Did FDIC jump the gun in shutting down WAMU?

[BR_Parkway]

Interesting article here, wonder how it will play out -

Why Did They Close WaMu?

EDITOR'S NOTE: In September, on the first anniversary of Washington Mutual’s closure, the Puget Sound Business Journal reported that as executives fought to sell the bank during its final days, regulators undercut those efforts by signaling to bidders that the bank would soon be seized and sold at a much lower price. Now, further investigation reveals that, contrary to regulators’ assertions at the time of the seizure, WaMu had sufficient liquidity and capital to meet regulatory standards and survive. Why, then, was it shuttered?

<snip>

WaMu’s regulators said they based their decision to close the bank and sell it to JPMorgan Chase on lack of liquidity—its access to ready cash—and the mounting pile of failed mortgage loans that were expected to cripple the bank’s earnings for months to come.

But new information—gathered from internal documents and interviews with scores of former WaMu executives, regulators, and other experts—shows that WaMu had plenty of cash on the day it was seized, and a regulator-vetted plan to operate with even less money if necessary. WaMu also had ample capital—more than the regulatory levels for a “well-capitalized” bank.

These documents and sources, part of a Puget Sound Business Journal investigation, raise questions about whether the regulators acted precipitously in seizing a bank that could have survived, and in the process wiped out billions of dollars of wealth with widespread personal consequences. “Someone needs to take a serious look at this because they weren’t illiquid,” said a senior federal official with direct knowledge of WaMu’s circumstances.

http://www.portfolio.com/industry-news/banking-finance/2009/12/07/why-federal-regulators-closed-washington-mutual/

[naaman fletcher]

1. Why, then, was it shuttered?

A number of possibilities, in increasing order of probability:

1. A well intentioned government made a mistake.
2. A government wanting to save the system overall thought that it's weakest members (LEH, WAMU) must go so that there were less players.
3. A government owned by the banks was really owned by just a few of the banks who were able to get the government to help them cannibalize the banks that had less clout.

I think it's number 3, but 1 and 2 are possible.

[BR_Parkway]

3. With the way they are redacting every thing on each of the emails

it certainly looks like someone doesn't want something to get uncovered

[FarCenter]

2. The value of its mortgage loan assets was dropping rapidly

And depositors were pulling their money out. There had been two multi-billion dollar runs on WaMu.

It would have been a much bigger hit to the FDIC insurance fund if they had allowed WaMu to continue and then fail. As the story says, WaMu was 10 times bigger than IndyMac, and IndyMac was a heavy blow to the FDIC.

A WaMu and JPMC merger had been rumored for at least a year. Dimon played his cards right and did not do the deal until WaMu was truly distressed goods. Compare with Lewis of BofA overpaying for CountryWide.