Washington Mutual Bank victim of the Bush Doctrine?

United States
September 28, 2008 9:11am CST
I was reading the initial report of Washington Mutual to JPMorgan Chase and was a bit disturbed by the details. I remember reading that without Washington Mutuals knowledge, the federal government agreed to a sale of the bank's deposits to JP Morgan Chase. Then the feds siezed Washington Mutual, and then finalized the sale. The federal government explained that it wanted the bank sold before it went under and would have been seized anyway. I know Washington Mutual had failed to get itself sold and Washington wanted to sell it so the FDIC wouldn't be so strained in the event the bank went under, but you'd think they's let the bank know about the sale and impending siezure. It just doesn't read right. Despite the good intentions, and it saved regular depositors monies, the manner in which this was done disturbs me. It was like a pre-emptive strike - was it imminenet? There is a good possibility that the subsequent bailout of the entire sector would have benefitted Washington Mutual. It's kind of like as if a bank were to sell a home behond the owners back and then foreclose on the property because it thinks the current owner will default. This time, it could be argued that there was a legitimate reason for the way events unfolded, but what about the future? This time the Feds sold the institution to another business. What's next? A complete government takoever of the business?
2 people like this
4 responses
@newtondak (3950)
• United States
28 Sep 08
I think it's stretching it quite a bit to blame this on the "Bush Doctrine" - there is far more involved in all of this than just what Bush wants or does - there are many more people involved. These financial companies are not "victims" in any way - they are in the condition they are because of their own business practices.
• United States
29 Sep 08
I'm not blaming the Bush Doctrine for the conditions of the financials, and I don't think it was surprising that WaMu was siezed and sold given their troubles which really have been going on the last couple of years, and although I was surprised it happened this week, I was really taken by the way the siezure and sale took place. My title was a play words on the pre-emptive strike portion of the doctrine. The end result is the same, but it should have been siezed first, then sold afterwards. In this particular situation, things turned out okay for the depositors, but in light of the fact that JP Morgan has been trying to buy WaMu for awhile now to establish a greater presence in the West, and then work out a deal to buy it before it was siezed - it just doesn't smell right. The incident implies that if JP Morgan had not agreed to buy WaMu, WaMu wouldn't have been siezed at this time, and if it wouldn't have been siezed, it had not met the threshold of failure - it just gives a bad appearance that WaMu was siezed for the purpose of selling it to JP Morgan - and although intentions might be good this time around and WaMu deserved this to happen, in the future, this same action may be more devious in the future and happen to a company that is actually financially sound because another company with "influence on the inside" wants to take over.
@newtondak (3950)
• United States
29 Sep 08
These business practices used by these companies have led to their downfall and they can not be trusted to do what is best for the economy on their own.
• United States
28 Sep 08
Eclectic, when I talked about this with a friend, she said the government couldn't do this. It's hard to realize that we've been used in a way so similar to Nazi Germany or Castro's Cuba. If we don't put up a major stink to prevent these things, Washington could quite easily stomp on us even more, until we're just another sad, oppressed nation! Everyone needs to contact every senator and representative to let them know we can't let it happen!
1 person likes this
• United States
29 Sep 08
I don't doubt the intentions of the Feds this time, although JP Morgan made out like a bandit in this deal. It's not the siezing of the bank that I am opposed to, it's the manner in which this one was done. It just gives an appearance of the feds doing what one business wants done to another business, and although there could have been a legitmate reason this time, perhaps next time there won't be. Kind of reminds me of the opening chapters of Atlas Shrugged.
1 person likes this
• United States
29 Sep 08
Exactly what I thought Ayn Rand would be thrilled with the present state of the economy. She was such a misanthrope, and she worshipped almighty dollar!
• United States
28 Sep 08
Could you provide the link to what you were reading?
1 person likes this
• United States
29 Sep 08
I read the original story on msn.com, but it's really hard to find archived stories there, but here's another article that explained the details of what happened last Thursday night. http://www.recordonline.com/apps/pbcs.dll/article?AID=/20080926/BIZ/809260358
@irisheyes (4373)
• United States
28 Sep 08
If the bailout does not go through or is not effective, what's next is a bailout of FDIC which will add another 150 to 200 billion to the cost. Clearly, the FDIC and the Treasury were concerned that there would be a panic and a run on the banks that would bring everything down. There are currently over 100 banks on a government watch list that are expected to collapse if this thing doesn't go through and there is not nearly enough money in the FDIC fund to cover the amount of the insured deposits in those banks. I don't know what allowed the government to step in with Wash Mutual but there has been trouble there for quite awhile. It didn't really happen overnight and I'm sure there was some precedent for what happened. As for the FDIC, it was formed by a piece of legislature in the first hundred days of the FDR administration by something called the Glass Steagel Act. It was a very strict piece of legislature that also separated banking. There were Retail, Commercial and Investment banks and the twain did not meet. The FDIC would only insure accounts that were in retail banks where there was low interest and low risk. FDIC considered investment banks too risky to hold people's savings and too risky for the government to insure. Glass Steagel was never popular. Part of the act was repealed in the early 1980's and that led to the deregulation of Savings and Loans and the Keating mess. The remaining act was repealed in 1999 by bipartisan approved legislature. (Gramm Leach Bliley Act) The 1999 repeal allowed the banks to mix investments and billions in FDIC insured accounts wound up invested subprime real estate packages. This is a simplification but it's basically how we got to today. The blame does not rest with Bush any more than with Clinton or Reagen.
1 person likes this