It’s pretty amazing how in the span of just under 3 weeks that…
- Fannie Mae & Freddie Mac were seized by the government
- Leman Brothers went into bankruptcy
- Bank of America buys Merrill Lynch before they go into bankruptcy
- The Federal Reserve gives AIG an $85 billion loan
- President Bush seeks a $700 billion Bailout
- Goldman Sachs & Morgan Stanley turn into regulated commercial banks
- Warren Buffet buys $5 billion of Goldman Sachs stock
- Washington Mutual is seized by the government & sold to JP Morgan Chase
I’m just in a state of shock and near disbelief witnessing the carnage unfold on Wall Street so fast.
Robbie wrote: “I’m just in a state of shock and near disbelief witnessing the carnage unfold on Wall Street so fast.”
Why the shock? There were analysts writing about how credit was becoming phenomenaly loose and lending standards lowered 10 years ago. I was reading reports about the risky nature of mortgage securities and credit default swaps back in 2000. And this doesn’t even begin to include all the warnings experts have been giving about the massive expansion of Fannie and Freddie portfolios. There were a lot of in-depth analyses about the rot in GSE portfolios when they first had their accounting scandals, with many economists pointing out that they were actually very thinly capitalized and that it wouldn’t take much of a turn in real-estate to drive them into insolvency.
Heck, there was a flashing red light warning that something was amiss when we saw double digit real-estate appreciation in a single year. That kind of appreciation is NOT healthy.
On a personal note, I was so spooked about what was happening in the financial industry that my wife and I sold our Bellevue home in 2003. Our friends and family thought we were nuts, and have been saying so ever since (we’ll be “priced out forever”). Ironically, the more prices appreciated the more terrified I became of the eventual outcome of this all.
The only mystery to me is why the collapse has taken so bloody long to finally happen!
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I’m more shocked at the speed at which it’s finally unfolded, than I am the result.
When things are made to come to a crisis, rather than being addressed as they happen, it is not surprising that things are unfolding so quickly.
I can’t imagine who all of this is really a shock too – except the people who have been chanting “real estate can only go up” and who were pretty greedy expecting double digit yearly “returns” on their home purchases every year.
This situation was caused by a large number of people, and not just those on Wall Street or in the government, who put on blinders and now don’t want to accept responsibility for their own actions.
If anything it is surprising (and very good) that we are getting an opportunity to try to do something about the problems before things crash more. What will be done and will there be accountability for those of us that got us into this mess are the important questions.
There will likely be another 100 banks that fail, or get gobbled up by larger, more solvent banks.
Here’s a good place to get early warnings.
http://bankimplode.com/
Good point Gene.
Every one of these companies that went under were not terribly fiscally prudent and in many cases reckless. And that culture starts at THE VERY top of the organization. From Fannie Mae & Freddie Mac to Wall Street and back across the country to Seattle’s WaMu to Merit Financial and MILA.
Tim, some of it is merger related. WAMU for example. Wachovia might be the next (merged with World, right?).
I’m not a big fan of mergers. Except perhaps in the hostile takeover situation, or technology situations, there’s often lots of bad stuff that the acquiring company doesn’t know about. That was certainly the case in the legal field with law firm mergers.
BTW, in the P-I yesterday they reported a rather large firm disbanding. Heller Ehrman, a rather large multi-city firm, that I think had about 100 attorneys here in Seattle.
http://seattlepi.nwsource.com/business/380691_heller26.html
The author forgot to mention the United States Military troops being re deployed to Colorado (effective Oct 1) to “handle” (ie” kill) Americans when the rioting begins after the upcoming financial crash (or another ‘terror attack’). Some of you in the REIC should become familiar with the new FEMA camp locations where you will be sentenced and incarcerated after your upcomimg felony trial.
Never before have American troops been trained to turn on the people in their own country.
Is this a Great Country or What? Woo Hoo (oops, Sorry).
Bushco-Cheneyburton: 4 more years… Seig Heil!
It’s encouraging (to me at least) that congress appears to be as mad as the rest of us on Main Street are. It’s also good news that the government was able to sell WAMU’s liabilities & assets to JP Morgan Chase and avoid bailing them out.
Wamus liabilities and assets are filled with toxic garbage and has been transfered to JPM. The money from the bailout monies or other such monies from the Fed will reliquify JPM – sweet deal for JPM. Toxic stuff gets taken care of by the poor taxpayer and JPM gets all the good stuff. Fortis in Europe is going poof and waichovia is dead man walking. The ripple effects continue to grow. All the wrong moves are being made and have been for months. Idiots one and all.
Don-
Most of the liabilities JPM purchased were deposits. How is that toxic?
The Times is reporting something I was trying to recall. The private investors put in over $7B for over half the company a few months ago. That makes the JP Morgan deal seem very low priced, especially since the private investors were buying all the warts too.
I remember being very surprised when Wachovia bought World Savings because of the types of mortgages World specialized in…just like when Merrill Lynch aquired First Franklin, who’s specialty was the 80/20 for low credit scores.
Merrill bought First Franklin in Sept 2006 http://tinyurl.com/merrillsubprime (just in time to be clobbered by the height of subprime)
Wachovia aquired World (Golden West Financial Corp) also during that time.
