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Friday, September 26, 2008

Dear Old Dad

posted by on September 26 at 10:32 AM

I don't have much of a connection to Washington Mutual. My first savings account was at Seafirst (Wedgwood Branch!) and when they transitioned into Bank of America, so did I. So when it comes to personal WaMu-related anecdotes, I got nothin' (aside from a general low-grade panic about the current disintegration of the world).

But day before yesterday, my adorable dad--a now-retired advertising copywriter--applied, hilariously, to be my intern ("Ms. West: I could be an intern for you. I like movies. I especially like candy. I am not as detail-obsessed as my wife, but I could work at it. I have done some data entry, some audio transcription, and some research. I hope I qualify. Please let me know. -Paul West"). Looking over his resume, I remembered something kind of interesting.

Way back in the way-back-whens, working at a local ad agency, my dad came up with the folksy, long-abandoned WaMu slogan:

Washington Mutual, The Friend of the Family

Wikipedia tells me that their current slogan is (was) "Simpler Banking, More Smiles." Ugh.

My dad always calls it Washington Mutual Savings Bank, never WaMu. I asked what he thought about the collapse. He said, "We've seen what happens when a nice little community savings bank grows into a greedy giant."

Because What the Country Really Needs Right Now Is Less Financial Regulation

posted by on September 26 at 10:29 AM

Defying a federal tax law they consider unjust, 33 ministers across the country will take to their pulpits this Sunday and publicly endorse a candidate for president.

They plan to then send copies of their sermons to the Internal Revenue Service, hoping to provoke a challenge to a law that bars religious organizations and other nonprofits that accept tax-deductible contributions from involvement in partisan political campaigns. ...

Organizers said they wanted a range of clergy of various faiths and political persuasions to join the protest, but acknowledged that the participants might be “weighted” toward the conservative end of the spectrum and more likely to support the Republican candidate, Senator John McCain, than the Democrat, Senator Barack Obama.

Yes, nothing could be better than freeing right-wing financial entities from government regulation! That's been been great so far! Hell, let's allow businesses to be free from taxes, banks free of accountability, candidates free from reporting requirements, and just replace libraries of law with a thin little book with some red type. What could go wrong?

Dear Dan, Bethany, and Jonathan Golob

posted by on September 26 at 9:15 AM

You all should be deeply, deeply ashamed:

"Withdrawals by customers ultimately sank WaMu"

It's your fault!

Thursday, September 25, 2008

The End of WaMu: Collapse and Purchase in Parts

posted by on September 25 at 6:30 PM

UPDATED at 10:20p:
The New York Times has a fantastic article up on the collapse.

The Seattle Times deserves credit for getting the story right before just about anyone else.

UPDATED at 6:30p:

Washington Mutual was seized by Federal regulators. JP Morgan Chase bought up the retail bank parts of WaMu. Customers should have a "seamless transition" (for some of the reasons I speculated about below.) Washington Mutual, as a company, is no more.

This was the largest failure of a bank in US history.

Don't panic. Your deposits--up to $100,000 per person--are insured.

It's everywhere. I like Bloomberg better than Rupert Murdoch, so:

JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire the deposits of Washington Mutual Inc. as the thrift was seized by regulators in the biggest bank failure in U.S. history.

JPMorgan will pay $1.9 billion, the Federal Deposit Insurance Corp. said in a statement today. It won't acquire liabilities including claims by equity, subordinated and senior debt holders, the FDIC said....

WaMu was the second-biggest provider of option ARMs, behind Wachovia, with $54 billion held in its portfolio in the first quarter, according to Inside Mortgage Finance. Of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were subprime mortgages. WaMu, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest subprime lender in 2006, according to Inside Mortgage Finance.

Some advice:

If you have an account at WaMu, it's wise to go online and print out your current statement. If you don't have online access to your account, you can go to an ATM and get a "mini-statement" printout for free. You almost certainly won't need this documentation, but it cannot hurt to have it.

And a bit of gratitude:
I've always had a positive experience when banking at WaMu. The tellers have been good, the ATMs generally low-fee and the locations convenient (even when I'm visiting the East coast or the Midwest.)

So, thank you to all the employees at WaMu. My heart goes out to all of you who are about to suffer because of the irresponsible few at the top.

One of the ugliest aspects of deregulation is the most irresponsible (but profitable in the short term) could outcompete the responsible for promotions. Thanks to all of you in WaMu's management who refused to go along with this gambit and have seen your careers suffer for it.

Continue reading "The End of WaMu: Collapse and Purchase in Parts" »

Got Deposits at WaMu? Meet Your New Banker, JP Morgan Chase

posted by on September 25 at 4:30 PM

Via Dealbook:

The federal government has arranged for Washington Mutual to sell its deposits and some branches to JPMorgan Chase, people briefed on the matter said Thursday night.

Bailout Deal Imminent

posted by on September 25 at 2:15 PM

Via the New York Times, Wall Street Journal, Bloomberg and the Washington Post:

House and Senate negotiators emerged from a closed-door meeting today and said they have reached agreement on basic principles governing a massive financial rescue plan that they hope to pass soon but that is running into stiff resistance from some House Republicans.... Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, told reporters after the three-hour meeting, "We've reached fundamental agreement on a set of principles" to guide the financial rescue plan, and he said Congress could pass a bill within days. He said the principles include protection for taxpayers, effective oversight, help for homeowners facing foreclosure and limits on the compensation of executives whose firms take bailout money....

The agreement also includes a strong oversight board for the bailout program, a ban on golden parachutes and other excessive compensation for executives at participating firms and protections for taxpayers, including a provision that would require participating companies to give taxpayers equity in their firms. In addition, the package would provide relief for community banks that own now worthless stock in mortgage finance giants Fannie Mae and Freddie Mac, which were taken over by the government.

The main point of contention between Democrats and Republicans, Frank said, is a proposal to give bankruptcy judges new power to modify mortgages for homeowners, an idea that is widely viewed as a bargaining chip. Democratic presidential candidate Barack Obama (D-Ill.) has said the measure, which is fiercely opposed by the banking industry, should not be in the bill.

Why Obama would be siding with congressional Republicans, against helping mortgage holders in bankruptcy court attempting to pull themselves above water, is beyond me.

You know my thoughts on what's missing from this bailout. This plan is costly, and does little to address the fundamental underlying problems that got us to this place.

When I say fundamental underlying problems, I'm not talking about the desperate need to reregulate the financial markets--starting with the provisions of the Glass-Steagall act and nationalizing debt rating agencies.

We need to generate new technologies and industries worth investing in, or we'll be right back to this dark place.

This bailout might delay things for a few months, or a few years. But, the problem remains and will remain even if this plan is enacted.

Wednesday, September 24, 2008

Let's Talk Bailout Plans

posted by on September 24 at 2:00 PM

First: What in the fuck is the McCain campaign thinking? No good can come from adding political instability on top of the financial crisis. The election should go as absolute clockwork, with every step happening on time and as planned. I'm getting more and more concerned about the health of the US Treasury's financial reputation if stunts like this continue.

But McCain wants to take a break to think about how to handle the financial crisis? Fine.

