Slog

now i can't sleep.

"Screwed" doesn't begin to cover this country's situation.

But... I don't WANNA pay for their mistakes.

Of course a run on the bank, which you're advocating, is just the sort of thing that will definitely throw WAMU over the edge.

Bob: I agree. Hell, I wrote that very point in my last sentance.

Still, I feel responsible un just laying out the numbers and giving the same advice I give friends.

I wrestled over this. Ultimately, I feel more responsbility to depositors than stockholders.

Blow your paycheck on gas, groceries, and prescriptions, you're screwed.

Blow billions on mortgage-backed securities in a global casino, the government suddenly has a role in the "free market."

This is the essence of American conservatism- New Deal-style bailouts (minus accompanying regulatory concessions) for Big Business, coupled with relentless war and the Brazilification of the labor force. Well played.

Uncle Billy didn't really lose the deposit, mean old Mr. Potter hid it.

The timing of the announcement of the failure of Lehman Brothers, the sale of Merrill Lynch to BofA and the possibility that AIG is also in desperate trouble is really amazing. Truly. Don't you wonder who is steering the Titanic right now and if that person is deliberately headed toward that iceberg?

Jonathan -

The problem is your numbers are bullshit, you have no financial background, you're just making up shit. Warn people if you want, but don't make up nonsense numbers and pretend there is science behind them.

Situations like this call for an emergency trip to Vegas.

bob:
I linked to my sources. You have better ones, share.

@5:
No, it's irresponsible all around. A failed bank will impact more than just stockholders, and even the FDIC and our taxes. We all depend on banks such as WaMu for many things, even if a cut of profit is removed from the basic deposit/lend equation that a credit union like BECU might use. These things include employers' ability to get short-term bridge loans to cover payroll when cash flow doesn't work out perfectly, which probably affects more of your friends than you realize. Wake up.

For example, you claim that WAMU's mortgage investments are "very similar" to ones ML sold. Really, have you actually researched these investments? How much has WAMU written down the value vs. what ML did prior to sale? Tell us about them. Are you really qualified to throw out an opinion like that?

No, of course not, you just think because you're smart you're qualified to speak on and all topics like you're a fuc*ing expert.

let's just all be relieved that the collective net worth of WaMu's SLOG readers who take this seriously isn't enough to mean a thing to WaMu even if all of them follow this advice and make a run on their accounts.

@13:
And let's also be relieved that SLOG posters don't have to be accountable not understanding the topics on which they post.

@14:
Oops, left out a "for" between "accountable" and "not." Please don't hold me accountable for that.

Bob @ 12:

Do you know anything, or are you just cranky?

Jonathan gave his sources, which you could read if you wanted to. It's called "research." It results in a reality-based view of the world.

Josh --

Exactly. Anyone who looks to slog as their solitary source for serious financial advice probably isn't a big player.

and bob-- I based that statement, on the value of WaMu's mortgage-backed assets--on independent reporting from the Guardian, the Financial Times and Bloomberg. In fact, I directly linked to a detailed Bloomberg report on that very topic.

Bring up refuting evidence, or fuck off. I made a statement based on the best publicly available information that I could find. Find something, anything to disprove my statement and I'll gladly change it. I'll even take back my primary point. Hell, if it's coherent--if you could write anything on why people should not leave WaMu--I'll be glad to post it right on the main blog.

This is my honest assessment of the situation--based upon the information and data I could collect and decide upon. Buy it. Don't buy it. I just refuse to believe that we shouldn't discuss the situation honestly--that the non-savvy deserve to hold the bag, be intentionally left in the dark.

@17:
Was it the big players that caused runs during prior financial crises? That's not my understanding. No, you're not single-handedly going to bring down WaMu, but you're advocating actions that will help bring it about. For every self-obsessed SLOG poster (commenting on your own post... biggest SLOG pet peeve of mine), imagine how many similar people across the nation are giving unsound financial advice to the masses!

Golob is the best damn thing on SLOG, without question.

Don't let this situation scare you. There is no reason to turn to Marxist overregulation in the polyannish belief it could prevent that. That will only lead to more bank failures, and even armed insurrection, especially if the Manchurian Muslim is elected.

McCain/Palin '08

You say that WAMU has $229 billion in mortgage investments, then you link to an article about payment-option adjustable-rate mortgages, and said article says WAMU has $53 billion of them.

