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Conspiracy Theory NY Times Article

http://www.nytimes.com/2010/04/14/business/14views.html?src=busln


Were America’s bailed-out banks “too clubby to fail?” Kerry Killinger, the former chief executive at Washington Mutual, thinks so and says he believes that WaMu’s outsider status explains why it wasn’t rescued in September 2008. The circumstances of WaMu’s demise raise vexing questions. But the bank, which was headquartered far away from the East Coast banking center, looks more sacrificial lamb than outcast.

Mr. Killinger, who was ousted three weeks before the bank went under, pointed out that WaMu was excluded from the Treasury’s initial July 2008 list of financial firms whose stock speculators were banned from selling short. The Federal Deposit Insurance Corporation also made the unusual step of seizing the bank on a Thursday rather than a Friday. And if regulators had waited just a week longer, WaMu would have benefited from a number of government programs that shored up the banking system.

There’s some truth to all of this. The F.D.I.C.’s decision to expand deposit insurance to $250,000 per account may well have stopped WaMu’s bank run in its tracks. And the F.D.I.C.’s debt guarantee program and Treasury’s Troubled Asset Relief Program would have shored up its balance sheet, assuming WaMu had been deemed healthy enough. These measures allowed the likes of Citigroup to survive.

But if there is a conspiratorial air around WaMu, it’s in the timing. Henry Paulson Jr., the Treasury secretary at the time, introduced his bailout idea four days before and the first Congressional vote followed three days after the seizure and sale of WaMu to JPMorgan Chase. What better way to impress upon lawmakers how dire the situation had become than to have the recent failure of one of the nation’s top banks as Exhibit A?

A joint report from the Treasury and the F.D.I.C. due out later this week will argue that WaMu was too far gone to help, as regulators apparently decided in mid-September. In any event, Wells Fargo’s experience punctures the club argument: WaMu’s West Coast rival was allowed to snap Wachovia out from the clutches of Citigroup in a deal that consequently put it on a par with Wall Street’s giants. For Mr. Killinger — and other conspiracy theorists — that’s the exception to prove the rule. AGNES T. CRANE and ANTONY CURRIE


For more independent financial commentary and analysis, visit www.breakingviews.com.