Bank failure hits home — literally

posted at 8:30 am on September 26, 2008 by Ed Morrissey

Literally, the latest bank failure hit home today, although it didn’t exactly surprise me.  Washington Mutual carries my mortgage, and I’ve done business with WaMu in one way or another for 15 years.  Today they sank into banking history, as the government seized it and sold its assets to JP Morgan Chase:

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution. …

Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and additional deposits will be backed by JPMorgan Chase.

By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

I can assure Hot Air readers that I didn’t cause this failure.  No, really … trust me.   I’ve had a fixed-rate mortgage for over ten years that WaMu bought shortly after the loan was made, and they’ve handled it without any fuss or bother.  I also have a small checking account the First Mate uses, and that goes back well before our marriage, before WaMu bought Home Savings.

So, JP Morgan Chase has at least one good asset.  My house.  That‘s a pleasant thought.

Seriously, though, the failure of one of my banks does bring this home a little more, if you’ll pardon the pun.  We knew a few of the people in our branch when we lived in California.  People will lose their jobs, and while depositors are protected — apparently JPMC agreed to guarantee all deposits, not just the FDIC portions — investors in WaMu will lose big, meaning other jobs will likely get lost and retirement funds will shrink even more.  These people didn’t make the stupid investment decisions or get tens of thousands of dollars from Fannie Mae and Freddie Mac, but they’re going to pay a price for it anyway.

I’m sorry to see WaMu go under, but I’m happy that the federal government acted quickly to grab it before its collapse meant more taxpayer dollars for the bailout.  JP Morgan Chase is getting great deals on these collapses, but they’re going to run out of money for them pretty soon, and any further failures will start costing taxpayers a lot of money, even outside of the bailout.  Be prepared for a lot more pain.

Update: A couple of good points in the comments.  First, this is a best-case scenario for a bank collapse: private enterprise picks up the pieces, depositors don’t get hurt, and taxpayers don’t foot the bill.  Second, my house will be worth significantly less when this falls out, but I don’t expect to get upside-down on the mortgage.  I had equity in this house before the CRA, and I’ll still have equity afterwards.  I’m planning on staying in this house for a long time, so I don’t need to worry about sale price.

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Well, this makes two of us, Ed. I have felt that WAMU was a decent bank. But, like SO MANY others they were harrased by a federal government to loan money to people who would never be able to pay off the loan. HELLO?! It is not just paying for a home! Home owner has to pay property taxes, every thing else that comes with home ownership. This mess just keeps getting better and better!

righty64 on September 26, 2008 at 12:43 PM

Because with B of A and now JPMorgan owning more then a 1.5 trillion dollars in assets, having private enterprise pick up the pieces sounds brilliant…Keep on using that shovel folks, I’ve only got my future to loose.

PresidenToor on September 26, 2008 at 1:05 PM

How the mighty green god of paper and ink has fallen!

saved on September 26, 2008 at 1:21 PM

I’d like to call up everyone who has ever given me grief for my refusing to A) purchase a home and B) invest in a 401K these last 8 years and tell them, “Who’s the idiot now, B*TCH??”

Lincoln on September 26, 2008 at 2:45 PM

I want to buy my home loan back from WAMU for pennies on the dollar. Just like JPMorgan/Chase is going to do. I’ve always wondered why only the super rich corporations can make a profit when banks fail. Of course the middle class will end up paying for it anyway.
Ed – you know some important people, can you call some to have them allow us to buy our own mortgages back????

Corsair on September 26, 2008 at 3:09 PM

I had a WaMu mortgage on my first house. To begin with they were fine. We had no problems. But about five years ago, something changed in the organization. Suddenly, in my case anyway, they were terrible to work with and simple communication became a frustrating hassle.

Once the house sold and loan paid off, I vowed never to do business with them again. Not surprised they went under…

Ace ODale on September 26, 2008 at 3:24 PM

Posted before I read the comments.

My recollection appears to be correct that around 2003 (five years ago) they adopted bad business practices.

Anybody in the know that would have a idea about what happened to them between 2001-2003?

Ace ODale on September 26, 2008 at 3:40 PM

JiangXiDad: People like you are the reason I hate libertarians. Investors in WaMu lost money, and we should celebrate! Capitalism prevails! Hallelujah, praise the market! I’m not anti-capitalist, but you sound like you enjoy this a bit too much. It comes off like you are just being a jackass, really.

It does beat a federal bailout, though.

OmegaPaladin on September 26, 2008 at 5:03 PM

I guess this explains why they dropped down the limit on my credit card a few days ago. Oh well, shouldn’t be using credit cards anyway.

resqgal on September 26, 2008 at 5:05 PM

They gave the WAMU CEO $20 million for 17 days service. See article here .

CyberCipher on September 26, 2008 at 7:04 PM