“We believe this combination of our two companies, both known for exceptional customer service and pristine credit quality, will generate superior long-term growth in earnings per share,” said Ken Thompson, Wachovia chairman and chief executive officer, who noted Golden West’s World Savings Bank is the nation’s only stand-alone savings and loan with a “AA” debt rating. “For four decades, Golden West has taken industrywide challenges in stride and maintained a singular focus as a risk-averse residential mortgage portfolio lender. The result is an astonishing 25-year track record of 17 percent compound annual growth in earnings per share and virtually no credit losses realized even in the toughest year in its history.”
http://tinyurl.com/wachoviaworld
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People on seattlebubble type blogs would have been called “doomsayers” if they made these sorts of predictions a year or two ago.
Well, here we are…
Yep, they were right. Happy?
This link gives a graphic picture of the changing landscape in the banking industry.
http://www.nytimes.com/interactive/2008/09/15/business/20080916-treemap-graphic.html
Kary-
The JPM deal was FDIC brokered, so it was a fire sale.
It seems the WMDs they were looking for in Iraq turned up on Wall Street.
>> Yep, they were right. Happy?
How about you? You’ve got to be happy considering the $700B dose of crack about to kick off another bender for the Realtor(R) community?
No, I’m not happy. I’m not happy because I’m appalled at how many people were asleep at the switch. Congress, various government agencies, quasi-government agencies and the worst of it–private corporations (including banks). Not only were they asleep at the switch, but I don’t even think when they woke up they necessarily handled things well (e.g. raising the limits of F&F if their condition was so dire).
I’m also not happy because I’m not sure this is a good solution, or even the right solution. And I’m not even sure the regulatory measures being contemplated down the road are the right solution.
Finally, I’m not happy because I really doubt we’ll learn the right lesson from this crisis, because we never do. Government tends to look for scapegoats rather than admit its own complicity and fault. I suspect that’s what will happen here.
Now it’s Wachovia–bought by Citibank. For those keeping score, Wachovia bought World Savings, so seemingly another merger related failure.
http://www.citigroup.com/citi/press/2008/080929a.htm
Anybody who was familiar with Long Beach Mortgage and their business practices would know Wamu was heading for trouble after that purchase. There is no way any lender should lend out billions on high LTV stated income option ARMs…even with 720 ficos and 6 months reserves. I’ve seen people with 720 ficos with only 3 years of credit history with 2 credit cards and 5K limits. Lending based solely on credit scores finally killed Wamu.
Jillayne, can you tell if #23 is really from DFI?
Oops… I meant to ask #24 of Robbie. Sorry Robbie! I’m beat after today.
Well, if #24 is from the DFI, they left no evidence that would prove it
You know I’m fairly certain that no government employee would give a personal opinion out like that on public blog and identify himself/herself as a gov worker.
Instead, we would likely see the government worker fully identify himself/herself.
Besides, the corporate behavior attributed to WaMu could be true of countless banks and lenders out there, not just WaMu.
…..and DFI’s employees are in a better position than most of us to know that.
The weakest fold first. WaMu held out for as long as they could.
What I find strange is that Wells Fargo has not made any moves to purchase some of these troubled banks? What do they know that the rest of us don’t? I know they looked into WaMu and Wachovia but didn’t make an attempt to purchase them from my understanding?
Tony:
I’ll offer a theory.
The banks that bought WAMU, Wachovia and Countrywide (JPM/Chase, Citi, and BOA) already had Option Arms in their portfolios, originating and servicing them, albeit to a lesser degree than the failed banks.
The potential purchasing banks that have sat on the sidelines, (Wells, HSBC, and US Bank), I believe never originated them, nor service them.
Overly simplistic, probably, but relatively symetrical.
Since one argument for the failure of the banks is the investment community’s lack of confidence in those banks (no one would lend to them, and no one wanted to buy their stock), and as the contents of their loan portfolio’s is easy to discover from their quarterly statements, it may be a reasonable causation.
I think Wells has been pretty smart during this “melt down” phase. They did their share of alt-a and what could be considered “subprime” loans…but they were of the first to pull out of many programs… remember getting rate sheets with blank boxes?
Tony wrote:
“What I find strange is that Wells Fargo has not made any moves to purchase some of these troubled banks? What do they know that the rest of us don’t? I know they looked into WaMu and Wachovia but didn’t make an attempt to purchase them from my understanding?”
Wells did make a bid for WaMu and I’m sure they had a bid for Wacho as well. It’s pretty simple – they didn’t have the highest bid.
Rhonda:
I do remember that day! I had locked an incredible rate on a 40/30 fixed Jumbo only the day before.
I think Well’s main exposure could be in high LTVs in western markets. They did a LOT of 80/20s.
They went pretty low on credit scores “back in the day” too.
What I find ironic is that JP Morgan offered to buy WAMU for $8 / share, and WAMU turned it down earlier this year.
Robbie-
It was more like $4 after accounting for certain loan performance metrics, but yeah I would have still taken the $4.
I agree with some of the above.
I am shocked at how long this has taken to happen, and I am shocked that so many people are shocked.
When someone who works at McDonalds can get a zero down loan, one day out of bankruptcy, on a $400K house……..that should be a clue that something is wrong with the lending industry!
Looks like Wells is buying Wachovia: http://tinyurl.com/wellswacho
Q-Diddy,
Still optimistic about the market????
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Interesting that WaMu is still around, although they are owned by someone else. Of course all of their free services I’m sure will be disappearing. Lot of Nevada banks and mortgage companies disappeared last year and I’m sure a few more will go this year as well.