August 18, 2008
Doug McIntosh
Wamu stands for Washington Mutual Savings Bank and it is the economic version of "JAWS." Jaws being the 1975 movie about great whites pulling unwary swimmers underwater and swallowing large chunks of them. I never saw the move since I grew up in the desert and movies about sharks aren't on my to do list. Rattlesnakes I can deal with, but sharks and watermoccasins seriously freak me out. Kinda of like what WAMU is going to do the unsuspecting public frolicking on the beach: suck the FDIC under and then spew out the debris before a horrified audience. This economic version of "On the Beach" is going to have a much quicker, although just as lethal ending.
You see, the FDIC insurance fund is around $44 Billion and covers around 1.15% of total bank assets of some 4.4 TRILLION. Now the real interesting thing about this number is the FDIC has taken out newspaper ads talking about how their insurance fund protects bank accounts, up to $100,000, as well as retirement accounts, like IRA's, up to $250,000. They started doing this after they had IndyMac go under, along with a few others, and deplete their insurance fund by 17% or $9 Billion dollars. Obviously, 44 Billion to cover 8500 banks et al isn't enough. Not that they can admit this, hence the newspaper ads and the propaganda campaign.
The Internet is a wonderful thing. It allows subversives like moi to go to the Washington Mutual web page and damn them with their own press releases. Wa Mu hasn't been a mutual bank for 25 years; nor, are they even a savings bank. Washington Mutual is composed of several parts, although it is the home lending which will destroy it. For Washington Mutual decided its destiny lie in making residential home mortgages, even more than Wells Fargo Bank did. Like Wells Fargo, Washington Mutual now finds itself impaled upon the sub prime reef. Soon it will pounded to pieces by the surging waves of alt prime, credit card defaults etc. etc. etc. And it will be the FDIC which is expected to bail it out, even though that is impossible. You see, the blunt truth is the entire US banking system is insolvent. It has been for months. The role of the FDIC has been to cover this up for as long as possible. But it is too late for that now.
Washington Mutual has followed a rather strange path. First, in July 2006 WaMu outsourced its appraisal functions to outside vendors. This brought the wrath of the New York Attorney General who questioned this and its effect on Fannie and Freddie since they bought the mortgages. This in turn caused Wa Mu to terminate one of its vendors in October 2007, although assuring everyone that no fraud was involved. And then the losses started: quarter by quarter Wa Mu has been losing money. The last profitable quarter was third quarter of 2007. In December 2007 Wa Mu began raising capital to "fortify its capital base." In the fourth quarter they lost several billion and reduced their stock dividend.
2008 saw the tidal wave begin to have concrete results. After faking the numbers to give executives year end bonus's the bottom fell out. According to their own press releases here is the sequence of events. On April 8th they raised 7 Billion in new capital. In the spring there were a flurry of stockholder actions, buybacks, resignations and governance changes. By July 14th Washington Mutual had to issue a press release about the "strength of its capital and liquidity position." Banks don't do that unless they have to. The reason they had to is "assets" were 328 Billion dollars on 12-31-07, $319 Billion on 3-31-08 and $309 Billion on June 30th. Washington Mutual is bleeding assets at the rate of $10 billion a quarter the first two quarters of 2008. They have had to raise nearly 10 Billion in capital to maintain their capital reserves. They are smothered under billions, bank implode o meter, puts it at 28 billion in bad loans. Washington Mutual is definitely on the FDIC watch list.
If you don't believe any of this, then by all means go their web site and look under the news release section. Like I said, Washington Mutual lost $1.6 Billion in the fourth quarter of 2007 and they lost double that in the second quarter of 2008. It took a while but Wa Mu finally admitted they lost $1.4 Billion in the first quarter. Washington Mutual actually canceled their first quarter conference call on April 11th and delayed it for several day until the 15th after the stock markets had closed. 1.6 plus 1.4 plus 3.3 equals a 6.3 Billion dollar loss in less than a year. They increased their loan reserves from $3 Billion to nearly $9 Billion, but did you see one word about this from the FDIC or the mainstream media? Nope, cause we wouldn't want to cause a bank panic now would we?
It is clear the banking system is going down. And the reason it is going down is the fraud, corruption and criminal actions of banks, real estate and mortgage brokers, appraisers, regulators and rating agencies. What we got here is a total meltdown. I will write more in the future. Sufficient undo this essay are the troubles I have outlined.