*Its a damn tragedy is what it is. And Bernanke, Geithner and Paulson are all to blame.
via TheBigPicture sort of
A Giant Downfall
by Kirsten Grind Sep 25 2009
Inside the frenzied effort to prevent the collapse of Washington Mutual, the largest bank failure in U.S. history.
Late in the afternoon of September 25, 2008, the phone rang in Steve Rotella’s 33rd floor office in downtown Seattle.
The wide bay windows, once part of a conference room, commanded a sweeping view of Puget Sound, befitting the president of the nation’s largest savings and loan.
On a credenza behind his desk, one of his computer monitors quietly streamed ticker symbols.
Washington Mutual’s closing price: $1.69, down 25 percent.
For the past few days, a handful of big financial institutions had been poring over WaMu’s books, trying to decide whether to make a bid and rescue it from potential failure.
Suddenly, they had stopped.
The First Panic
In early July 2008, hundreds of people lined up outside the headquarters of IndyMac Bank in Pasadena, Calif. News reports had made clear that IndyMac had a large exposure to troubled subprime loans. Fearing the bank was on the verge of failure, customers were pulling out their money. The line stretched down the block. That image, which appeared on newspaper front pages and TV stations nationwide, depicted the first major bank run since the savings-and-loan crisis in the 1980s.
Two blocks away, managers at a large, white-columned WaMu branch watched the commotion. Soon, their own customers began asking, “Is my money safe?”
The Moody’s Meeting
At the end of August, Rotella and WaMu Treasurer Robert Williams boarded a leased private jet in Seattle and flew to meet with Moody’s Investors Service in New York. Typically, WaMu executives met with Moody’s senior credit officer, Craig Emrick. This time, however, the powerful rating agency greeted the WaMu executives with a team of people, an ominous sign.
“We don’t know exactly why that was,” said Peter Freilinger, WaMu’s assistant treasurer who flew out separately to attend the meeting. “Moody’s might have felt that the action was so important that they wanted everyone to hear the facts before they did anything.”
The Next Dominoes
On Sunday, September 7, Washington Mutual’s board ousted Killinger, who had served as CEO for 18 years, and named a New York banker, Alan Fishman, to succeed him. The announcement came two months after the board stripped Killinger of his chairman title and amid vocal shareholder unrest at WaMu’s plunging share price. Many thought the move came too late.
On September 11, Moody’s issued its rating: It downgraded WaMu’s debt to junk status, rated the company’s financial strength at D+ and issued a negative outlook on the company, citing its asset quality and the potential for future losses. Freilinger, WaMu’s assistant treasurer, fielded the call from Emrick, and had the thankless task of checking the accuracy of Moody’s forthcoming press release. Freilinger’s heart sank. “No bank of our size anywhere in the world survives without an investment grade rating,” he recently said.
Fishman Meets Bair
Fishman wanted to brief the regulators on WaMu’s efforts to find a buyer and to give an update on the bank’s liquidity position, according to people familiar with the meetings. By then, WaMu’s regulators were watching the bank more closely than they ever had before, and were receiving deposit reports daily—sometimes several times a day. That day, customers pulled out another $2.4 billion.
At the meeting, Fishman said he had approached Wells Fargo, JPMorgan Chase and Citigroup, according to several high-level WaMu executives. All three banks declined comment for this story.
Bair told Fishman and Robinson that if WaMu was unable to sell the bank by the end of September it would be placed on the FDIC’s list of “troubled banks,” according to people familiar with the meeting. The list is like a scarlet letter: While it leaves out a financial institution’s name, WaMu’s asset size would clearly identify it in the financial community. The placement would damage the bank’s reputation far more than even rating-agency downgrades or the persistent news reports, according to several people familiar with the meeting. The list was scheduled to come out in less than a month.
The message to WaMu executives in that half-hour meeting was clear: Sell the bank, and fast.
Bair said she had directed those banks to contact Fishman. The executives left the meeting believing the FDIC was indeed helping WaMu find a buyer. Yet in less than a week, regulators would seize the bank and sell it for less than a quarter of the $8 billion that JPMorgan Chase had previously offered.