WAMU, JP Morgan Chase, and the FDIC - Who exactly is looking out for you?
While the markets were closed, and the Chairman of Washington Mutual was on a flight from New York to Seattle, the largest theft in US history took place. Although there has been negative news about the financial stocks for the past few months, including Washington Mutual,the FDIC and Washington Mutual repeated assurances that the bank was in good shape through 2010 over and over and the fact that WaMu met it's daily requirements. If that is the case, the seizure and immediate for profit sale of WAMU to JP Morgan Chase raises many questions.
This isn't so much about the failure of WAMU, as that may have happened eventually anyway, but suddenly the FDIC has become a for profit institution taking over and selling off a company for 1.9 Billion dollars. This is unprecedented in many ways, and in many ways probably illegal. The shareholders own WAMU, not the FDIC. Yes, the FDIC regulates banking, however shareholders own the company. WAMU could have literally gone bankrupt and sold off chairs, computers, land etc and shareholders would have received some portion of compensation. In this seizure, Chase gets the assets and deposits at a bargain, the FDIC gets 1.9 Billion dollars and shareholders get nothing. It is literally something you might think would happen in Nazi Germany, not the United States.
It seems as if these failures are following a pattern that we are seeing over and over. First, short sellers work to smear the bank's reputation. Major media outlets join the fray. Analysts downgrade. Ratings agencies follow with downgrades. Cost of insurance skyrockets creating self-fulfilling prophecy. The Bank forced to come up with reserve capital to please ratings agencies. Dilution of shareholder equity at sale prices. Share price falls further triggering more downgrades from above-mentioned entities. The Media really starts to salivate now and creates all kinds of instability with doom and gloom, and seem outright gleeful about it. Then institutions and high net worth individuals begin pulling deposits out of the targeted bank. Further ratings agencies downgrades. The media then creates a self fulfilling prophesy with constant reporting of doom and gloom and individuals also pull their money out of the targeted bank. Then the FDIC having all the ammunition it needs steps in and seizes the bank assets and sells them to whoever they are in bed with that week.
Basically the government decided that they liked JP Morgan Chase so much as an institution that they would gift them this company.
It's worse than that though, last week Goldman Sachs upgraded WM to hold knowing all of this was going on. Serious misrepresentation of the facts. The story told to the public was that Goldman was supposed to be brokering a sale. This at the expense of average Americans. Sure there are a lot of institutions that owned shares in WAMU, but there are an incredible amount of average Americans who had large portions of their retirements tied up in WAMU stock. Without that upgrade, many may not have kept the stock through this trouble. Some are now threatening suicide. Families are breaking up. People have lost everything. How can the American public not be safe investing in an American Bank. A bank that owns assets, that had a large deposit base and that stated it could sustain life until 2010.
That doesn't even begin to mention that by next week the whole dynamics of WM could change for the better with the government bailout coming. Stock could have increased in value once the toxic paper was taken from WM. More liquidity would have been available. The 2010 deadline would be extended to many more years once the toxic paper was removed. This was not a bank in trouble in any of the standards that have been repeated over the last eighty years.
You really want to get upset about it, take a look at the aftermarket trading volume. Before any of this was announced, there were three very large trades in the early aftermarket, in a three minute period totaling almost 13 million shares. The FDIC and the markets allowed someone to get inside and make away with some 12 million dollars. nasdaq screenshot There is no way that trading should not have been suspended before this was allowed to happen, just another case of corruption and manipulation by the government and large institutions.
http://www.nutzworld.com/invest/wamu-how_the_government_failed_america.htm
Possibly the most damaging could be what this could do to the American psyche as a whole. The corruption in the system has just killed the morale and spirit of many people. They have no trust in Wall Street, the financial system, politics and the future of America! Corruption, short selling, manipulation of stock, and abusive ratings downgrades are all responsible for bringing this company down to the point that this could happen, and then a corrupt government agency cherry picked a bargain for their buddies at JPMorgan who get a huge upside. The FDIC facilitated a transaction that was so corrupt and damaging words cannot properly describe it.
In the end, it is the system as a whole that will lose, as the average American can no longer trust not only it's banking industry, or Wall Street, but apparently it's government anymore.
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