Then you proceed to talk as if all of WAMU's $229 billion is as risky as those adjustable-rate mortgage, when the article you just linked to said it was only $53 out of their $229 billion.

In other words, you're making up numbers and throwing in links knowing full well that most people won't bother reading them.

@18: funny, not responding to comments directly is my biggest SLOG pet peeve. I thoroughly appreciate it when the writer engages in a conversation. That's what comments are for.

@22:
Nope. If you're right, why respond. If you're wrong, update your post. It's what journalists do.

Any bank that chose "Whoo-Hoo!" as a marketing catch phrase was probably doomed to fail.

Golub rules -

Generally I agree with you, he's one of the better writers on the Slog and is spot-on when it comes to science.

Unfortunately, he's displaying that common syndrome familiar to anyone who works with smart people. Namely, the belief that because one is smart and may be an expert in an area, you're then qualified to read a few articles in some other area and then pontificate.

I see it every day with my coworkers, smart software engineers who are all of the sudden experts in biotech or climate change or physics or whatever, because they spent a few hours reading up on the topic.

go to bed bob.

@26,

Beautiful.

Someone asked me the other day...

What happens if one has a wamu account and owes them money? Say their account is -$400 (due to the account holder's fuckups, overdraft fees, etc.). Will they owe that exact same amount to some other entity if wamu collapses?

Credit Unions are wonderful things.

As to paying for their mistakes ... Comrades Bush and McCain are making sure we all do that, plus interest for the money they borrow from Red China to pay for bailing out their friends.

@ 26 -
Why are credit unions wonderful compared to banks? I am a member of one, but don't know why in this context it's better than a bank.

I meant @ 29, obvy.

Haha just looked up "obvy" in Urban Dictionary.

I know my deposits at Wamu are insured, but that doesn't mean I want to sit in line for two days like the people at Indymac did when it was taken over to get my (very little) money. Plus it is unclear where the money would come from if the FDIC has to take over. So for now I'm moving my money to Bank of America, because it does seem more stable and they have free checking. But I'm going to check into the credit unions - does anyone have a recommendation of a good one? I'd like one that focuses on reinvesting in the community.

@28 - yeah, that person will need to pay. I'm surprised it hasn't been farmed out to a collection agency by now. Another thing Wamu did was invest in credit cards to people with subprime credit (like me!) and since it's likely many debtors will default with the shitty economy that will be just another drag on Wamu's assets.

Thanks for posting this, Jonathan. I think you have your priorities straight. And if there is a run on Wamu, or they fail, it will be their own doing, and not your fault at all.

Jonathan,
Thanks for adding that last part, but for fuck sake!!!! You gave me quite a panic. Next time start off with a little happy lee-way and then give us the bad news...you just helped create a bad-news frenzy! Isn't this how the great depression started? Rumors will kill us all.

Jonathan,
Thanks for adding that last part, but for fuck sake!!!! You gave me quite a panic. Next time start off with a little happy lee-way and then give us the bad news...you just helped create a bad-news frenzy! Isn't this how the great depression started? Rumors will kill us all.

#30

This criss involves securities and mortgages banks are holding - most all relate to housing paper/loans gone bad, tens of billions of dollars worth in the aggregate.

Your credit union has low risk loans, take you deposits, makes car loans - much less risk right now - hence - little chance they will go insolvent.

The word is US Bank is not exposed to bad housing paper - never made vast, risky loans.

WaMU will be sold - I think - on the long term it is such a vast network, its long term value is that it could not be duplicated again easily - and pure retail banking is profitable.

Keep less than $100.000.00 in any accout. That amount is insured by the US Treasury -FDIC - in all insured banks, most common systems in this area.

Ask you bank or credit union.... they will answer all such questions....

I suspect a Canadian or Euro bank will buy WaMu - one fresh with hard currency and a ten year plan to build its purchase to its true value post housing loan crises.

Remember all the mess is a speculation that housing prices were going to rise on and on and on in all markets and thus mistakes would self correct in a year or two... the price bubble has burst....prices declining, over supply, and - can't sell foreclosed properties, etc. And loans to folks who just could not make the high house payments.

Advice to everyone --- start saving some cash. Get a budget together. Enjoy life on the cheap for a few years. Pay off cards, they make money, will be around for a long time, retail banking, and in a crunch that card limit might be useful.

I have a WaMu account, but my money's not there. It's in Mr. Martini's house. And the old Granville place. And lots of it is under the lap blanket of warped frustrated Old Man Cheney.

