WaMu – One Of Nations Largest Banks Collapses
As the debate over a $700 billion bank bailout rages on in Washington, one of the nation’s largest banks – Washington Mutual Inc. – has collapsed under the weight of its enormous bad bets on the mortgage market.
The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift’s banking assets to JPMorgan Chase & Co. for $1.9 billion.
Earlier, urgent efforts to lash together a $700 billion rescue plan for the national economy appeared to be stalling Thursday night, hours after key lawmakers had declared they had reached a deal.
Weary congressional negotiators hurried back to work, joined by Treasury Secretary Henry Paulson in an effort to revive or rework the proposal that President George W. Bush said must be quickly approved by Congress to stave off economic disaster. Congressional leaders said Federal Reserve Chairman Ben Bernanke might come to Capitol Hill, too, if enough progress was made.
The meetings were to continue into the night.
After six days of intensive talks on the unprecedented package proposed by the Bush administration, with Wall Street tottering and presidential politics intruding six weeks before the election, there was more confusion than clarity.
Citing Grave Financial Threats, Federal Government Readies Massive Rescue
The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.
Congressional leaders gave bipartisan support to the administration’s efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke.
Paulson and Bernanke presented a “chilling” picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.
The plan involves using hundreds of billions of dollars in government funding to buy bad loans, leaving banks with more money and fewer problems, according to two sources familiar with what was said at the meeting.
After the meeting, Paulson told reporters the proposal was “an expeditious solution that is aimed right at the heart of this problem.”
Also last night, the Fed was considering offering backing for money-market mutual funds, which have had massive withdrawals in recent days, said a source familiar with the discussions.
Worse Financial Crisis Since Great Depression
The financial crisis that began 13 months ago has entered a new, far more serious phase.
Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem — troubled subprime mortgages — in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others. There’s also a growing sense of wariness about the health of trading partners.
The consequences for companies and chief executives who tarry — hoping for better times in which to raise capital, sell assets or acknowledge losses — are now clear and brutal, as falling share prices and fearful lenders send troubled companies into ever-deeper holes. This weekend, such a realization led John Thain to sell the century-old Merrill Lynch & Co. to Bank of America Corp. Each episode seems to bring government intervention that is more extensive and expensive than the previous one, and carries greater risk of unintended consequences.
Expectations for a quick end to the crisis are fading fast. “I think it’s going to last a lot longer than perhaps we would have anticipated,” Anne Mulcahy, chief executive of Xerox Corp., said Wednesday.
“This has been the worst financial crisis since the Great Depression. There is no question about it,” said Mark Gertler, a New York University economist who worked with fellow academic Ben Bernanke, now the Federal Reserve chairman, to explain how financial turmoil can infect the overall economy. “But at the same time we have the policy mechanisms in place fighting it, which is something we didn’t have during the Great Depression.”
