Friday, September 26, 2008

Step right up, ladies and gentlemen, and get your bank... Hurry, before they're all gone!

So yesterday comes word that my daughter's bank, WaMu, which has been teetering on the brink for a while now, was acquired by JPMorgan Chase after being seized by the FDIC earlier in the day in order to expedite this fire sale. When I say it's "my daughter's bank," I don't mean that she owns it; I wouldn't wish that on her. It's simply where she does her banking in Vegas. JPMorgan paid $1.9 billion, and the acquisition makes Morgan the nation's second largest bank after BofA.

To even begin to appreciate the significance of this, you must understand, first, that the decline and precipitous fall* of Was
hington Mutual (NYSE: WM) is by far and away the largest bank failure in American history. In pure dollars, this is worse than the next-biggest collapse by a factor of almost 10. But even that doesn't quite capture the magnitude of what just happened here. First of all, WaMu holds some $307 billion in assets ($188 billion in actual deposits), which means that all by itself, the bank (theoretically) controls a sum that is almost half of what Washington is planning to throw into the bailout deal it can't seem to hammer out (even despite the emergency presence of our lord and savior, John McCain). As recently as summerwe are just a few days into fallWaMu listed a book value (assets minus liabilities) of $26 billion (and even that's a substantial decline from a few years ago). Therefore, while $1.9 billion is hardly pocket change, the JPMorgan deal represents the rough equivalent of you or me picking up, say, a brand-new Nissan Maxima, MSRP around $30K, for the princely sum of around $2100. We could get really technical here, and I'm already oversimplifying as it is, but it tells you something that WaMu changed hands for about a quarter of the value the bank was placing on its goodwill alone just a few short months ago. Of course, you know you're in bad shape when your stock declines roughly, oh, 100 percent. Just before the Feds stepped in, WaMu was trading at $1.69, which means you could've bartered your neighbor a gallon of gas for two shares of WaMu and still gotten change. This was a $45 stock for most of the past few years.

Question: How much bad paper** does a bank with three-hundred-seven-billion dollars in assets have to write in order to go this far down the tubes? And/or how poorly must it mismanage its affairs?

Speaking of the latter, WaMu, which lists as its first core value "absolute fairness, honesty and integrity [in] everything we do," will now hand defrocked CEO Kerry Killinger a parting gift reportedly worth as much as $22 million.

And to think, when I left my last job I got about a month's salary and a sheet with instructions for filing an unemployment claim...

* The highly touted fools at the Motley Fool were still sounding optimistic a year ago.
** You have to scroll way down before you get to the cited term (bad paper, which refers to the ill-advised loans that are politely called "underperforming" in banking circles), but this is really an excellent overview of the whole sub-prime mess.

21 comments:

ellen said...

I think you're going to see a lot more banks go that way, Steve. Japan faced this in the early nineties, as did we, we bubbled, they let the system crash and then rebuilt--took them 10 years to come back to even a semblance of normality. Our system is in such a volatile and parlous state that anything done is deck chairs on the Titanic.
Ellens rule for volatile in any situation: do not tinker, stand back back and let it settle then make a decision.

What bothers me is that this latest bail-out package is funded by the US Treasury bills and shares held by China, the Gulf States and other interested parties. Lets hope that none of them decide to move their investment at a tricky moment, a global run on the dollar? I sound almost as bad as Bush.

Steve Salerno said...

No, Ellen. To sound as bad as Bush you would have to repeatedly mangle the word "nu-cu-ler," and state that you "misunderestimated" the banking crisis.

ellen said...

Which gives us an unwelcome and scary insight into the state of his brain and thinking process.
Heaven help us all.

Steve Salerno said...

As we speak, I'm watching McCain-TV Central (otherwise known as FOX News), and they show their boy ardently politicking the GOP leaders in the halls of Congress, striding purposefully among them like the True Leader he is. If he does indeed manage to "rein in" the Republican dissidents and get this bailout bill passed sometime soon, he's going to be positioned as The Great Uniter once again: The Man America Sorely Needs to Bring Post-Partisanship to Washington. In fact, I'm to the point where it wouldn't surprise me at all if--some years from now--it comes out that that whole show of the GOP walking away from the table last night was exactly that: a show, elaborate theater, staged and scripted to create an opportunity for the political heroism John McCain desperately needs to keep his campaign off life support (and to distract people from the incredibly stupid things his v.p. choice keeps saying).