@6 pretty much nails it.

The middle class is obsolete.

IT'S ALL COLLAPSING! GET YOUR MONEY NOW WHILE YOU STILL CAN!

We've not really been bailing out financial institutions, we've been bailing out the high salaries and net worth of people who have failed miserably as executives.

So, I am happy that we're finally letting one of these Super Tankers go down rather than trying to prop up the million dollar salaries and bonuses of its ignoramus leadership.

I mean, isn't that what Conservatives and Free Market Ideology is all about? That rich people can make really tragic mistakes and become really poor and that Government shouldn't do anything about it? Eat your own medicine, Wall Street!

I for one welcome this collapse of Washington Mutual and the impending disaster for the Seattle economy once it happens. And I also welcome the oncoming victory of Dino Rossi and John McCain, well Sarah Palin in November.

You see, I just don't give a shit anymore and think it will make for great television to see people by the millions loose everything. I have dibs on the green dumpsers in my neighborhood to scavange around in food for btw.

So what happens to all those mortgages Wamu's holding if it goes under? Some other institution buys them for nothing and then tries to extract the full amount from the borrowers?

#41 is right. Embrace the horror.

Golob --

Excellent post, except for one thing: WaMu's investment mix looks NOTHING like Merrill Lynch and Lehman Bros.

Therefore, the central claim you make here -- that WaMu's write-down exposure is similar to Merrill -- is grossly exaggerated. In fact, the 20-cents-on-the-dollar figure you cite was only applicable to a portion of Merrill's portfolio.

Having said that, yes, WaMu is in a world of hurt. The "bank" part of the bank needs deposits to generate revenue to help offset the write-down on bad mortgages; it needs a healthier real estate market to recover money on foreclosed properties; and it needs other cash to cover operations.

It's not pretty, but it's not as extreme as Golob claims... Back to biology please!

I mean, isn't that what Conservatives and Free Market Ideology is all about? That rich people can make really tragic mistakes and become really poor and that Government shouldn't do anything about it? Eat your own medicine, Wall Street!

You really are an idiot, aren't you? Do you actually think that the people that made these mistakes are going to be eating out of dumpsters? Ha!

The only people that are getting screwed are all the little people. Companies are privatizing the profits and socializing the risks and losses. Tighter regulations are the best way to go to correct this... assuming that anyone will learn anything from this in the long run is pretty damn foolish.

The piece is well sited. I agree that it super disturbing information, but I think Golob is dead on about how we should all talk about it and be honest about our concerns and options. He isn't giving marching orders, he's bringing up something that should be fairly obvious but that of course we would all rather not think about. Unfortunately, its real. Thanks Golob for another very well written piece. Pay no mind to the over-the-top attacks.

Don't let this situation scare you. There is no reason to turn to Marxist overregulation in the polyannish belief it could prevent that. That will only lead to more bank failures, and even armed insurrection, especially if the Manchurian Muslim is elected.

McCain/Palin '08

No doubt the imminent collapse of large financial institutions frightens most hip Seattlites, as Daddy and Mommy will no longer be able to fund their dalliances as a "Puget Sound artist".

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The FDIC is not a guarantee.
http://abcnews.go.com/Business/Story?id=5660122&page=1

"The FDIC is going to be one of what is going to be an increasing string of government bailouts."

If that happens, ultimately taxpayers will be on the hook. The FDIC borrows money with a line of credit from the U.S. Treasury, which essentially is taxpayer money.

This should bring about a change in the way credit is extended to people

^^^^

yawn. TLDR.

The second the repo market stopped lending to WaMu, I knew it was over.

Gitai--

Me too. They have access to information I couldn't dream about, and a risk tolerance that I probably will never have, and still refused to give WaMu money.

To those of you concerned about my equating Merrill's mortgage-backed securities to WaMu's:

I modified the post, emphasizing that is is an estimate based upon the available information.

It makes me mad to see posts like this advocating a run on the bank. That's the one thing that would make it fail.

JP Morgan needs to rise from the grave to save the world!

The WaMu situation actually resembles the failure last year of Northern Rock in Britain more than it does Lehmann Bros. Rock was in fact destroyed by a bank run. Lehmann was an investment house, not a bank in the commonly understood sense. They dealt mostly in absurdly complex instruments that even the people buying and selling them don't understand. Yes, they were in part based on the mortgage market, but it's not like people have their home mortgages with Lehmann, or regular bank accounts there.