The more I read about this bailout fiasco, the more I dislike it. (For now, support Dodd and the congressional democrats, who are at least trying to protect your financial interests as a taxpayer.)

Much has been made of the Sweden model.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

The AIG "bailout" was in this vein--and the Dodd plan asks for more of the same.

I think we should grab the regulatory meat cleaver and forcibly recreate the regulations of the Glass-Steagal act--separating by regulatory force (the dispensable) investment banks from the (essential for the economy) commercial and retail banks. Right now. Investment banks are, in my mind, useless drags on our real economy. Why should we allow them to be tied to the critical banking functions done by banks making loans to corporations and individuals (the real drivers of the economy)?

Of course, the government is busy doing the exact opposite--forcing these investment banks to become bullshit commercial banks, further eroding worldwide confidence in the US banks we actually need to save the useless casino banks that created this whole mess in the first place. Write to your representative right now, telling them to cut this crap out.

If we're throwing around hundreds of billions of dollars to save institutions of questionable societal value, might I suggest the following bailouts to regular people?

1. Extend Medicare to everyone. Eliminate the age floor and instantly create a national healthcare system. This would cost less than the AIG bailout (for the next year) and help every responsible company (that has to pay for health insurance) in the US economy become more competitive.

A lot of people are about to lose their jobs, if this continues. We might as well ease this by finally ridding ourselves of the crumbling and already failed employer-based health care system.

2. Massively boost funding to the governmental student loan programs. If you really want to be smart, even pay off a bunch of student loans (for people who did the right thing, but cannot get jobs because the economy is taildiving.)

3. Make it easier for people to avoid bankruptcy, and easier to get out of bankruptcy if they do fall.

That means rolling back the draconian bankruptcy bill forced on us by the credit industry (the people who created this crisis), renegotiating mortgage terms to payments people can make (something last done during the Great Depression), giving those with high-interest credit card debt access to low-interest government loans (allowing them to finally pay down the principle.)

If we're doing it for poorly managed banks, we should do it for common US citizens. A little bit of amnesty to our fellow Americans could save us all a ton of money and headache.

4. Create the Complement Cooperative.

(Read that link, or this one to include the slog discussion when I first wrote about the concept. This might be the smartest idea I've had.)

Your wishlist?

Do As We Say, Not As We Do

posted by on September 24 at 11:03 AM

World leaders, apparently, are totally pissed that the US is bailing out its own banking system. This, after the US (via the Chicago School) has spent decades telling other countries (especially Third World countries) to not subsidize their failing economies, to let banks fail and markets go bananas, in order to instill market discipline.

First, let your banks go against the wall, they said, and then we'll give you some aid.

Now that the US is ignoring its own advice, world leaders are carpe-ing the diem and wondering aloud whether the US hasn't been wrong about free-market discipline all along.

The secretary general of the UN, Ban Ki Moon:

"The global financial crisis endangers all our work... We need a new understanding on business ethics and governance, with more compassion and less uncritical faith in the 'magic' of markets."

The president of France:

President Nicolas Sarkozy of France described the crisis as the worst financial mess since the Depression and the financial system as "insane."

The president of Brazil:

"We must not allow the burden of the boundless greed of a few to be shouldered by all," President Luiz Inácio Lula da Silva of Brazil said in an opening speech Tuesday that reflected the tone of the [UN] gathering.

The minister from Britain politely noted that the US bailing itself out would be in everyone's best interest—but the rest of the world is hopping mad.

Bungling in Iraq, bungling our economy, and North Korea giving us the finger by restarting its weapons program and barring inspectors—the US is losing leverage by the day.

Tuesday, September 23, 2008

The Complement Cooperative

posted by on September 23 at 6:21 PM

Complement%20Cooperative%20Logo.jpgWell, that was a lot of money chasing nothing.

It's not as if we're lacking in problems needing solutions--climate change, energy scarcity, almost every meaningful commodity priced at historical highs. A vast pool of money and a growing list of problems--why wasn't the connection ever made? Why didn't at least some of this wealth go toward solving these problems?

We could be riding high on American ingenuity. But we're not.

Let’s say you and I start a company with the goal of replacing petroleum-based jet fuel. We engineer a bug that spits out something pretty close to kerosene. Excellent. Since we’re a company, we immediately patent the invention.

Now what? While we’ve just figured out a key step, our invention by itself cannot replace jet fuel. We need more pieces--the technology to refine our proto-fuel into something we could put into jets, the bioreactor technology to grow our bugs, a factory and its land, a distribution network, sales to airlines, and so on.

That’s a lot of pieces; we only own one right now. If we raised the money and assembled all of these to the point where we could actually sell an useful product, we’d be first. We don’t want to be first.

If we show it can be done, what would stop someone in China or India or somewhere else in the world from stealing all of this technology and competing with us? (Our present global economy isn’t exactly brimming with respect for intellectual property.) Without the cost of buying up patents—the costs of developing the technology—they’d easily outcompete us. By being first, we end up broke.

We’re better off selling our patent. We could sell this patent to someone who wants to turn it into a product—but they’d run into the same problem we would on that path.

The most likely buyer of our patent would be someone who desires our technology to never be turned into a product—someone who already makes jet fuel from petroleum. Patents, in our post-intellectual-property world, are more valuable as a defensive weapon. To a large extent, this is why all the wonderful scientific knowledge and technical ability pouring out of R&D labs fails to translate to something useful for humanity.

(More after the jump or at, including my exciting solution to this problem....)

Continue reading "The Complement Cooperative" »

Okay, Now the Economic Crisis Has Really Hit Home

posted by on September 23 at 3:03 PM

I don't own a car or a house, or have hundreds of thousands of dollars in the bank, so I've felt fairly removed from the tanking economy/collapsing bank talk. Until now. Now, the fucked up economy has taken our chocolate.


On Friday, TODAY consumer correspondent Janice Lieberman reported that Hershey’s has switched to less expensive ingredients in several of its products. In particular, cocoa butter — the ingredient famous for giving chocolate its creamy, melt-in-your-mouth texture — has been replaced with vegetable oil.

The removal of cocoa butter violates the U.S. Food and Drug Administration’s definition of milk chocolate, so subtle changes have appeared on the labels of the Hershey’s products with altered recipes. Products once labeled “milk chocolate” now say “chocolate candy,” “made with chocolate” or “chocolatey.”

Read the full story here.

Granted, I never looked to Hershey's when I wanted high-quality chocolate, but at least it was real.

(Thanks to Nat for the tip.)


posted by on September 23 at 1:00 PM

Mark Krikorian, over at the right-wing National Review's the Corner blog, places the blame for this Wall Street crisis squarely where it belongs:

I have no way of judging whether the Wall Street bailout is a necessary evil or an impending disaster. But we're in this mess, ultimately, because our political elites thought it was good social policy to encourage banks to give mortgages to uncreditworthy people, resulting in what Sailer months ago called the "Diversity Recession" (if this doesn't work, make that the Diversity Depression). In other words, if poor people in general, or blacks or Hispanics in particular, were less likely to be approved for a mortgage, the only possible reason was racism or classism or whatever. Thus "creditworthiness" was an illegitimate, dead-white-male concept, like middleclassness. Because, after all, isn't everyone entitled to credit? Therefore, I propose any bailout bill start with these words: "It is the sense of Congress that credit is not a civil right."