See what this nonsense does to you? It makes conspiracy theorists out of otherwise sane individuals.

roger o'keefe said...

Again Steve I don't want to belabor this, but will you look at the cynicism! Why can't it just be that the guy is sincere and committed to helping his country get past a terrible and highly dangerous crisis? You can't just give the credit where credit is due. You have to look for the goblin behind the mask. Besides sending me links to hit pieces with an obvious agenda, I still would like someone to tell me convincingly what John McCain has done to merit that.

Steve Salerno said...

Roger, I am responding to the overall tenor of the way the McCain campaign has been run. Especially since the addition (is addition the right word?) of Sarah Palin, he seems to be playing a never-ending game of rope-a-dope. (Younger readers who don't get the reference, ask someone over 40.) The economy is fine on Monday, the economy is in terrible crisis on Tuesday, he doesn't know how many homes he has, he throws things out there that make very little sense to begin with, then "clarifies" his position in a way that effectively negates it, he runs ads that are so absurdly misleading (and "misleading" is a kind way to put it) that they almost sound like self-parody.... And then Palin steps in and spews total and utter gibberish! I swear, in that interview with Couric she came very close to sounding like that beauty pageant contestant that was the talk of YouTube for a while (the one who had that little problem with "maps").

Roger, at some point we have to move past whatever McCain may have done and been 30 years ago and talk about the way he's running his presidential bid, today. It's not a pretty sight. Let's not forget, I've said many times that I used to like and respect the man. I was sincere in saying that--and of course, to some degree, yes, he will always deserve credit for some of what he's done in D.C. But what's been happening the past few months is deplorable, and has eroded much of that feeling on my part. His choice of Palin alone--leaving all else aside--is unfathomable except as a purely political "Hail Mary."

What do you want me to say? It's appalling. It is old-style smear politics at its very, very worst, and unbecoming in a man who's supposed to stand for "a new of doing things."

RevRon's Rants said...

"Why can't it just be that the guy is sincere and committed to helping his country get past a terrible and highly dangerous crisis?"

First of all, he has for years been on-board with the deregulation mania that created the crisis in the first place. Secondly, to cite the latest example of proof that his interest is primarily political, rather than patriotic, look at the way he handled this latest situation. Obama reached out to him, offering to issue a joint, unifying statement, to which McCain agreed. Then, when Obama got back to Washington, he discovered that McCain had rushed to hold a preemptory news conference, announcing that it was he who had initiated the effort, bolstered by his claim to be suspending campaign efforts to focus upon "fixing" the problems... the same problems he had spent years creating.

I would suggest that the real partisanship is exemplified in the attempts to excuse his behavior and ignore the hypocrisy he has exhibited these last years and especially these last few months. The cynicism you decry is, in its essence, the only logical response to well-documented events.

Elizabeth said...

Okay, not to sound "too cynical," but, Roger, is there any way you could admit that the man you so admire is indeed, well, less than perfect (to put it mildly)?

Or are you sending us on a wild goose chase -- a la CMC -- in that we give you facts and reasonable arguments and you keep insisting that they don't matter or show "an agenda"?

If that is case, it's pointless to continue trying to answer your questions (which, btw, we have done here, repeatedly, in the last two weeks).

Steve Salerno said...

One thing I do want to say, and I say it sincerely. I hope all parties to this discussion (and all discussions) will take it to heart, and also take it in stride. I am not trying to slap anyone's hand. But I've been thinking about this a lot since that last unfortunate circumstance, and I want to get it on the record.

I've declared for a candidate, and most of the folk who visit here (or at least post here) appear to be in agreement. That naturally tends to give the blog a partisan flavor. That said, I am very committed to preventing the development of an official, institutionalized "us vs. them" atmosphere on SHAMblog.

