The End of the Beginning: Government as Deal Machine
From The Administrative Law Review
Regulation by Deal: The Government’s Response to the
Financial Crisis
Steven M. Davidoff
David Zaring
Reprinted from
Administrative Law Review
Volume 61, Number 3, Summer 2009
Cite as
61 ADMIN. L. REV. 463 (2009).
1. The Bankruptcy of Washington Mutual
The Washington Mutual (WaMu) and Wachovia transactions occurred while the EESA was being debated and eventually passed. Both of these institutions and a number of other large consumer banks were, at the time, suffering from slow-motion bank runs. The government’s rescue efforts of WaMu and Wachovia aptly illustrated the government’s dealmaking skills.
In WaMu’s demise, the FDIC was the primary governmental actor. Pursuant to its authorization under the Federal Deposit Insurance Act, on September 25, the FDIC seized the bank depositary assets of WaMu and sold them to JPMorgan for a $1.9 billion cash payment.
The FDIC announced this transaction without informing the WaMu management. In fact, the CEO of WaMu was on a plane at the time, unaware that his company’s depositary assets had been seized. It was subsequently disclosed that the FDIC had decided to engineer this transaction over a week before.
The FDIC had prearranged JPMorgan’s purchase; JPMorgan had even been able to confidentially undertake a $10 billion capital raising before and in connection with this purchase. The day after the FDIC’s seizure and sale, the remaining independent holding company of WaMu filed for bankruptcy.
TPG, which had invested $1.35 billion in WaMu in April 2008, lost its entire investment, one of the largest and quickest losses by a private equity firm ever.
