Mutual, apparently ignoring Washington Mutuals ability to borrow $50 Billion in cash from the Federal Reserve Window in San Francisco, and the 4.4 billion. (Incidentally 3 days later TARP was passed, and the "struggling" WAMU's picture would have been very different.)

The OTS planned to seize the bank on Friday, Sep 26, 2008 , but the seizure was stepped up to Thursday, due to a media leak. The leak was apparently a professor Roy Smith, with no apparent connections to the “secret auction” being arranged other than the fact that he previously worked for Goldman Sachs. The sale of Washington Mutual to JPMorgan was arranged with lightning speed. Within a few hours the bank belonged to JPMorgan for the paltry sum of 1.9 Billion dollars.

It is interesting to note that the attachment, 3.1a , which purportedly contains a list of what was purchased cannot be located. JPMorgan indicates in recent court filings (Objection to the March 31,2009 deadline for claims) they are having difficulty reviewing the assets, and disentangeling accounts. Without the attachment 3.1a listing the conditions of purchase, how can anyone judge in restrospect what was sold. There is no document that indicates what assets JPMorgan purchased other than the bank available in the public domain.

What happened to Washington Mutual is a travesty. Washington Mutual was apparently singled out for seizure due to the FDIC fear that it would fail. Washington Mutual never did fail. It was seized solely due to fear on the part of the FDIC, and we have seen since that the FDIC was not aware of the condition of the bank. It did not know about the 4.4 billion dollars WAMU had, nor did it know about the 50 billion dollars WAMU had access to through the Federal Reserve secondary window.

Now, shareholders and bondholders have been nearly wiped out—due to the hair trigger of the FDIC, who pressured the OTS into wrongfully and inappropriately seizing the bank. It should be noted that WMI has received absolutely no compensation for their $307 Billion dollar bank, and the bondholders, and shareholders will get little to no compensation either.

WMI, the parent company was forced into Chapter11 bankruptcy, and has been fighting for the assets which it rightfully owns ever since. Letters to Congress and other government officials (President, FDIC, OTS,FBI and SEC) have gone unanswered. An investigation was started almost immediately, but the results are yet unknown to the public. Washington Mutual has been ignored in the media, perhaps due to an unofficial “gag order”.

Most people agree that what happened to Washington Mutual was wrong, and an action that was totally bungled by the OTS and the FDIC. The shareholders are paying dearly for their incompetence. Shareholders are seeking redress and protection from losing their stock due to re-organization. An equity committee has been denied as shareholders, and indeed Washington Mutual (WMI) do not know what their assets are due to stonewalling by JPMorgan and the FDIC. Shareholders do not have the opportunity to protect their interests, as an equity committee cannot be granted unless they can show the bank is solvent. The total worth of WMI is still unknown.

Shareholders are still in shock…one could understand if this happened in Russia or China, but for this to happen in the United States of America speaks poorly of our system of justice. Is justice only for the people who can afford to buy it, or who have the proper “connections”? Apparently so….this “justice” has served JPMorgan handsomely, who has profited significantly in a mere 3 months, from the seizure and firesale of Washington Mutual.

Shareholders are outraged, and continue in their struggle to be heard by the Congress, the court, the President, and the media. The fact that something like this could happen in the United States of America is disgraceful.

Last edited by orthodoxymoron; 05-19-2009 at 11:20 PM.
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Old 05-26-2009, 09:13 PM   #2
orthodoxymoron
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Default Re: The Washington Mutual Story

The plot thickens:

ANDERSON ISLAND, Wash., May 26 /PRNewswire/ -- The following is being issued on behalf of WaMuStory.com, Concerned Shareholders of Washington Mutual Inc. -- Washington Mutual Inc. shareholders are increasingly alarmed by the actions of federal regulators in recent months. They feel the regulators are setting dangerous precedents that will adversely affect the banking sector in the foreseeable future. They feel these actions do not just affect individual shareholders, but the financial sector in general.

The FDIC's fire-sale of Washington Mutual Inc.'s (OTCBulletinBoard: WAMUQ) (PinkSheets: WAHUQ) (PinkSheets: WAMPQ) (PinkSheets: WAMKQ) assets to JPMorgan changed the game for potential buyers of banks. The new rule seems to be: "Get regulators to place the bank into receivership in order to buy the assets at a fire-sale price."

It appears that bidders for BankUnited Financial Corp. planned to do just that. They recently asked regulators to place the bank into receivership and now the regulators have complied. Regulators have set a dangerous precedent in this action.

Bidders for BankUnited Financial Corp waited on the side lines, hoping for the new form of behind the scenes bailout being offered by the FDIC--assets on the cheap. This has the potential to leave bondholders and shareholders out in the cold, just as was done with Washington Mutual Bank.

Prior to the FDIC's takeover of Washington Mutual, banks would attempt to sell themselves to prospective buyers at or near face value, attempting to get the most for their assets, their shareholders and creditors. Now, having seen the sweet deal JPMorgan Chase received when it bought Washington Mutual's assets for a fraction of their worth, bidders apparently prefer not to deal directly with banks anymore.

This new approach is a much better deal for acquiring banks and private equity investors, and a losing proposition for shareholders. It has been noted widely, that banks need to increase investments from shareholders in order to raise money, but that is not going to happen as long as banks can be whisked away from shareholders, leaving them out in the cold.

A new Wall Street motto has been coined: "Remember The WAMU." The sale of WAMU bank, for pennies on the dollar, stunned investors, and has kept them from returning to stocks in the financial sector, especially as new laws are currently underway to increase the authority of the FDIC to seize holding companies as well.

Changing the rules of the game doesn't appear to have been the FDIC's intention when it sold Washington Mutual for a pittance, but bidders are getting wise and are taking advantage of the way the "new" game is played. This does not bode well for banks, their shareholders or their creditors. Nor does it bode well for the taxpayers who get to pick up the tab once again. The money that is so badly needed by banks, to shore up their losses, is not going to come in the form of stock investments any time soon. That will leave the FDIC to pick up the pieces over and over and over.
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Old 05-26-2009, 10:32 PM   #3
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Default Re: The Washington Mutual Story

Not only did the shareholders get screwed, but it's customers did too! Credit card customers saw their interest rates go from about 14% to 32.99% in addition to outrageous charges like a transfer fee for their balances when Chase Manhattan took over this end of the business. It's also very curious that since Chase got away with this, new legislation was passed to prevent other banks from following suit with what Chase was able to do.

Something's rotten in Denmark!
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Old 05-26-2009, 10:37 PM   #4
orthodoxymoron
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Default Re: The Washington Mutual Story

The name Rockefeller wouldn't have anything to do with any of this, of course...
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Old 05-26-2009, 10:44 PM   #5
sleepingnomore
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Default Re: The Washington Mutual Story

Nah! Now you're being paranoid
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Old 05-27-2009, 12:40 AM   #6
Carol
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Default Re: The Washington Mutual Story

If one is going to have stock one should really stick with Walmart as it is the only stock that has been consistently making money all these years.
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Old 12-26-2009, 10:10 AM   #7
orthodoxymoron
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Default Re: The Washington Mutual Story

JP Morgan did OK...didn't they? Retrospectives can help us to properly evaluate new crisis as they emerge. Our memories are often too short term...and we repeat the same mistakes over and over again.

1. http://www.youtube.com/watch?v=fI1l9...eature=related

2. http://www.youtube.com/watch?v=pd_zI1FNIJ0&NR=1

Namaste

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