WaMu fails; bailout talks falter; USC loses shocker to Oregon State

A late-night attempt at levity in the headline. Quick links and headlines on the night's big developments:

First, the failure, seizure and sale of Washington Mutual:

Wall Street Journal: In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to JPMorgan Chase & Co.

Reuters, via CNBC, wraps both stories into one: A rescue for the U.S. financial system unraveled late Thursday amid accusations Republican presidential candidate John McCain scuppered the deal, and Washington Mutual was closed by U.S. authorities and its assets sold in America's biggest ever bank failure.

Los Angeles Times: Washington Mutual depositors won't lose access to any of their money, even if it wasn't fully insured, the Federal Deposit Insurance Corp. said.

At roughly the same time at the White House, bailout talks were, according to a New York Times headline, "imploding." The picture above shows downcast Democratic Sens. Harry Reid and Christopher J. Dodd leaving the talks. The scene that lingers in the mind is the image of Treasury Secretary Henry M. Paulson down on bended knee (I'm not making this up), pleading with House Speaker Nancy Pelosi to keep the deal alive.

Wall Street Journal: Wrangling among the nation's top political leaders threw the Bush administration's $700-billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal.

New York Times: The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

Los Angeles Times: What remained unclear was whether today's impasse marked the beginning of the end for the rescue effort, or merely a tumultuous interlude on the way to action that many in Congress consider unpalatable but unavoidable.

-- Peter Viles

Wild stuff. Your thoughts? Comments? E-mail story tips to Peter Viles

Photo: European Pressphoto Agency

Comments

[J]

McCain's antics are unbelievable

[buz]

So began the Second Great Depression. This bailout fiasco, WAMU folding, the whole sense of panic really feels like the game is up. Maybe, like USC football, the US isn't as good as it thinks it is.

[The End Is Noir]

Everything, seemingly, is spinning out of control.

[CompaJD]

The truly surprising story is USC losing.

[Laker]

Peter, let me ask this,
So WAMU failed...the largest bank in US history in fail..$304 Billion dollar in deposits...
And what...did it cause a great depression? JP Morgan got them for free, hoping that either:
1) Using the bailout plan, they will unload all the toxic garbage into the government and keep all the cash in deposits...If they can sell all the option arm portfolio, all the second mortgages, and all the 0 on the dollar HELOCs, they will smoke everybody else, and their stock will shoot to $1000 each.
2) If the bailout plan fails, JP Morgan would now be considered to big to fail, and thus would be individually bailed out by the government.

If we let the market to work, many banks will fail, but we still be left with 3-4 super large banks, and the economy will move.

Also, did you get this from FDIC shiela Bair: “This institution was a big question mark about the health of the deposit fund,” Sheila C. Bair, the chairwoman of the F.D.I.C., said on a conference call Thursday. “It was unique in its size and exposure to higher risk mortgages and the distressed housing market. This is the big one that everybody was worried about.”

So about a week ago same Sheila was saying that there are 90 banks on the list of banks with total deposits of $80 billion....SHE WAS LYING. WAMU alone had $304 billion and as she just said, was the BIG ONE she was afraid of....
Paulson is lying, FDIC is lying, Bush is lying, Dodd and Frank are always lying...
God save us please!

[Laker]

I just realized something. Many of the people with knowledge are saying that if there will not be a deal by Friday/Saturday, then all the backlash against the bailout will kill it.

So.....what does the government do...They seiz WAMU on Thursday....To scare the sh** out of our congress people to approve the wall street bailout...
Sheila Bair said "bank’s rapidly deteriorating condition prompted regulators to seize it Thursday, and not on a Friday as is typical for bank closures."

You see, they could have done this tomorrow afternoon...but Bush/Paulson decided they need to do something...they threw WAMU into the fire or under the bus....for what??? To save Goldman Sachs (Paulson and Bernanky's pals)

On a side note, look at TPG, private equity firm, that put $7 Billion cash into wamu couple months ago, and today got wiped out....THAT IS HOW CATCHING A FALLING KNIFE FEELS LIKE!

[Truth2Pwr]

The "inconvenient truth" of the looming financial apocalypse is that every good bender inevitably ends with a wicked hangover and lots of solemn vows of alcoholic chastity to the porcelain God of repentance. Given the truly Caligulan excesses of the five year free money frat party we just woke up from, I'd say the aftermath is going to look like the fiscal equivalent of waking up in a bed soaked with pee, lurching toward the bathroom only to slip on a puddle of vomit and land on your girlfriend who's spooning naked with your little brother....

....or something like that

[Mairead]

Call Senators Boxer and Feinstein and tell them to wait on this bill that bails out Wall St. fatcats!!!

Barbara Boxer's # is 202-224-3553
Diane Feinstein's # is 202-224-3841
It's eastern standard time 3 hrs. ahead....

Tell them to wait on this bill; why ram this thru when it will affect all of us for decades to come!!!!

[Sharon Burton]

The bailout plan may be a good one, we don't know. But several things make me nervous:

1. This administration couldn't get it together for Hurricane Katrina. The scope of that disaster seemed to overwhelm them. As has the Iraq war. As has... Too many to list. They seem to struggle with responding appropriately.

2. I've rarely seen anyone make good decisions in Panic Mode.

3. This administration is reacting in what appears to be Panic Mode.

This specific bailout plan may be a good one - we don't know enough yet to know, I think. But these are people who don't make good decisions under the best of circumstances. They especially make bad decisions when things are tough.