Even in my own case, just as I reserved the right--as a citizen--to pick a candidate and justify that pick, I also reserve the right to "break ranks with myself" and criticize that candidate when it seems appropriate--as I criticized Obama, most recently, for running ads that depict nothing but white people in them. It struck me as a feeble and transparent attempt to make "white America" more comfortable with him, especially in the wake of the Wright/Farrakhan deals.

As I see it, there's a subtle but important difference between (a) contributors speaking for a consensus of contributors that may develop on any given thread--which is understandable and probably unavoidable--and (b) contributors appearing to speak for the blog itself, which is a different breed of cat and I think must be discouraged at all costs. I hope that's understandable, as well as understood. And I hope no one is put off by it. If this is a cyber-journal of ideas, which is how I like to think of it, then all ideas should be welcome and evaluated fairly.

Elizabeth said...

Alright, Steve, that's obvious (I think). You and I, for example, disagree on several things and we do talk about them, no? McCain's dishonesty in running his campaign is one thing we do happen to agree on -- and that's what we are talking about here.

But it also true that people here, on SHAMblog, who have been engaged in the discussion on this very topic, have answered CMC's and now Roger's questions about McCain's problems with both well-reasoned arguments and facts. In spite of that, the response we (collectively speaking, but it applies to everyone who responded to CMC and now Roger's question to provide arguments) offer is met with, essentially, a version of "none of what you said matters; keep coming up with 'better' arguments." I dunno, but I'd say that it is pointless to continue such one-sided "exchange." JMO.

Speaking of which, a question for Roger:

What "obvious agenda" do, say, George Will and David Brooks have in criticizing McCain? I'm stumped by your saying so.

RevRon's Rants said...

i think all ideas are being welcomed and evaluated fairly, if not universally agreed upon. As I said in a comment yesterday that Blogger somehow lost, I doubt that there's much chance that the previous train wreck will be repeated. I accept the fact that the ideas currently being presented are the product of honest consideration, offered without acrimony as discussion points, rather than weapons of mass dismissal. In the previous discussion, such was not always the case, but the worst offenders are conspicuously absent from the current dialog.

Anonymous said...

"How much bad paper** does a bank with three-hundred-seven-billion dollars in assets have to write in order to go this far down the tubes?"

Wrong question, Steve. Assets is not what we focus on here: it's capital-minus-goodwill. And that number was rather small when compared to the $307 Billion in assets. So if assets are overstated (loans which can't be collected or sold to somebody else) by 5% or so, the company goes under.

roger o'keefe said...

Elizabeth, in all seriousness how do you not see the condescension of your words. "Pointless to continue such a one-sided exchange"? So if I don't immediately yield to your greater wisdom that means I'm a hopeless case. I was not part of that dialog with Crack except I think to make one minor comment, but I don't think the people who went after him with such vehemence were as blameless as they say. There was a tremendous amount of presumption in many of the arguments you presented as "winning" arguments. And I'll use your own comment here as an example.

You ask, what agenda would George Will have. To even ask that shows a lack of knowledge about John McCain and his very difficult and unorthodox role within the GOP. There are many conservative voices in the GOP, Will being just one of them, who have been very upset with McCain's more moderate positions for years. And some of those voices again including Will have "torn him a new one" when McCain crossed the aisle. Steve was correct in saying Rush Limbaugh used to pick McCain apart before McCain became the candidate, but that speaks more to Rush's motives than anything McCain himself has done. Lots of Hillary supporters who now support Obama used to make a case against Obama because he wasn't their first choice. Now that he's the candidate they've put aside those reservations and they back him. That's not hypocrisy, it's pragmatism. Once your party picks a candidate, you rally behind him and everything you said before is forgotten.

As for David Brooks, you're joking, right? Brooks is the classic "liberal who got mugged and became a conservative", he went from one extreme to the other and never paused in the middle to meet John McCain. Brooks has been a critic of McCain since I can remember, except now he criticizes him from the far side of the room. McCain used to be too right-wing for Brooks. Now he's too left-wing. Again that’s not McCain's problem, it's Brooks.