Of course! This damnable billions-dollar bailout is obviously caused by poor people and especially minorities. Holy fucking shit.

Backs Against The Wall When the Revolution Comes Dept.

posted by on September 23 at 12:00 PM

This is an actual, real headline from the news today:

CEO murdered by mob of sacked Indian workers

Here are the first two paragraphs:

Corporate India is in shock after a mob of sacked workers bludgeoned to death the chief executive who had dismissed them from a factory in a suburb of Delhi.

Lalit Kishore Choudhary, 47, the head of the Indian operations of Graziano Transmissioni, an Italian-headquartered manufacturer of car parts, died of severe head wounds on Monday afternoon after being attacked by scores of laid-off employees, police said.

Things are getting bad.

A Stranger Reader Asks...

posted by on September 23 at 11:00 AM

Why should the bailout plan be structured as a purchase of bad assets? I'm no expert, but it seems that features of this plan necessarily include:

(a) a premium price (why would the government need to step in to pay fair market value? Indeed, Bernanke said today the bad-asset buy would be at "hold-to-maturity" prices--if I understand this correctly, this would be far in excess of fair market value, because it wouldn't discount for risk--in many cases this would surely be greater than the troubled firms paid for these loan pools in the first place);

(b) the need for a massive loan workout operation which inevitably will involve outsourcing much of the work to the very firms who helped create the problem, with massive fees for doing so;

(c) putting the government in the position of foreclosing on or otherwise playing hardball with its distressed homeowner-citizens; and

(d) no effect on the internal workings or policies of the firms being bailed out.

What such a "plan" amounts to is the House covering the markers of the biggest whales among its high rollers. "Sorry for the inconvenience Sir. Let me cover that for you. Now, may I interest you in the Royal Suite tonight? I'm sure your luck will change tomorrow."

Here's what should happen instead: Allot $700 billion for the Treasury to purchase stock in affected securities firms. Any firm wanting the taxpayers' cash must bid for it on a competitive basis. The Treasury may select bids based on a variety of factors affecting the public interest. These may include price, rights and preferences of the shares being purchased, participation of the Treasury on the Board of Directors, internal reforms involving executive compensation and investment decision-making, and the adoption of policies to relieve mortgage borrowers, such as variable interest-rate freezes and extended forbearance from foreclosure.

In contrast to the Paulson Bad Asset Buy, a Competitive Purchase of Equity would keep the firms' feet to the fire in managing these bad assets, would avoid a costly and disruptive new government loan workout program, would assure the public a participation in the eventual upside, and would enable progress on the related public purposes of executive compensation reform and relief for distressed borrowers. Wouldn't that be fairer for all Americans?

This Stranger reader may not be a finance expert, but he is a business lawyer. (Hi, Bob!) Mr. Golob, what do you think?

Monday, September 22, 2008

Support Dodd's Plan

posted by on September 22 at 4:49 PM

This is what I imagine this weekend was like in Washington:

I have a suggestion: Contact your representative, and tell them you support Dodd's plan over the Paulson slush-fund.

Senate Banking Committee Chairman Chris Dodd offered an alternative today to the Bush administration's financial rescue plan aimed at giving the U.S. Treasury an equity stake when it helps companies burdened by debt.

Dodd, a Connecticut Democrat, is circulating a draft of his bill as Congress seeks to deal with a financial crisis that has been called the U.S.'s worst since the Great Depression.

The Bush administration is proposing a $700 billion plan to buy devalued assets from investment firms to keep the financial system from coming to a halt. Democrats have pledged to act quickly on the measure, even as they seek to create an oversight structure, limit the compensation of executives at the companies benefiting from the rescue and provide mortgage relief for struggling borrowers.

It's a modest, but essential, set of things to ask for if we're going to open our wallets.

For Seattle-area people, the numbers are:
Patty Murray: (202) 224-2621
Maria Cantwell: (202) 224-3441
Jim McDermott: 206-553-7170 or 202-225-3106
Dave Reichert: 206-275-3438 or 202-225-7761

A Visit to the Financial Alamo: The US Government Treasury Bond

posted by on September 22 at 1:35 PM

(Borrowed from today's New York Times.)

You need to understand this chart. Given our government will be borrowing a trillion or two dollars (about a tenth or a fifth of the entire economic output of the United States in a year), you should understand how expensive this is, right now.

Start with the dark blue line. This is the annual yield the US Government (er, us the taxpayers) must pay to borrow money for three months, six months, two years, five years, ten years and thirty years.

As the length of borrowing goes up, the yield the government must pay goes up. This makes sense. If you're going to tie up the investor's money for longer, you should have to pay more. Why?

1. If the economy does better in the future compared to right now, interest rates are likely to go up. Therefore, convincing investors to give up their money now, for a long period of time, means you have to do a bit of bribery and pay a higher yield. (This is the optimistic interpretation.)

2. Investors might be concerned about the long-term financial health of the US government. Such investors will be more willing to lend for short periods of time, and increasingly anxious about longer commitments. If investors think the financial health of the US is at risk, they'll expect to be paid to accept this risk.

Well, my friends, the yield curve today is indeed steep.

The yield on a 3-month bond is incredibly paltry--perhaps even less than the current rate of inflation. A yield like this makes the 3-month (and even the 6-month) bonds the equivalent of the big global mattress, where everyone is stuffing their cash--not to make it grow, just to keep it from being lost.

The fact that the short-term yields are so low, despite the massive increase in government borrowing, tells us just how spooked global investors are. Whatever money there is to be invested right now, much of it is going to the big mattress.

A year ago, the curve was really flat. (Look at the gray line at the top of the chart.) Flat--or inverted curves where yields are higher for shorter term commitments--often proceed times of economic upheaval.

So, people are still lending money to the US government for now. Maybe because they think things will get better soon. If the cost of long-term debt starts creeping up, it might be because they thing it'll be much much worse in a few years. Should be fun to see which proves to be true.

Or, to quote our fourth branch of government, Dick Cheney, "Reagan proved deficits don't matter." We'll all see, Dick. We'll all see.

All That Glitters

posted by on September 22 at 9:37 AM

News from the underworld:

Miners in Lesotho have discovered a huge gem stone which may become the largest ever polished diamond.

The stone weighs 478 carats and is the 20th largest rough diamond ever found, said Gem Diamonds.

The company said the uncut rock was recovered recently from the Letseng mine, owned by the company in Lesotho.

The diamond, which is as yet unnamed, has the potential to yield a 150 carat cut stone, and could sell for tens of millions of dollars, the company said.

This brilliant piece of news recalls an equally brilliant passage in Foucault’s The Order of Things--a passage that considers a tendency in pre-modern thought/episteme/paradigm to correspond the “terrestrial and celestial,” the heavenly with the “glittering, hidden veins where metals grow in darkness.” There was the blackness of space and the blackness of the caves; the stars in the eternal darkness of space and the “treasures buried in the earth since the creation of the world.” “The dark dangerous, and accursed glitter of metal…[and] that other glitter that sings at the far end of the night.”

