Friday, September 26, 2008

Is this one of the most extraordinary government actions ever?

A couple of days ago I blogged about how the FDIC was not talking to WaMu about taking them over.  That post looks really stupid now.  

But then the WSJ reports this:

WaMu's deal team, including Mr. Fishman, left New York on Thursday night and caught a plane back to Seattle, not knowing that the company was about to be taken over by the OTS and sold to J.P. Morgan.
I got a question:  is this for real?  Is this how the American government now acts?  

I would prefer think my post was wrong than the American Government acts in arbitrary capricious ways.  If the FDIC took over WaMu whilst the executives were on the plane without discussing the true liquidity situation of the bank first then I fear for all American capitalism.  

So - for the moment - I will hope the WSJ story is wrong.  I have been wrong plenty of times - so that is not something I should criticise sharply.  But this is an intellectual puzzle: what did the FDIC tell WaMu and when?  Why did it decide to take over WaMu now?  

More is sure to come in the press so I am loathe to speculate.  But this is one of the more interesting intellectual puzzles of the past few years.



Anonymous said...

Simply this action and timing is part of the effort to railroad Congress to pass the Paulson bailout bill. These people are ruthless.

Anonymous said...

could it also be some 'grandstanding' for effect to shock the masses into the whole see the bailout is needed now thing?

mccains move, bushs speech, even tie buffet in all look like ralleying the troops for the cause...

I dont have the background to judge the following, is this normal?

Anonymous said...

This certainly seems extraordinary in the context of other takeovers, and non-takeovers. One can look at IndyMac before it was taken over....the balance sheet was an absolute disaster. You can look at a bank like FirstFed right now, thinks look pretty scary. By those comparisons, WaMu is (was) still well-capitalized and pretty well-reserved for loan losses. A bit of a puzzler.

Eugene said...

It is interesting to know what you think about this theory.

John Hempton said...

zzzyx has made the right observation. WaMu's balance sheet was scary. When I purchased the preferred I thought there was maybe a 30% chance of an FDIC takeover.

But there are plenty of small banks with worse balance sheets.

This could get very interesting.


Anonymous said...

Sometimes there's less than meets the eye. My guess, somebody just wanted to take the weekend off, for once, to go fishing.

Anonymous said...

What was arbitrary and capricious? There is no heads up given, ever. Regulators takeover the bank after the close of business. Typical done on a Friday, but is there anything noteworthy about the day of the week.

Tiuskea Rakki said...

The *only* positive in all of this is that Paulson has the balls to act "non-predictably".

To demand predictability from the Fed and US Treasury in this kind of situation is essentially demanding that someone must be given the free hand to make a profit. It's the definition of moral hazard. If action is to be taken, the public actor must have exactly the same kind of right of discretion and free hand as any private actor would, otherwise it is neutered from the start.

Striking fear into the hearts of markets in general, and bailing out strategically when truly necessarily, is the correct course of action here.

Eidolon said...

I'm another big loser in WaMu stock and bonds, having been confident enough even to have picked up another 1K shares ON D-day. I confess a lack of understanding of current receivership and direction for possible action, but I'll be sure keep a very close eye on your blog! The whole mess just reeks to me...

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.