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Wednesday, 10 September 2008 21:42

It looks like I am not the only one with concerns about Washington Mutual [NYSE:WM].  S&P lowered the outlook on the company--maybe it needs to dig into the tranches of the bank's CDOs, the risk doesn't seem to be calculated appropriately given the fault rate of the loans covered in the obligations.  I mentioned the credit default swaps yesterday; they've jumped by another 400 basis points.  If WaMu needs to raise cash, it's going to find it very challenging.  Today the shares dropped by 30% to $2.32.

I think the news on Lehman didn't help--things were a lot worse than analysts thought. Perhaps people expect more bad news from WaMu when the next quarterly results are announced.

Lehman needs to go to the discount window, as no one seems to want to pony up funds.  It's a strange market out there for banks such as Lehman.  Personally, I think that the only way this issue will resolve itself is for the Fed and the government to let a bank like Lehman or WaMu to fail.  (Lehman won't likely fail; it has great assets that it could sell and probably survive).  WaMu is a different story: three hundred billion in assets and under $10 billion in market cap: it's doing worse than an airline!!!  I think that they need to let WaMu fail because running in and helping hasn't helped.  It's like fretting parents: it shatters the confidence of the kids.  Let one of them fall and get it over with.  It would be good for the economy, because it would at last signal that we're near the bottom.

Other things are brewing at WaMu.  There were lots of reports yesterday that WaMu has signed a memorandum of understanding with the Office of Thrift Supervision: an updated, multiyear business plan and forecast for its earnings, asset quality, capital and business segment performance.  Translation: WaMu mortgages mean mayhem.

So, I still have some accounts at Washington Mutual that I will be closing tomorrow--well, one will take a week to close, but they'll all be closed by Thursday of next week.

The Office of Thrift Supervision

The OTS is part of the Treasury Department (more correctly, The Department of the Treasury!) with regulatory authority over Federal Savings Associations--Thrifts!   It's an interesting entity.  If you read through loan agreements, you'll see that OTS is not only involved with "banks" that have FSB after their names, but they also regulate loans issued by companies like GE Capital etc.  FSB supervises part of WaMu--banks that end in FSB.  All deposits at WaMu are insured by the FDIC.

 

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