Sunday, September 21, 2008

Leveraged Failure, Taxpayer Bailout

posted by on September 21 at 11:44 PM

Via the Wall Street Journal:

Deleveraging started with securities tied to subprime mortgages, where defaults started rising rapidly in 2006. But the deleveraging process has now spread well beyond, to commercial real estate and auto loans to the short-term commitments on which investment banks rely to fund themselves. In the first quarter, financial-sector borrowing slowed to a 5.1% growth rate, about half of the average from 2002 to 2007. Household borrowing has slowed even more, to a 3.5% pace....

Hedge funds could be among the next problem areas. Many rely on borrowed money to amplify their returns. With banks under pressure, many hedge funds are less able to borrow this money now, pressuring returns. Meanwhile, there are growing indications that fewer investors are shifting into hedge funds while others are pulling out. Fund investors are dealing with their own problems: Many have taken out loans to make their investments and are finding it more difficult now to borrow.

The Wall Street Journal is right about one thing: the massive deleveraging of the whole global financial system is at the core of our present crisis.

What is leveraging? Investing with borrowed money.

When you've gotten those "Low Introductory Rate!" credit card offers, maybe you've been tempted to get the card, max out the cash advance, take that money and put it somewhere safe. Say the card has a 3% interest rate. You put the money in a 5% a year high-yield savings account. When the credit card rate is about to jump up, you take the money out of the savings account, pay off the card and pocket the difference. That's leveraging.

If you're mid-scheme, and the card's rate unexpectedly jumped, you'd be doomed. Particularly if those low rate card offers are much harder to find. That's deleveraging.

Over at, with another shitty cartoon, I attempt to walk through why the highly leveraged investment banks on Wall Street imploded so thoroughly this month.

In the meantime, our wallets are being raided, to the tune of about a trillion dollars. To put this in perspective, the entire economic output of the United States, for one year, is about ten trillion dollars. One tenth of an entire year’s work is being poured into the crumbling foundations of Wall Street. And, this possibly will be insufficient to do more than temporarily slow the cascading failure.

Can anyone tell me why banks like this deserve to be saved? Why highly leveraged schemes like this are in any way desirable? What social benefit are we receiving from their continued existence?

Thanks to the new, draconian, bankruptcy bill, if we engaged in this sort of reckless get rich quick scheme, we'd be ruined when it unraveled. Why should we be ruined--for getting sick without health insurance, for buying a house at the peak of a bubble--but Wall Street saved?

Welcome to the USSRA

posted by on September 21 at 2:22 PM

The economist Nouriel Roubini is still on fire about the transformation of "the USA into the USSRA (United Socialist State Republic of America)":

The lesson of this sad and sleazy episode is that when profits are privatized and losses are socialized we get sleaze capitalism and corporate welfare that becomes public bailout of reckless lenders. All this from a US administration that hypocritically praises every other day the virtues of private markets capitalism. For all of us who do truly believe in free market economies where a variety of public goods are provided by governments and the financial sector is properly supervised and regulate this is not a capitalist system but rather socialism for the rich.
Indeed, one can argue that neoliberalism has always been about "socialism for the rich."

Friday, September 19, 2008

A Profound Contempt

posted by on September 19 at 3:10 PM

It's a beautiful thing to see the Wall Street Journal rip into John McCain:

John McCain has made it clear this week he doesn't understand what's happening on Wall Street any better than Barack Obama does. But on Thursday, he took his populist riffing up a notch and found his scapegoat for financial panic -- Christopher Cox, the chairman of the Securities and Exchange Commission.
Mr. McCain clearly wants to distance himself from the Bush Administration. But this assault on Mr. Cox is both false and deeply unfair. It's also un-Presidential.

The editorial basically echoes Obama's speech in Eli's post—McCain is panicking, thrashing around, looking for someone to hit. And even the conservative press is criticizing him for it.

McCain accused Cox and the SEC of allowing naked short-selling. The WSJ slaps him for his obvious distortion:

Take "naked" shorting, in which an investor sells a stock short -- betting that it will fall in price -- without first borrowing the shares he is selling from an investor who owns them. The SEC has never condoned the practice, and since 2005 it has clamped down on short selling in any stock that shows evidence of naked shorting. The SEC further tightened its rules against naked shorting just hours before Mr. McCain excoriated Mr. Cox for doing nothing.

McCain's (and Palin's) obvious, easily debunked lies show a profound contempt for the American public and its interest in—and ability to apprehend—the truth.

Go get 'em, WSJ.

The Big Bailout

posted by on September 19 at 12:18 PM

Well, ladies and gentlemen, the big socialization of risk that I've--and many others--have been foreseeing has occurred:

The actions began to get under way on Thursday with discussions between the Treasury, Federal Reserve and Congressional leaders on what could become the biggest bailout in United States history, a plan likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions....

In a move against traders who have sought to profit from the financial crisis by betting against bank shares, the Securities and Exchange Commission issued a temporary ban on short sales of 799 financial stocks, following similar action in Britain on Thursday.

And the Treasury, moving to restore confidence in another financial bedrock, said that it would guarantee, at least temporarily, money market funds up to an amount of $50 billion to ensure their solvency, a startling intervention into what had been considered among the safest investments.

The stock market is certainly happy about this. Should you, as a taxpayer, be happy?
For years, I've had to put up with conservatives bitching about the moral hazard posed by FDR's New Deal. Today's actions reveal these "free market" proponents as gigantic, hypocritical assholes.

Don't be too shocked.

Want to distill down the New Deal-era financial reforms? If you want our money to bail you out, you have to play honestly and by our rules. If something is important enough to the economy that we'd consider bailing it out, it deserves regulation first, bailouts second.

For example, the Glass-Steagall Acts prevented risky investments from shacking up with the safe--keeping investment banks and commercial banks separate. The same laws created the FDIC insurance of our savings account also limited where and how aggressively insured banks could invest.

Most of Glass-Steagall's regulatory provisions were written out of law in 1999, setting the stage for our present catastrophe. Today's "solution" to the present crisis is all bailout, no regulation--the mirror image of FDR's. It's going to fail.

"Free market" conservatives--like our current SEC chairman Christopher Cox--for years have been telling us the market will collapse irresponsible companies, relieving the government of the responsibility to actual bother regulating the financial industries. Well, when the irresponsible have started collapsing, Cox and others are right there with our wallet, dumping cash on the table to "restore confidence." I have an ugly truth for you: confidence shouldn't be restored in this system.

Want to restore confidence? I have a suggested governmental takeover for you: The entire debt rating industry. If the goal is to calm down global investors, who were burned by "high rated" debt that was anything but good, a public execution of Moody's and others would be the perfect way to do it.

Take the money we're now showering on the greatest failures in two generations to pay for a new governmental debt-rating agency. Pay the employees of this agenccy usurious wages--wages beyond any bribe. Grant these employees the right to tear into the books and documentation behind all of the financial derivatives, and give honest ratings to the relative quality of the debt.

With that, I know my confidence would be restored--in more than just the financial system.

