Run on Bank Helped Kill WaMu, But Your Money Is Safe
Sep 26, 2008 10:44am EDT by Aaron Task in Investing, Recession, Banking
In the biggest bank failure in U.S. history, the Federal Deposit Insurance Co. seized Washington Mutual's assets Thursday. The FDIC then quickly sold most of WaMu (that's assets and liabilities) to JPMorgan.
Simply put, WaMu was victimized by a classic "run on the bank." Customers withdrew $16.7 billion in a 10-day period following the bankruptcy of Lehman Brothers, leaving WaMu "with insufficient liquidity to meet its obligations," its regulators determined.
A longer explanation is WaMu was victimized by mismanagement and misguided bets on exotic (and toxic) instruments such as option adjustable-rate mortgages.
The deal has major ramifications for JPMorgan and the banking industry as a whole, as Henry and I discuss in a forthcoming segment.
For the vast majority of people who bank at WaMu, which had 2200 branches and $188.3 billion of deposits as of June 30, the important thing to remember is your deposits are insured up to $100,000, and the Federal government will go to every extreme to make sure it's available.
"There will be no interruption in services and bank customers should expect business as usual come Friday morning," FDIC Chairman Sheila Bair told reporters last night.
The sobering truth, however, is that repeated declarations about the sanctity of FDIC insurance from Bair, President Bush, Treasury Secretary Paulson, Fed Chairman Bernanke and others failed to quell concerns among WaMu's customers. That suggests more "bank runs" could be in the offing unless the government moves quickly to restore confidence.
1790 Comments
Showing comments 1 - 20 of 1790 Next
Yahoo! Finance User - Friday September 26, 2008 10:52AM EDT
I think confidence would be restored if Sarah Palin was running the country.
report abuseKentar S - Friday September 26, 2008 11:00AM EDT
With McCain and Palin in the White House we can get this thing turned around. Should the democrats prevail we are in for a real roller coaster ride. Socialism will not work with revolution and turmoil.
report abuseJohnny Ike - Friday September 26, 2008 11:02AM EDT
JP Morgan rescue the 1929 recession.......Will they do it again....I have the feeling.They will.
report abuseDanny Mack - Friday September 26, 2008 11:02AM EDT
I haven't seen a single article talking about the loss for stock investors. It's crazy. How did they allow no relief for the investors who lost every single penny that they invested in the company. How much exactly did investors lose today?
report abuseYahoo! Finance User - Friday September 26, 2008 11:03AM EDT
the stock's at a good price now!
report abuseYahoo! Finance User - Friday September 26, 2008 11:05AM EDT
I dont get it, they ask the people to put up 700billion$ to save banks like jpm 1 week later jpm buys a part of wamu ????????. I thought they had no money?????
report abuseWhit Chambers - Friday September 26, 2008 11:06AM EDT
The bailout is an Obamanation. What is the rush. Big deal if the market goes down to 8000 or so. We were there at 2001. Let the free market work things out an properly price assets - not a dictator like Pauliboy. Let the fed take it piece by piece, but don't artificially boost up the market.
report abusemartatrail - Friday September 26, 2008 11:09AM EDT
Our economy will soon fall All of us remain without work
report abusemutantkarma - Friday September 26, 2008 11:10AM EDT
I used to bank at Washington Mutual. I was a stockholder and believed the propaganda the employees of said and the reassurances Alan Fishman printed up and had taped up all over the service counters. My equity is now ZERO. Thanks you all for all the lies.
report abuseRyle G - Friday September 26, 2008 11:11AM EDT
Aaron is having a rough day today. Was he on a bender last night? Love the program though.
report abusemartatrail - Friday September 26, 2008 11:12AM EDT
Our economy will soon fall All of us remain without work
report abuseYahoo! Finance User - Friday September 26, 2008 11:12AM EDT
I don't know about Sarah Palin, but I can not only see a bank from my house, but I've actually been inside not one but several of them. Therefore, I'm more prepared than Sarah to fix this mess!!!
report abuseCTCrew - Friday September 26, 2008 11:13AM EDT
With all the arguments and pontificating about why WaMu failed one thing stands out; they lent money without the due dilligence to obtain assurances that there would be a high degree of confidence that the loan could be paid back, betting on the continued rise of the housing market. When housing pricing fell, they were left stuck with mortgages that defaulted. Democrats let this happen through Fannie and Freddie while republicans refused to intervene BEFORE the situation got out of hand and the Fed and Treasury sought to hush the problem for fear of a run on these same mis-managed banks. There was NO regulation nor desire to rein in these doomed lending practices.
report abuseMoxies - Friday September 26, 2008 11:15AM EDT
Ron Paul 2008 As we go deeper into a recession every American will appreciate the philosophy of Ron Paul. For the economy will be the catalyst that will bring the American people to the conclusion that Ron Paul's philosophy is the only thing that can save the United States of America.
report abuseYahoo! Finance User - Friday September 26, 2008 11:16AM EDT
This sucks! I have WM stock and now it's worthless!!!!!!!!!
report abuseYahoo! Finance User - Friday September 26, 2008 11:17AM EDT
With the way things are going, JPM will be the only bank left. I hope the Government is saving up for the bail out of the US Auto industry next.
report abuseweitzer53 - Friday September 26, 2008 11:22AM EDT
A class action suit would be the right course of action when we pay for the bailout with tax money and lose all equity in the stock. It time for the banks and this government to explain themselves. We the people...................................
report abusefine_thymes - Friday September 26, 2008 11:22AM EDT
#1 The government should just take the 700B and oraganize it's own bank and start making loans! That will get the other banks back into motion. Great Idea -someone get this idea to Congress please.
report abuseDeacon - Friday September 26, 2008 11:24AM EDT
Why was this run on WAMU not reported by the media until they collapsed. I would like to see a report on whether there are runs on any other banks.
report abuseMoxies - Friday September 26, 2008 11:24AM EDT
My neighbors and family members did not vote for Ron Paul, even though I informed them about Ron Paul's policies. Today, I personally know eight people that have lost their jobs and five families that have lost their homes. We will all know someone personally that have lost their jobs, homes and cars.
