A new spin on the “Washington” in WaMu

The New York Times reports:

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape.

Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and additional deposits will be backed by JPMorgan Chase.

By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

JPMorgan Chase, which acquired Bear Stearns only six months ago in another shotgun deal brokered by the government, is to take control Friday of all of WaMu’s deposits and bank branches, creating a nationwide retail franchise that rivals only Bank of America. But JPMorgan will also take on Washington Mutual’s big portfolio of troubled assets, and plans to shut down at least 10 percent of the combined company’s 5,400 branches in markets like New York and Chicago, where they compete. The bank also plans to raise an additional $8 billion by issuing common stock on Friday to pay for the deal.

Washington Mutual, with $307 billion in assets, is by far the biggest bank failure in history, eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago, an event that presaged the savings and loan crisis. IndyMac, which was seized by regulators in July, was one-tenth the size of WaMu.

[My emphasis. – NPO]

No doubt, I should prefer to see WaMu be purchased by JPM Chase, rather than be taken under government control, as seems to be all the rage these days here inside the Capital Beltway; moreover, I have no reason to imagine that WaMu customers, simply by virtue of banking with WaMu, deserve to lose any assets they might own beyond FDIC-protected limits. I am far less sympathetic to the formerly extant bank, though, which bought into the subprime scheme and seems simply to have been another entity “too big to fail”.

What troubles me, specifically, about the government’s intervention (whereof I should disapprove, anyway, per se) is that it simply further concentrates economic power in fewer hands, leaving JPM Chase and BoA as the only two truly “impressive” nationwide retail chains in the banking world. How can this possibly be good? For the sake of argument, I’ll, momentarily, ignore the presently failing talks of Wall Street bailouts, pretending that our government has any respect for free-market economics, rather than the nationalized corporate capitalism that it embraces. Even were compelling WaMu to sell itself, in some form, a necessary step “to keep markets secure”, would not at least trying to break the bank into smaller entities, whether regional or, ta-da, independent, local banks (at least when someone willingly will and can afford to purchase a branch or branches) make more sense? A government that tries “to secure a market” by concentrating more power, and thus more assets vulnerable to fail (particularly in the case of the troubled WaMu assets assumed by JPM Chase) acts in ways completely contrary to sensible free-market policies.

To suggest that essentially handing over more market share to an already sizable player enhances competition is as risible as is to claim that to be able to see Russia from one’s home constitutes relevant foreign policy experience.

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One Response

  1. […] Bank, of course, is part of JPMorgan Chase, now, courtesy of Uncle Sam, the largest bank in the […]

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