One factor not mentioned in the Lehmann collapse is the economic shakeout of old-fashioned high-fee brokerages. Lehmann charges an arm and a leg for their services. But for ordinary people, who aren't buying derivatives and whatnot, they've got nothing to show for those outrageous charges. An ordinary investor can get far better results online, or even at a mom'n'pop Schwab or Edward Jones office, than from a white shoe Wall Street firm.

WaMu is still mostly a savings and loan. They're in deep trouble, and the Feds may have to bail them out. That's bad for everyone. But I don't think it has a ton to do with Lehmann, other than the fact that they both rest to some extent on a soft mortgage market.

Most of WaMu's underlying business is fairly sound, though. Here in Seattle, everybody likes to talk about the housing collapse, but prices have only collapsed back to 2006. In the long term, it's a blip.

Thank you for the clearest, simplest explanation of this situation I've been able to find. I don't have any accounts at WaMu, but I think understanding the situation benefits everyone, because the climate for banks is just crap right now.

@56 Well, if you are going to go all fictional, might as well hope that George Bailey's friends and family come to the aid of the building and loan and then we'll all get together and sing "Hark the Herald Angels Sing."

@55: Believe me, there's been a "quiet" run on WaMu for six months. Their wealthier depositers are long gone.

For all the posters that believe that WAMUs underlying business is sound and that their stock price reflects unfair speculation by investors should remember two things:

1. WaMu is a huge thrift that made a huge number of shitty loans in CA... The Seattle real estate market is not a prime factor in their current predicament.

2. If you would like to see what their issue is first hand I'd suggest you check out Mish's posts on ONE pool of bad Alt-A loans they made last year. At last check they were defaulting at over 30%. These were shitty pay-option loans made to supposedly worthy borrowers, but on terms that were not reasonable. check it:

http://globaleconomicanalysis.blogspot.com/2008/09/wamu-pool-wmalt-2007-0c1-august-update.html

Unless you guys love the experience of dealing with federal agencies you really might think twice about keeping your money in that pile of shit.

Good luck!

I find your math odd. You are implying that on the whole WAMU's mortgages are going to be bad. However, not all of those mortgages are in invested in the ailing sub-prime market...

In fact, only about $16.1 billion of the $225 billion or so is. So what about the rest of it that could very well turn out to be good investments?

Look, Jonathan is right that WaMu is screwed, but he's totally off-base when he says that it's failure will actually bankrupt the FDIC. He has no conception of the actual value of the mortgages on their books, and his back-of-the-envelope calculations are bullshit.

If you have a savings or checking account with WaMu of less than $100000, your money is safe. If the FDIC actually fails, we are in such a world of hurt that your checking account will be the least of your worries.

I think Jonathan's trying to start a bank run.

This is actually an issue with which I've been struggling recently, since my work banks with WaMu.

Sure, people may start bolting, by closing their accounts and withdrawing their funds, which in turn may lead to the collapse of the institution. But, as in past failures, they would end up being the lucky ones - they get full-equity value for the funds they withdraw, and presumably re-deposit with another bank; the rest, who fail to bail out before WaMu goes Chapter 11 have to stand in line and wait for the FDIC to dole out the cash, and again presumably the largest depositors will be first in line, while everyone else has to wait days, or perhaps even weeks to get access to their money.

So, which is the more responsible action from a fiduciary standpoint? Bail out now, and secure my company's assets, or, stay the course, hope WaMu gets its act together (or conversely that some other more stable institution looks on them with a favorable eye), and in the meantime pray they don't go belly up?

With WaMu's stock now trading at roughly 6% of its value as of this time last year, it seems like a no-brainer to me.

@61, YES, you are right, all of WaMu's portfolio is composed of those alt-a loans with high default rates! How clever you are!

Ok CP,

Yes. As I stated, it's a guess on my part as to the current market value of WaMu's mortgage holdings.

What's your estimate? What do you think is the worth of the $225 bn in mortgage-backed securities? I'll post it, if you write it and back it up with evidence.

And, who do you foresee buying a quarter-trillion in mortgage-based assets right now? Sure, these assets might have quite a bit of real value, but the essential question right now is: what are investors willing to pay for these assets right now?

Let's get something straight, this is NOT about subprime. This is about the high number of Alt-A Pay Option loans that WaMu made.