Thursday, September 18, 2008

Trisha Ready's Brother Was Right

posted by on September 18 at 3:31 PM


When The Stranger was preparing to publish Trisha Ready's brilliant essay on the crumbling economy two months ago, we sped up the process--knocking another ready-to-go piece out of the pipeline--because everyone (on TV at least) was saying that we'd reached the bottom, that the economy was bouncing back, and Ready's essay was all about how bad things were. If things were getting better, the piece wouldn't be as resonant/timely/accurate. I remember reading the beginning--

When people ask me why I sold my house in Madrona last month and moved to a rental apartment on Capitol Hill, I say, "Because the economy is going to tank." But that's not exactly accurate: The economy has been tanking since last August. I just sense that things will get much worse before they improve. When I call my brother Paul, in California, he insists, "There will be a depression in two years like nothing we've seen before."

--and thinking: Yeah, right.


It's worth rereading. It contains a strange, quiet hope.

I have some sense that the credit bubble popping might drop some unexpected and pleasant surprises on us. As the economy crumbles further under the weight of stacked illusions, we're going to have to keep finding more creative ways to adapt. That might make us more interdependent, more connected to one another. I mean locally and globally—the world is becoming so intimate. We're going to survive by unsettling one another's lives a little more.

Thanks, World!

posted by on September 18 at 10:24 AM

For bailing us out!

... the Federal Reserve announced that the European Central Bank, the Bank of Japan, the Swiss National Bank, the Bank of Canada and the Bank of England would all provide extra funding in short-term US dollar markets. The Fed is lending other central banks dollars so that they can pump extra liquidity into markets in Europe, Asia and North America.

And thanks, George—for nothing!

President Bush attempted to ease America's fears over the economy in a set-piece speech that was short on specifics.

Wednesday, September 17, 2008

WaMu Up for Auction

posted by on September 17 at 5:03 PM

Let the bidding begin:

Washington Mutual, the struggling savings and loan, has been working on several efforts to save itself, including a potential sale, people briefed on the matter said Wednesday.

Goldman Sachs, which Washington Mutual has hired, started the process several days ago, these people said. Among the potential bidders that Goldman has talked to are Wells Fargo, JPMorgan Chase and HSBC. But no buyers may materialize.

Why It's All Going to be Ok

posted by on September 17 at 2:57 PM

(Or I've now switched from Mahler to Copland.)

1. Nobody--not the Republicans, Democrats nor the plutocrats actually running the show--want the October Surprise to be the collapse of the nation's largest Savings & Loan.

Could you imagine WaMu's forty million account holders getting a call weeks before the election that goes something like this: "Hi! We've lost all your money. But don't worry, the Federal government will bail us out. Using your tax dollars! Here's your number so you can wait in line. Hey, you're number 32,324,664! Neat."

No. Instead, there will be a shotgun wedding. We'll all get to see now the game of chicken between Paulson on one side--saying no Bear Stearns style midwifery for you!--and the potential suitors--whining that all this shitty debt will scuff up their wingtips.

It's all over, save the arguing over the dowry. And we--the taxpayers--are picking up the tab. Should be fun for us all! At least I won't have to memorize a new checking account number for a while.

2. Oil is below $100 per barrel! For the first time in about six months! The latest bubble has popped, taking with it the entire Russian "economy."

This is just as I predicted, twice. You know what date had the peak price of the bubble? July 3rd, my birthday. I'd like to think this was a little "hi!" to me from the Global Oil Conspiracy (TM).

High oil prices were like a knife held to the neck of the global economy, as we were all being mugged by the assorted collection of Russian, Middle Eastern and Texan oil oligarchs. Well, the muggers were sloppy and nicked the carotid.

As the global economy has bled to an inconvenient extent, the muggers have started to panic. Even the Saudi's are ready to reopen the pumps.

Add in the new oil shale extraction techniques plus the newly discovered technique to collect America's vast natural gas reserves and we're well back on our path to totally destroy the global climate by profligate burning of cheap fossil fuels! Neat.

3. The vast consolidation of global wealth has made most of us disconnected from the most of the losses--so far!

Did you have a brokerage account at Lehman Brothers? Me neither! How about billions of dollars in Fannie Mae bonds? Me neither!

Thanks to Bushinomics, a breathtaking amount of global wealth was concentrated in the hands of a teeny few--the collection of petty dictators sitting on sovereign funds, monopolists and oil barons sitting on multibillions.

Want numbers? WaMu is the country's largest savings and loan, with about 40 million depositors and about $150 billion in retail deposits. Our entire, collective, plebeian, life savings are chickenshit the scale of the losses of these diversified financial monstrosities managing the money of the wealthy few. We're so far down on the wealth chain, that our meager earnings barely dent the vast sloshing of wealth battering the top.

Regular people might end lucky in all this. The housing bubble, at least, produced a whole bunch of new homes for people to live in. Food still is incredibly cheap by historical standards--and about to get cheaper again as oil prices come down, and commodities speculation dwindles down. The astonishing reality of our present is, trillions of dollars in wealth can be totally evaporated, and the overwhelming majority of us will still be fed and live indoors. Hopefully.

So ends my afternoon message of irrational exuberance! Go forth and serve.

On Hypopsia

posted by on September 17 at 1:35 PM

I want to think about several things. First, the word "hypopsia." It's taken from ancient Greek and appears in Jacques Rancière's book On the Shores of Politics. The word means "to look underneath," meaning, to check and see if there's something underneath, say, your bed. You are checking because you are suspicious that the bed you are on is not safe or is not all there is. Hypopsia is the condition of being suspicious about the way things appear to be. And philosophy as a project, as a mode of thought begins with hypopsia, suspicion, and not, as some thinkers have argued, with thaumadzein, "the wonder at that which is as it is." ("As far as philosophy is concerned, if it is true it begins with wonder"--Hanna Arendt Introduction to Politics. On the other hand, the English philosopher Simon Critchley believes philosophy "begins with disappointment," which, of course, is very English of him.)

What is it that Marx brought to the emerging science of political economy (Smith, Ricardo, Mills, Malthus) in the 19th century? It was not heated wonder but cold suspicion. He did not trust the appearance (specter) of capitalism or the international market system, and his whole life was spent trying to remove its appearance and reveal its real. Capital is all about looking underneath the bed--what's really there?

Let's now think about a short but important work of semiotic theory by Roland Barthes, Mythologies. The opening essay in that book, "The World of Wrestling," decodes the language and tropes of professional wrestling, which was then (the early 1950s) as theatrical and scripted as it is today. In the essay, Barthes expresses fascination at the spectacle professional wrestlers make of their moments of victory and defeat. When a wrestler is doing well in a fight, he is in a state of extreme happiness and excitement; if he is losing, he makes a big show of his suffering--the wrestler moans, groans, and squirms like a worm. His suffering is bottomless.

Let's now think about the recent events on Wall Street. Like Barthes's professional wrestlers, Wall Street only has two emotional states: absolute euphoria and absolute suffering. When happy, it is too happy; when sad, it is too sad. When it laughs, it laughs way too loudly (showing teeth, gums, and a demented tonsil). When it weeps, its tears fall and fall and fall. But why this primitive performance? We must be suspicious of it. Why can't Wall Street be just sad or just happy? Why this need to go to such extremes? What is this (joy or joys) or that (sorrow or sorrows) appearance obscuring?