The bigger issue is this isn't as cut and dry as you make it out to be. If you disregard the few poll points one way or the other America is evenly divided on the two candidates. So you seem to be saying everyone who supports the GOP, half of America, is either an idiot or misinformed. The late Bill Buckley was misinformed? Newt Gingrich is misinformed? Without trying to start a fight all over again, I wonder how you don't see the arrogance of that argument.

And now if you'll forgive me I have to get back to work. Why don't we talk again after they debate. I challenge you to try to keep an open mind.

Steve Salerno said...

I think what Roger says at the end there is very pertinent and should not be dismissed as a rhetorical (which I don't think is how he meant it anyway): Is that, in fact, what some of us are arguing here? That you can't be a McCain/GOP partisan without being "less intelligent" or "mis-/uninformed"? Or are we saying there are other factors in play?

Incidentally, we're debating these issues on about 9 different posts now, which makes it very confusing and hard to maintain continuity. That's my fault entirely; I've gotten a bit carried away with myself vis-a-vis posting in the past few days.

Elizabeth said...

Alright, Roger, so now we are talking. No need to resort to accusations of "arrogance;" you could have just presented your points the way you have done it right now, by elaborating, rather than dismiss everything off-hand with a simple "obvious agenda" and "give me something else" requests.
I appreciate your elaboration on Will and Brooks here, BTW.

You know, we can always look for an "agenda" and it is understandable, of course. But then there are usually facts behind those "agendas" that both sides can focus on and talk about without dismissing them right away.

Let's watch the debate. I'll try to keep an open mind, as much as it is possible.

ellen said...

Back to the original topic, a respected financier here has said that WaMu had previously hidden (creative accounting) most of its bad debts--absolute fairness, honesty and integrity?--and the uncovering of these led to its demise.
His take on the whole scenario: a global pyramid selling scheme, not something that you want to shore up for the future.

Jen said...

Steve, you wrote: "If this is a cyber-journal of ideas, which is how I like to think of it, then all ideas should be welcome and evaluated fairly."

This fair-mindedness of yours is why I keep coming back, that and the way I've come to feel like some of the faces here are those of old friends, or at least eccentric uncles and aunts. ;)

That said, my daughter has lately been insisting I need to read an article. In fact, her persistence is starting to feel something like brainwashing.

Here it is: http://tinyurl.com/usandthem

Anonymous said...

Roger, the fact that someone has an agenda does not mean that someone is wrong. I too would prefer you address the criticisms of McCain head on rather than disregard them right away or ridicule them without acknowledging their substance.

Anonymous said...

Well Steve the Reps and Dems can agree on something...saying "no" to a $700 billion banking bail-out. I concur with Congress on these issues. I thought McCain was going to "bring everyone together." No one wants to pay for Wall Street. Maybe we do believe in free markets after all.

Dimension Skipper said...

FactCheck.prg asks the question...

Who Caused the Economic Crisis?

Click to read it for yourselves, of course, but they state the obvious that there's plenty of blame to go around and then list many specific contributory causes. I can't disagree with their bottom line final paragraph...

"The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult."

I highlighted that last bit in bold because I believe it can be extrapolated to many issues facing the nation, not just the financial crisis. I keep waiting for people that matter (i.e. key elected officials on both sides) to finally realize it and take it to heart. I suspect I will have a long wait yet.

Steve Salerno said...

DS: I agree wholeheartedly with the central thesis you present here, which is valuable because it lifts us above the usual partisan finger-pointing. As many critics of the (supposed) two-party system have observed, both parties by now have gravitated towards a rather bland middle, and most of the attacks that command the air-waves during a major election season like this one are just rhetorical artifice, trying to make the differences between parties sound much more stark than they are for the purposes of "positioning." But both parties got us into this mess, which is why it behooves them now to either get us out of it, or, if you take the more libertarian approach, to simply recuse themselves and let the chips fall where they may. I don't even think that the current mess can be blamed solely on deregulation. I think it's more the half-assed implementation of a half-deregulated system--a twisted creature of so-called political compromise--that has a lot to do with our problems.