This worries me. What are these clowns getting us into this time?

[SoCalJim]

Giants fall. Kiss that BCS championship game goodbye, USC...

Big bubbles pop. Fact of life...

JP Morgan: Currently, J.P. Morgan estimates that home prices in California will fall 44% from their highs of a few years ago before bottoming out. But if there is a deeper-than-expected recession, J.P. Morgan said, home prices in the Golden State are expected to bottom out 48% below their highs -- and, if a recession turns out to be "severe," the bank expects prices to bottom 58% off their high.

Now we will see who really has the $ and not fake papers... As the saying goes, money talks, BS and people who can't afford their house walk...Middle class freaking out wiht large 401k losses. Middle class gets squeezed big time.

[Michael Snyder]

The "run" on WaMu since the 16th shows the market knows what the experts fail to see. This is news, but it's certainly no surprise.

Oregon State is good news! As 25 point underdogs the Beavers managed to triumph over the well backed heavy hitters at USC. One can only hope we do as well against Paulson's folly.

Have you called your Representatives today?

[anon1137]

I'm praying for a deadlocked Congress.

[Dan]

I hear all the former execs at IndyMac are breathing a sigh of relief they've lost their number #1 ranking for being the biggest bank failure of the century.

[jb]

Peter,
can you perhaps cover the example from Sweden which was successful and why we are not simply following this?

[Giacomo]

These are your leaders: Reid, who can't make a public statement without filling it bitter partisan digs; and Dodd, long-time champion of failed Freddie/Fannie and "Friend of Angelo." They are prime movers in this bailout? It doesn't pass the smell test.

Reid's finger-pointing this morning was ludicrous. He as much as said that only SOME of our Congresspeople should have input in legislation, and the rest are just interfering.

If McCain's returning to Washington somehow short-circuited the deal that was being cooked up behind closed doors, I say GOOD. That's as it should be.

[The Original RZ]

Maybe rather than doing the "bailout" "no bailout" dance, or trying to scare the public into supporting a bailout, the government would do better to try to ensure folks that their money is safe in FDIC insured banks. This might stop the frenzy of people running to withdraw their money. Of course, FDIC only covers up to $100K, but I doubt many of these folks have that much more than $100K to withdraw!

[Nelcisco]

If the Trojans had recovered the onside kick, they would've scored and won the game, they still had over a minute left.
What did you all think of their last drive?

Now, as of WAMU,what can I say, I'll pull out my .37 cents that I have remaining and put it under my mattress.

As of the bailout talks, we're headed toward a depression anyway, this is a no win situation!

[Laura C]

OK Peter...I came to L.A. Land specifically to get AWAY from the USC headlines. Thanks a lot.

[Nick]

Personally I find some levity in the great irony that the inability of our government to overcome their partisan bickering seems the be the only thing stopping them from enacting what would probably be the single most destructive and catastrophically idiotic piece of legislation in our generation. So in effect, the thing many people despise the most about our politicians is the only thing saving us from them doing something far more harmful to America.

...

Viva the partisan gridlock! Viva Congressional recesses, may you last 365 days a year!

[Todd in WeHo]

The collapse of the U.S. fincncial system I can live with, but USC's loss to Oregon State? Armageddon is upon us!

[busytimmy]

From the LA Times:
"The city and county of Los Angeles will receive about $50 million, and possibly more, in foreclosure relief from the federal government, officials announced today.

The U.S. Department of Housing and Urban Development has set aside nearly $4 billion for such relief, and the state of California will receive more than $500 million of the total, said HUD Secretary Steve Preston."

This is a plan? WTF!!!!

The city plans to use the money to buy foreclosed homes, fix them up (in some cases adding bedrooms and bathrooms) and turn them into affordable housing, officials said.

[mike]

this whole thing just needs to shake itself out without help. they say the economy is in dissarray, but you can still go out and get a job today if you want. it may not be a good job but it is a job. I know for a fact that anyone who is willing to wade into crap can have a job as a plumbers assistant anywhere in the country right now. there is more demand for NEEDED services than there is supply right now. and for a few years, you will need to save your money and put a DOWN payment on a house and pay a long term mortgage like it's supposed to be. but the only economy thats in dissarray right now is for the rich people who are'nt as rich as they used to be. as for the rest you can wade in crap and make a similar living as you're used to FINANCIALLY but you will have a s#$% it job but you won't starve and you don't have an economic crisis until people are starving and homeless and that is reality and we are'nt there yet. period .

[RichW]

I'm wondering if the WAMU run will get bigger with long lines ala IndyMac. Yes, we all know everyones money there is safe, but mass hysteria/panic seemed to win last time.

[Tim]

Peter, with the latest bank failure upon us I was wondering if anyone at the Times is looking into Wells Fargo. Yes they are the darling of the bank stocks but they value their assets as if there is no downturn in California. This will work for a while but can't last. For instance, Wells' rep at a recent congressional hearing said they had very few clients with houses valued below the mortgage. The have over 5 billion in level 3 mortgages that they value at 99.2% par. Now, shouldn't the media be looking into this scam so Wells won't be the next "shock" to the system. Thanks, TC

[Nick]

I second Tim's thought: a good, in-depth report on all the big financial institutions, with the total amount they have in level 3 assets and their current aggregate par valuation for those assets (along with basic financial numbers) would be fascinating to see. Kinda a "which financial institutions are lying the most" chart.