In the case of the present performance, all of this suffering and crying about the stage, Wall Street is obscuring a spectacular transference and concentration of wealth. What looks like a crash and a great amount of pain is in fact a socialization of losses (accumulated by, yes, neo-liberal policies--these people are shameless) and a mass movement of the universal equivalent to an even smaller percentage of the global population. What we are really watching is the whole world becoming a Third World.

WaMu Deathwatch

posted by on September 17 at 1:02 PM

Washington Mutual's largest single shareholder, private-equity firm TPG, today removed a potential roadblock to a potential acquisition of the ailing thrift.

TPG, which led a consortium that infused $7.2 billion into Seattle-based WaMu in April, agreed to waive a provision in its investment agreement that would have forced WaMu to pay hundreds of millions of dollars in the event of a sale at today's rock-bottom stock price.

The development comes as federal regulators reportedly are shopping around WaMu, which has been hobbled by its deeply troubled mortgage business, to potential buyers.


Washington Mutual's stock has dropped from over $40 a share last summer to $2.11 at the time of this post. So now the question isn't whether WaMu will implode, but which bank will buy this dud?

Money Market Fund Breaks the Buck

posted by on September 17 at 10:55 AM

Ok, you now have permission to feel the ground rumbling beneath your feet:

Sept. 16 (Bloomberg) -- Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days.

Money-market funds are considered the safest investments after cash and bank deposits, and Reserve Primary's losses come as confidence in financial markets has been shaken by the collapse of subprime mortgages, the failure of 11 U.S. commercial banks and Lehman's bankruptcy yesterday...

``This is uncharted territory,'' said Peter Crane, president of Crane Data LLC in Westborough, Massachusetts, which tracks money-market funds. ``That's certainly a stunner.''

(Also at the NYT and WSJ.)

This is a very bad sign, indeed. To quote one of the more financially savvy slog readers, who sent me an email this morning on the topic, "[t]hat's the scariest news I've heard all year, because it indicates just how horrifically bad things are now."

Why? Money-market funds are supposed to be backed by the very safest kinds of short-term debt--under thirteen months and of only the highest debt ratings. In other words, this is the first debt any borrower should pay back. If borrowers can pay anything, they'll pay this.

And enough of these lowest-risk borrowers have stopped paying to cause a major fund of this type to lose money--to lose enough money that the banks putting together the fund cannot cover up the losses.

This is a very dark sign for the health of the global financial system and economy.

The State of the Economy

posted by on September 17 at 10:14 AM

It just keeps getting worse:

The Florida Highway Patrol has closed part of Interstate 95 after a truck carrying $187,000 worth of nickels crashed and scattered coins across the road, killing one person.

The highway patrol says the tractor-trailer was carrying the nickels from Philadelphia to Miami when it apparently rear-ended another truck early Wednesday. Authorities say a passenger in the truck with the coins was killed and both drivers were hospitalized.

Authorities say so many nickels spilled out that the highway is sparkling in the Florida sun.

Tuesday, September 16, 2008

WaMu: Shareholders Run; Depositors Told to Stay and Take Responsibility

posted by on September 16 at 6:13 PM

Over on my posts on Washington Mutual's financial position, I've had more than a few commenters taking me to task for being "irresponsible" or for supposedly encouraging a run on WaMu.

Let me tell you something: A run has already occurred on WaMu. The shareholders and bondholders have already left the party, leaving the depositors, the FDIC and ultimately the taxpayers to clean up the mess.

Don't take my word for it, take the freaking Wall Street Journal's, that bastion of socialistic, pro-New Deal, thought:

For the first time in more than 70 years, a psychological “contagion” is threatening to drive financial concerns out of business, but this time American International Group Inc., Washington Mutual Inc. and others are facing a shareholder run.

....this time, it’s shareholders who are responding as the bank depositors did in the 1930s. In a vicious cycle, fears about firms’ capital position is weighing on shares, and the decline of the shares’ value is making it difficult to raise capital.

Don't panic depositors, we've been told:

"It's going to be ugly out there today and over the next several weeks, but when in doubt, repeat after me; '$50 billion dollars!' "

The WaMu executive was referring to the bank's statement last week that it has more than $50 billion in available liquidity to pay depositors and make loans.

Well, from where is this "$50 billion in available liquidity"? Us, the depositors.

Via the Financial Times:

“This week and next will be the moment of truth for WaMu,” said Fred Cannon, an analyst at Keefe Bruyette & Woods. “Their primary sources of liquidity are retail deposits and advances from the Federal Home Loan Banks [FHLB] but, now they are junk-rated, WaMu may have to pay more to encourage depositors.”

Got it? WaMu desperately needs to both keep existing checking accounts, and even attract new ones at a long-term loss, in order to stay solvent. The bond holders and the share holders have given up on the bank.

Yes, the depositors are protected by the FDIC guarantee, protecting the first $100,000 in a savings or checking account or $250,000 for an IRA (per person). For those of us already at WaMu, this might be enough to keep us around. Just know there might be a few days, or even weeks, of turmoil before you get your money back. A failure of Washington Mutual might cause the FDIC itself to require a bailout by the Federal Government. Try to have a cushion of money somewhere else, at least.

If depositors start leaving, that leaves the FHLB as the solitary source of funding for WaMu. Loans from the FHLB are low-cost, but not-zero cost. Financing that FHLB debt costs.

To pay those financing charges, if new depositors stop coming and the old start leaving, WaMu has no resources to draw upon right now--beyond a fire sale of the nearly quarter-trillion dollars it's holding in mortgage-backed securities.

So, yes, our deposits are protected--by us, the taxpayers. And if we calmly stay--do the responsible thing and not try to personally profit off of a dangerous situation--WaMu will continue to exist for a while--until it ultimately collapses in a few years, it is sold (perhaps with the Federal government as a midwife) or it regains the confidence of the stock or bond markets.

But, let's not confuse who made a run here
. All you assholes boasting about the killing you made with SKF? Thanks for bringing us ever closer to total financial collapse. Asking that we be patient, responsible and wait with our insured deposits (insured with our own tax dollars) while you finish raiding from the top? Priceless.

The Road Not Taken

posted by on September 16 at 2:27 PM

In a post about the economy, the Reality-Based Community makes a very important observation:

If George W. Bush's/John McCain's views on Social Security of a couple of years ago had been national policy, your retirement could have shared in this meltdown.

The Obama people need to make an ad of old clips of John McCain and George Bush talking about privatized Social Security and then a bunch of clips from the news yesterday. What if McCain had been the decider, then? Where would your retirement be?

It's not enough to stick them with the things that they've already done. We have to stick them on the things that we didn't let them do, too. That's the best comment on failure in leadership.

Monday, September 15, 2008

Decoupling is Dead; Invest in Your Head

posted by on September 15 at 2:32 PM

From the exemplary Daniel Gross at Slate:

"Decoupling" is the notion that the rest of the global economy could power ahead even as its biggest single motor, the United States, stalled. Decoupling was trumpeted by many of the international grandees at the World Economic Forum in Davos, Switzerland, last January and gained currency in certain circles (including the one surrounding my desk). But now it, too, seems to have been cancelled.

Ok, the US economy and Wall Street are in crisis. If we go down, the common thinking has been for a bit, the other economies in the World will be just fine. The Euro-zone will putter around, perhaps becoming the leading home of global finance. The BRIC (Brazil, Russia, India and China) economies will pick of the rest of the slack.

