Blog From A Hermit Dot Com

At Griz’ insistence, I’m going to write about my personal sadness over the seizure Thursday by federal regulators of Washington Mutual Bank and the concurrent firesale of WAMU’s assets to JP Morgan Chase.  I am not an economist and have never worked in banking or any part of the financial sector, so much of what I have to say may sound extremely naive if not downright stupid. Oh, too bad – what are blogs for (especially one that not many read anyway). Disclaimer: I have been a customer of Washington Mutual (WAMU) since the days when they were a lowly Seattle savings bank.  I also have financial interests with Chase Bank. I hold no stock in either institution. It appears I may suffer some inconvenience, but I will take no personal loss as the result of this seizure and sale. I’m just a customer – one who admittedly used Washington Mutual primarily as a cash-flow utility, and sometimes a mortgage-bank. I’ve rarely rested any significant assets there; although, I did purchase a small certificate of deposit or two back in the day when there was some profitability in doing so.

WAMU was founded the same year Washington State was granted statehood – 1889. That’s a long history of good business down the tubes. Survival through the Great Depression was probably the result of staying an in-state savings bank.  WAMU’s transition to commercial banking and interstate expansion began in the 1980′s.

I always liked Washington Mutual – it was a bank with heart. That was particularly true before their expansion, but even afterward, the WAMU branch employees were always friendly to all customers – whether the customer owned five accounts and a big mortgage, or just one little free checking account. Those free checking accounts (free even with insignificant min. balances) will undoubtedly be a thing of the past with Chase Bank, who from my experience is very fee-oriented.  It’s not something us “more-fortunates” think about, but those monthly, per check and high NSF fees deprive low-income citizens from bank accounts – they just can’t afford them. A  minimum balance of even $500 is out of their reach.

I’ve also always thought the Washington Mutual Tower – WAMU’s former headquarters building is one of Seattle’s most distinctive.  The 55-story building is the second-highest in Seattle’s skyline. With a bluish-green tint, it rises over the “Emerald City” to a spire that resembles the tin-woodman’s hat.

That Washington Mutual became known as WAMU a few years ago tickled me, too – something Pacific Northtwesty about the abbreviation, on a par with Namu and Shamu, the first pair of captured orcas (killer whales) that launched the whole trained-orca entertainment business. (I consider training large sea mammals to entertain tourists only slightly less humane than making 95% ARMs on $350,000 homes for middle-income families who leverage their 401K’s for a down payment and haven’t a snowball’s-chance-in-hell of maintaining the monthly payments once the interest rate goes up a single point.)

*Although Namu and Shamu were the first male and female orcas captured for human entertainment and both are long deceased; Sea World now owns the trademark names Namu and Shamu and uses these names for generations of captive, trained orcas.

Greed by WAMU management set up the bank’s decline. During the height of the real-estate boom and sub-prime mortgage frenzy, you couldn’t walk into the branch to get cash without someone (even the tellers) trying to sell you a less-expensive mortgage once they identified you as a “valued” customer. Two weeks ago WAMU changed CEO’s and put itself up for sale. JP Morgan/Chase was one of four interested buyers. JP Morgan was also in negotiations with WAMU last year, but backed out of a merger when the WAMU stock was at $10 per share. Last week WAMU’s price per share last week fluctuated between $1.23 and $3 as hopes of a federal bail-out rose and fell.

Here’s my totally fictional conjecture of what finally killed the WAMU whale – why WAMU got seized rather than bailed-out:

Treasury Sec. Paulson: Congress isn’t going for it, Mr. President.
Dubya: I don’t get it. Look at all the money we’ve already spent bailing, what’s the big deal?
Paulson: They want oversight to see how we use the money. They want to restrict golden parachutes for bank executives.
Dubya: We can’t have that – we’ve gotta protect those banker boys, we owe ‘em. What can we do here to push things along? Maybe we need to kick up a little dust.
Paulson: I suppose we could actually send the regulators in and sieze one of the banks that’s on the brink.
Dubya: How do we do that? Are there any particular one’s that would be a good example. Any in Democrats’ states? He, he.
Paulson: Well, Washington Mutual’s the biggest, wouldn’t hurt to get it out of the bail-out anyway. That way if we have to compromise on the total bail-out package – WAMU’s big lump will already be out of the figures. It’s a Seattle based bank – Democratic governor and senators (all women by the way), majority of their congressmen are dems, too.
Dubya: Sounds good – that’ll surprise those Dem bitches. So we just march in and take over – federal employees grab up the bank like evidence in a drug raid or something?  What do we do with it then?
Paulson:  Ideally, we only have to hold it until we find a buyer for the residue. We’ll just be selling the assets. No one will buy the bad mortgages though, we’ll be stuck with those, you understand.
Dubya and Paulson together smiling: SOMEONE ELSE’S PROBLEM!
Dubya: How do we find these potential buyers – can we let them know ahead of time so they’re ready to take it off our hands?
Paulson: We could pre-arrange the sale – so the buyer just takes over as soon as the regulators seize the bank.  JPMorgan/Chase has been interested in WAMU for a long time – they want to expand onto the west coast. WAMU’s got lots of branches out there and stuff. Chase’s people have already been making inquiries to our people. They don’t really want WAMU rescued and off the market – they are so close to getting their hands on it.
Dubja: JP Morgan/Chase, huh? Yeah, I like them boys. Wasn’t it them that helped us out with Bear-Stearns? Let’s get them boys in here and see how much they really wanna pay for WAMU.

And the rest is sad history.  In June 2008, Washingotn Mutual’s assets were listed at over $200 billion.  On September 25, 2008, JP Morgan/Chase purchased  WAMU’s assets for $1.9 billion. (Incidentally, WAMU’s recently hired CEO, Brooklyn banker Alan Fishman was coincidentally in New York during the FDIC/JP Morgan negotiations and subsequent seizure of WAMU. He will walk away with approximately $20 million for 2 weeks’ work – combined signing incentive, year’s salary and, of course,  golden parachute).

Note to my blogging coach smays.com: If the conjecture in this post inadvertently touches close enough to the truth that I wake up Monday morning with Homeland Security on my front porch; or if I wind up having my taxes audited for the next 30-years for no particular reason, I will never forgive you.