I am willing to bet that Wamu can’t.
I hate to say it, but I am not optimistic.
F*** the bailout.
“Conservative economist Bruce Bartlett proposes tax increases”
WTF? Even socialists know that tax increases slow economic growth.
“I too am a historian of finance, and one of my favorite stories is the Panic of 1907. It has some similarity to the current situation, because in 1907 there were some runs on the banks and the credit markets froze up. J. P. Morgan, the quasi central banker, invited all the major bankers in New York to his library, locked the doors, and said he wouldn’t let anyone out until they had raised the funds to end the credit crunch. It worked.”
This is extrememly important, and should be popularized in the historical consciousness. J.P. Morgan thought that all business needed when recession loomed was more money. What he probably didn’t understand that too much money is the problem in the first place, for easy credit incentivizes wasteful investment.
I guess he got tired of talking all his buddies into opening the faucets, for by 1913, America had a real central bank, the Federal Reserve System, which could pump money into the economy whenever it wanted. The result? More recessions than we’ve known what to do with ever since. Inflating the currency is not a solution to a “credit crunches.” Why? The only reason credit is so tight now, as then, is that it was far too loose in the immediate past. Only saving can cure a credit crunch. Save now!
The Paulson plan is not an unreviewable dicatorial power grab, that is and always has been a baseless fearmongering smear, and beneath the seriousness of this crisis.
Buying securities is a more arms-length transaction than extending loans. Being a creditor among other creditors would be closer to nationalization. Who'd be senior in a default, for instance? We all know who.
The private resolutions series leaves out the little fact that each one caused the next is an accelerating cascade, which only slowed on the bailout plan itself, and massive Fed intervention.
Also, every single one of those moves had to be coordinated by the Fed. Without Fed prodding and Fed financing, this entire thing would have comprehensively crashed and burned months ago.
The Fed *is* the successor of JP Morgan, and it is doing his job.
If the Fed were a for profit institution, it would be arbitraging the huge spread between corporates and treasuries, in banks it decided to keep from failing.
The money market run rate hit $160 billion per day before the Paulson proposal and money fund guaranteed halted it. Without massive Fed intervention, that would have destroyed the entire commercial paper market, and dropped the money supply by a third. The Fed had to and did intervene.
The Washington Mutual failure was such a great big success because a $25 billion hit was put on the bondholders, and JP Morgan was able to raise $10 billion in stock to cover the remainder, on the strength of those bondholders having been stood against the wall. Only that gave the part JP Morgan bought, actual value.
But that loss to bondholders instantly sent every bond of beseiged banks into free-fall. Wachovia debt was offered today at 130% - with no buyers. Its longer term paper as low as 30 cents on the dollar. Crushed stock prices have closed the equity market for new capital for these banks. The Washington Mutual failure closed the bond market as well.
Washington Mutual itself was a zombie that financed at $16 billion depositor run only by running up borrowings from the Home Loan Banks. It had no non-public capital sources.
Banks need to raise hundreds of billions by year end just to roll over existing bonds, without it recapitalizing them at all. They aren't going to do so at 130% rates and survive.
It isn't just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.
There are only two ways out of this mess, and private markets healing themselves is not one of them. Either the Treasury buys the toxic paper, or the Fed monetizes corporate debts of financial companies. Or half the paper in the commercial paper market, if it doesn't want to play favorites. In both cases for new high powered cash, ballooning the money supply to saturate people's risk aversion and liquidity demands.
Otherwise the Treasury still gets the bill, via the FDIC. And half the banking system disappears. Which will mean violent deflation and further economic losses, public and private.
It is simply not possible to allocate the remaining loss to the existing banks. They will go down.
Great article. Thanks for posting.
WaMu replaces CEO, agrees to pact with regulators
"The New York Times reported that Fishman will receive a $10 million signing bonus from WaMu, of which $2.5 million will be a stock award based on performance."
Friday, September 26, 2008
CEO of failed WaMu could get millions
"WASHINGTON: The CEO of failed Washington Mutual Inc., on the job only a few weeks before the largest U.S. thrift was seized by the government and sold to JPMorgan Chase & Co., is entitled to more than $13 million in severance and bonus pay."
How's that for 3 weeks on the Job? Sorry, but this make my blood boil - MHO.
As Alan Keyes noted, this bailout is socialistic. It undermines one of the basic operating principles of the free market, that your profits are derived b taking a risk. When we nationalize the risk, we destroy one end of the system, and thus destroy the other.
Furthermore, we bailed ot the banks in 1983 and the result was that we got to this point.
It’s not the taxpayers’ job to bail out the bankers.
When you subsidize something you get more of it; this bailout subsidizes corruption and stupidity. Guess what that brings about.
And finally, a point to make if you have any Democrats in your family: this is a massive transfer of wealth from the working people of this country to the rich.
We beat the Dubai Ports deal. We beat the amnesty bill. We cna beat this. But it will take the same kind of persistence.
Stay on your Members of Congress like white on rice.
btt
This POS company is the worst of the bunch, it needs to go broke and be plowed under.
A company destroyed by one of Obama's chief advisors, Jim Johnson.
Because the power-hungy politicians, in their greedy zeal to grab more power, couldn't let a company get sold privately if they had the chance to naitoonalize it.