Well let's take a tour, today, of these saviors (after the jump, plus a suggestion of where you can safely invest):

Continue reading "Decoupling is Dead; Invest in Your Head" »

Why You Might Want to Stay at WaMu

posted by on September 15 at 11:17 AM

... despite it all:

1. I am no financial expert. I'm just someone with a checking account at WaMu, struggling to figure out what I should do, and just how bad WaMu's situation is. They might be in better shape than many are asserting right now.

2. I like WaMu as a customer. Low fees, no minimums and a genuinely friendly staff all are big pluses. I left BoA for Washington Mutual because of this. I'd hate to go back.

3. There are a ton of branches with decent hours and ATMs everywhere. Even in the Midwest and East coast.

4. You will get your money back, as a depositor. Eventually. And provided you have less than $100,000 in any single account. Even if this requires the FDIC to borrow money from the Federal Treasury, and in turn the Fed to borrow via Treasury Bonds.

5. The FDIC is not FEMA, even under W. This should be a very competent Federal agency. And they've had practice, with the collapse of IndyMac.

About the only bank I've liked better is TCF bank--and that is only in the Midwest.

So, at the very least, a bit of thanks to the generally excellent tellers I've had at WaMu over the years. May you not suffer for the idiocy of those, right now accepting golden parachutes, above you.

What To Do About WaMu? A Slog Poll.

posted by on September 15 at 10:27 AM

But first, a disclaimer: Financial advice handed out by Stranger writers is probably, by definition, questionable. As for the collective wisdom of our readers—well, their collective wisdom has left certain esteemed opinion leaders very unimpressed over the years.

Still, Jonathan Golob, who may—may—be more reliable than most of us when it comes to math and finance, says that Seattle-based Washington Mutual is on the brink of failing.

He's not alone.

Just about everyone I know has an account at WaMu, and in the last few days I've had a bunch of eerie conversations in which people I know have related their various plans for dealing with—or ignoring—a WaMu collapse. None of us are over the limit for getting FDIC insurance. (Meaning none of us has over $100K in deposits.) But certain of us are still thinking it might be a good time to move some of our meager funds elsewhere.

But, too, certain of us also wonder if we're being silly and paranoid. So, for the financially-semi-literate, the group-thinkers, and the people like me and my friends, a poll:

What are you doing about your WaMu account?

Sunday, September 14, 2008

WaMu By The Numbers

posted by on September 14 at 11:06 PM

Lehman Brothers just imploded; this happened a bit sooner than most expected:

Lehman Brothers Holdings Inc. (“LBHI”) announced today that it intends to file a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. None of the broker-dealer subsidiaries or other subsidiaries of LBHI will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate. Customers of Lehman Brothers, including customers of its wholly owned subsidiary, Neuberger Berman Holdings, LLC, may continue to trade or take other actions with respect to their accounts.

Lehman Brothers was founded in 1850. Not 1950. 1850. Lehman Brothers survived the Great Depression, only to be brought down by this crisis. Things are about to get very ugly.

We don't feel it yet, but we'll start feeling it shortly. How? One of the big financial institution expected to fail next is... Washington Mutual.

I have a checking account at WaMu. You probably do too. Washington Mutual is the largest Savings and Loan in the country--with more depositors than any other. If, or when, WaMu fails, a sizable chunk of the US population will be affected.

Let's talk numbers: WaMu has about $180 billion in deposits--your and my money in savings accounts.

WaMu--like any bank--did something with this money. Most banks put about half of the money into mortgages (directly or indirectly though investments backed by blended-together mortgages, called mortgage-backed securities.) At Washington Mutual, more like 75% of assets were placed into mortgages.

So, take our $180 billion in deposits, and add in other sources of cash and Washington Mutual had about $300 billion to invest. About $225 billion dollars tied up in mortgage investments. They were supposed to be very safe investments. They weren't.

Well, what are those mortgage investments worth? Nobody really knows. Since so little information about the borrowers was collected for so many of these loans, nobody can really determine their worth. (The more information you've collected about the borrowers--their jobs, their income, their payment history, their savings--the easier it is to build a mathematical model predicting their chance of paying a loan of a given size.) The people watching the payments come in have a slightly better idea that the public, or a potential investor. In a nutshell, that is the subprime mortgage crisis.

We can try to make a guess. When Merrill Lynch sold somewhat similar mortgage backed securities in July of this year, they only fetched about twenty cents on a dollar. Now, this mix of investments in mortgages is different--and potentially worse--than WaMu's, this was also months ago, when the market tended to value mortgage-backed securities more. If we take this as a reasonable guess (and it only a guess!) of the market value for WaMu's holdings, that $225 Billion (of our money) WaMu invested is only worth about $50 billion right now. Analysts are digging through WaMu's stock of mortgage investments, trying to figure this out.

WaMu still owes all of us that $180 billion. Even assuming that all of the other, non-mortgage assets are still worth every penny invested--WaMu only has about $125 billion-worth ($50 billion that we guess the mortgage-backed stuff is now worth, plus $75 billion of the rest) of assets to pay us back that $180 billion.

So, when we go to an ATM, or write a check, Washington Mutual has to get that money somewhere. They can borrow it, but WaMu's bond rating was just cut to one step above junk status--making it much more difficult and expensive to borrow. WaMu could sell stock, but the stock is already near worthless. WaMu could also sell itself--all of us as customers, all those ATM machines and branches--to make up the difference. Regulators begged them to sell in March. They refused. Nobody is willing to buy them for now.

If this all catches up to Washington Mutual, and they collapse entirely, our deposits are insured by the FDIC--up to $100,000 per account. The problem is, with $180 billion in deposits to cover with questionable assets, it's not clear the FDIC has that kind of cash around.

The FDIC has about $50 billion in reserves right now. Using my rough estimates, $180 billion less $125 in assets, the bailout of our accounts at WaMu will probably make the FDIC itself insolvent. It'll probably take taxpayer-funded bailout of the FDIC to pay back all our savings.

And that will be ugly, and potentially lengthy. This is a good time to start keeping good records--save those paper statements, or print out the online ones--to be sure you can prove what you're owed.

Of course, if all of us start pulling our money out now, Washington Mutual will just collapse sooner. And we (necessarily) are doing some guesswork here, trying to determine what WaMu's assets are really worth. So, I'm taking out a little cushion--in case the worst does happen--and keeping the rest at WaMu for now.

Not everyone has that luxury. If a month's costs equal about the amount you have deposited--if you cannot wait a few weeks to get your money back--it might be worth moving your checking account somewhere else, just to avoid delays in accessing your money. Remember, by doing so, you're possible hastening the collapse of a major bank.

Wednesday, September 10, 2008

"Credit- default swaps indicate there's an 80 percent chance WaMu will default in five years."

posted by on September 10 at 5:17 PM

.... so says Bloomberg News:

Washington Mutual Inc., the largest U.S. savings & loan, failed to interest suitors in a purchase this year because new accounting rules for devalued loans are driving away buyers, two bankers involved in the talks said. The stock fell 30 percent to an 18-year low....