If you think that the bank is still solvent while they are seeing 30% of supposedly NON-subprime loans defaulting.. Uh.. well I guess that's your choice to see what you want.

Good luck with that!

Well, if you're willing to sell me a cross-section of US mortgages for $.20 on the $1 today, I'd bite.

It's in the best interest of our local economy if WaMu doesn't fail. I am considering moving my checking account into WaMu today for this reason.

This is a highly irresponsible article. valuing WAMU's resi portfolio based on ML's sale earlier this year shows a stunning lack of financial knowledge and really poor judgement. has the author seen what's in each company's portfolios? no. Merrill Lynch is also being acquired at $7/share above book value, suggesting that at least BofA thinks that company has marked there assets down too much. what's more, the article makes no reference whatsoever to the FDIC deposit insurance of up to $100,000 per account. if the author has completely freaked his shit, that's his problem. passively suggesting a run on savings accounts is like yelling fire in a crowded theater. not helpful and not accurate.

WaMu has the WORST customer service I have ever come across. It took 8 months of fighting with WaMu and the city I live in to get WaMu to pay my 2007 taxes. It came down to me filing a complaint with the FTC. This was only one of the many issues I encountered having my mortgage with WaMu. Taking out a mortgage with them was the biggest mistake I have ever made, but luckily I was able to re-finance and got out of WaMu. (not to mention saving a few hundred a month on my mortgage now!) Good-bye WaMu!!! :)

Don't cry for me, Argentina...

To those claiming that Jonathan is being irresponsible by posting this, get a grip. He's not saying anything most of us haven't been thinking for a while now. In a way, I find this post extremely helpful in that it provides some more insight on the questions I've been asking myself for the last few weeks. But really, is there anyplace to go even if we do pull out of WaMu? Personally, I'm not convinced that there's any stable viable alternative right now.

Also, keep responding responding in comments, Jonathan. One of my pet peeves is when bloggers ignore their commenters. This isn't dictation; this is discussion. Please continue the practice!

Northern Rock's demise is interesting, but it is wrong to draw too many parellels with WaMu. The Rock was a victim of the US sub-prime crisis - collateral damage, if you prefer. There was nothing much wrong with Northern Rock's mortgages, per se.

What was wrong, very wrong, was the Rock's business model.

Essentially, it was to borrow from other financial institutions, and then lend this money to their mortgagees.

A 'traditional' building society borrows from their savers, i.e. their customers who deposit their wages and so forth. In order to attract savers, they have a network of high street branches. Consequently, their overheads are relatively high.

OK. So, in summary, a traditional building society collects money through an expensive network of branches, and then lends that money to people who use it to buy a house.

The Rock came up with what looked like a bright idea. Their thinking was this: "Why invest in expensive branches, staff training and all that paraphernalia, when other banks will happily lend us the cash at very cheap inter-bank lending rate (known as the LIBOR rate)?"

Sounds smart, doesn't it? It certainly seemed so at the time. The Rock went on an aggressive marketting campaign for new mortgages. And because they had hardly any branches, and hence much lower overheads than their competitors, they were able to undercut the mortgage rates offered by everyone else.

And so, in almost no time at all, the Rock went from a tiny little north of England building society, to having somewhere around 25% of all new UK mortgages.

Everyone was a winner, baby.

That is, until the sub-prime crisis hit the US.

And then, all of a sudden, the banks stopped lending to each other. And because the Rock had so few branches, they found themselves with almost no alternative source of income. In a nutshell, they were up a cash-flow creek, without a financial paddle.

Then came the inevitable run on the bank, and the TV pictures of their savers, relatively few though they were, queueing for hours outside the few branches they had.

The rest is recent history.

The irony, of course, is that had the Rock had a proper network of branches like the other building societies and banks, no one would have needed to queue to get their money out, because their would have been no cash-flow crisis and no resultant run on the bank.

Calvin Tucker
Co-editor, www.21stcenturysocialism.com

They will make up their losses by screwing us with excessively high fees! They encourage e-tranactions, yet use it too many times - BAM ! another fee!!!

They will make up their losses by screwing us with excessively high fees! They encourage e-tranactions, yet use it too many times - BAM ! another fee!!!

Comte, panics are the inverse of manias; greater fool theory. How is pulling your money out first any different than passing the pain on to someone else and why is it justified in this case rather than by traders in Chicago and New York?