WaMu fetched $2.32 at 4 p.m. in New York Stock Exchange composite trading, the lowest since Nov. 27, 1990. Credit- default swaps indicate there's an 80 percent chance WaMu will default in five years. WaMu and National City are the worst- performing stocks in the 24-member KBW Bank Index this year....

At WaMu, the percentage is even higher: $240 billion of loans are 77 percent of assets...

As potential acquirers steer clear, financial companies may be forced to seek capital from investors burned by earlier rounds of fundraising. Shares of U.S. banks that raised money have declined by an average of 45 percent after capital infusions, Goldman Sachs Group Inc. said in a July report. Both WaMu and National City raised $7 billion in April by selling shares at a discount to their market price.

(Emphasis added by me.)

Like I said, call me a chicken little or cynic if you like. I still think it's time to end the rodeo, and start solving this problem.

Governor Sarah Palin Is a Rodeo Clown

posted by on September 10 at 2:37 PM

Washington Mutual's bonds were just re-rated to one step above junk status. Given this, I think WaMu might be ever closer to imploding. Call me a cynic, but I think shortly the bank might be insolvent.

If this happens and you're a shareholder, well, you're screwed. If you're like me--and have your checking account at the bank--be prepared to have your savings lost. Yes, the FDIC will bail us out--but that will take a little bit of time. I'm going to prepare a small cushion.

How is this a positive spin? At least those of us foolish enough to trust our money with Washington Mutual will be among the first to be cashed out. Out of the Ponzi scheme that the U.S. and global economy has become under decades of Republican Party domination. You don't want to be the last sucker.

We're coming to the very scary ends of the economy. About all investors have confidence in, right now, seems to be U.S. Government Treasury bonds. This is our seed corn. With all these bailouts, we've started eating it.

We need to do something dramatic right now. In order to restore investor confidence in the bond markets, we need to propose something like a new regulatory scheme--with strong oversight and stiff penalties to companies that lie or misrepresent the debt they're selling. This needs to be a reform of about the same magnitude as the New Deal. We need to convince investors around the world that we want to do this, that we can do this, that we will do this.

With a major election coming up, this is what we should be discussing. Just by talking about the problems in the U.S. debt market--the horrifying irresponsibility that has been allowed to occur under George W. Bush's presidency--we can go a long way to restoring confidence. Even mild proposals by the candidates would help. Something bold--a real reevaluation of the regulatory structure of the United States financial market--would do even more.

We aren't.

Instead we're arguing about the phrase "lipstick on a pig," testing for Down syndrome, pregnant teenagers, drilling for a tiny percentage of the dwindling supplies of petroleum, "victory" in an unwinnable war, and other irrelevant idiocies.

Sarah Palin is a rodeo clown. W was the rodeo clown before her. We're the bull. We have better things to gore right now.

She has been a perfect pick for the Republican ticket just because the massive distraction she's caused. What is McCain going to campaign on? W's record? The current dire state of affairs? McCain's personal contribution to the collapse of the U.S. financial markets?


Can I Just Say...

posted by on September 10 at 2:08 PM

... that a country that can't give its citizens health insurance—because that'd be socialism—but is busy nationalizing its fucking real estate market is totally, totally backwards.

(Yeah, yeah—Fannie and Freddie weren't entirely private companies before, you free-market fundamentalists were right all along, blah fucking blah. The cold, sad facts: We have failed to socialize medicine, which every other reasonably decent country in the world did a long time ago. And now we're socializing the real estate market, just in time for its collapse. No matter how you parse the failure—it is pathetic.)

More Good News for Obama

posted by on September 10 at 1:59 PM

WASHINGTON — As Congress prepares to debate expansion of drilling in taxpayer-owned coastal waters, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal--including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct...

The reports portray a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch.

Nothing sounds better on a TV attack ad than "cocaine use" and "sexual misconduct"--along with "President Bush," "Republican party," and "corruption."

Monday, September 8, 2008

McCain's Record on Financial Regulation

posted by on September 8 at 2:36 PM

If you aren't concerned about the massive bailout of Freddy Mac and Fannie Mae by the US taxpayers, you should be.

For those of you keeping track, we're not really bailing out US homeowners; we're bailing out the bondholders of Freddy mac and Fannie Mae. The predominant bondholder? The central banks of Asian nations. How are we financing this bailout? Using US Government Treasury bonds. Who is buying those? The central banks of Asian nations. For now, at least.

If confidence in US Treasury Bonds falters, we're all doomed. This is not an exaggeration.

The next president, who in turn will set the regulatory environment, really matters. The best, perhaps the only way, to restore investor confidence in US and global financial institutions is through tight regulation. To be blunt: investors are correct. The Fannie Mae and Freddy Mac bonds were far crappier than they were told. Until everyone in convinced things are worth their claimed worth, things are only going to get worse. We need a president who can take on the financial industries, who is above corruption on this issue above all others.

McCain's record is terrible. Over at Seattle Savant I've posted a cartoon depicting his involvement in the Keating Five scandal--the last big collapse of US financial institutions, that cost taxpayers over $200 billion (in today's dollars.)

Sunday, September 7, 2008

My Public Property

posted by on September 7 at 10:39 AM

Another type of "bridge to nowhere":

THE economies of Michigan, the Canadian province of Ontario, and even Ohio depend to an amazing extent on a very old, privately owned bridge which has virtually no security, and utterly no backup.

That would be the Ambassador Bridge, built in 1929, which connects Detroit and Windsor, and over which billions of dollars worth of mainly heavy, automotive-related goods flow every year. It is owned by a reclusive, 81-year-old multimillionaire named Matty Moroun, who for years has stymied every attempt to build a second bridge.

Mr. Moroun claimed another crossing wasn't needed, though the approaches to his bridge are ridiculously inadequate for modern traffic. Then he suddenly reversed course, after it became clear that a multi-national consortium known as DRIC, for Detroit River International Crossing project, was serious about building a second bridge a mile or so downriver from the Ambassador.

Trouble is, Windsor is adamantly against duplicating the Ambassador Bridge. Traffic is already far too congested in the residential area leading to it, so much so that authorities for a time were forced to put portable toilets on residential streets.

The DRIC bridge would not only be in a better area, it also would be a true, publicly owned partnership between both cities and both governments.

Building it should be a no-brainer. But Mr. Moroun's forces have been lobbying the Michigan Legislature, where he has a surprisingly strong group of supporters...

...What seems extremely odd is that the U.S. government, the same one that was once obsessed with confiscating our shampoo at the airport, is not more concerned about the huge security threat the Ambassador Bridge represents. One terrorist with a truck or barge bomb could cripple the economies of Michigan and Ontario for months, if not longer.

The man squeezing the life out of this dying bridge is also the owner of this terrifically dead building. Detroit's Michigan Central Depot has a small role in the movie Transformers.

In what light must we consider Ambassador Bridge? In this very bright light:

[Treasury Secretary Henry Paulson] added that [Fannie Mae and Freddie Mac]'s debt levels posed a "systemic risk" to financial stability and that, without action, the situation would get worse.

"We examined all options available and determined this comprehensive and complementary set of actions best met the objectives of market stability, mortgage availability and taxpayer protection," he said.

"Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe."