Sep. 26th, 2008

peterbirks: (Default)
Washington Mutual was shut down last night. The assets were bought by JP Morgan Chase for $1,9bn. WaMu, as it was known, had about $307bn in assets and $188bn in deposits. Just in case you hadn't noticed, this is seven times the largest banking failure ever seen before in the US. WaMu was also the largest US Savings & Loan.

And it didn't even make the main story of the day.

That, of course, was stolen by the fact that there still seem to be a few US politicians out there -- curiously, mainly Republicans -- whose brains are not large enough to comprehend the scale of the crisis. There certainly seems to be a retreat to populism, and McCain appears to be looking to extend his growing dickhead status at every opportunity.

I think that a major part of the problem is that midtown America still doesn't quite get it. What we have is the isolationist soul of America echoing that famous line once uttered by Neville Chamberlain, except that this time it's the financial crisis on Wall Street which is the small country far away of which we know nothing.

There was a, possibly urban mythic, story this morning that some US petrol stations had started to insist on cash, mainly because they didn't trust the banks to reimburse them in a few months' time for any credit card transactions. Like most urban myths, it would be nice if it were true, because if the credit card system froze up in the US ("CASH ONLY -- WE DON'T TRUST THE BANKS") then it might at last sink in with the average inhabitant of Littlesville, Wyoming, what kind of problem the US financial system is facing. Even the effects of the WaMu collapse have been shielded from the US public. The branches will open up as usual today. No deposits will be lost. Joe Public, basically, has in the main yet to see how the whole thing matters to him. So why the hell should he fund a $700bn rescue?

Not that the regulators help matters. The Office of Thrift Supervision stated last night that WaMu had suffered from "insufficient liquidity". Yeah, right. This is the actual statement:

"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business".

Which, I think you will agree, is an interesting use of the word "liquidity".

What WaMu was insufficient in was money, not liquidity. What we have here is the word liquidity being used interchangeably with solvency. So, when people were arguing last year that it was a liquidity crisis and some were saying, er, no, it's a solvency crisis, what the liquidity arguers do when they are proved wrong is simply redefine liquidity as solvency.

Sorry, guys, but they really are not the same thing, and it's a bit worrying when the regulators seem to think that they are. WaMu was stone-fucking insolvent. That was why it was shut down.


Of course, a lack of control of the correct use of English is nothing new. While McCain is hurriedly making a dick of himself in Washington, Sarah Palin was on National TV talking to CBS presenter Katie Couric. This is the Republican vice-presidential nominee's take on the current situation (in response to whether the $700bn should perhaps be channelled somewhere else than into a pile of toxic sludge):

That's why I say I, like every American I'm speaking with, we're ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy. Um, helping, oh -- it's got to be all about job creation too. Shoring up our economy, and putting it back on the right track. So healthcare reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade, we've got to see trade as opportunity, not as a competitive, um, scary thing, but 1 in 5 jobs being created in the trade sector today. We've got to look at that as more opportunity. All of those things under the umbrella of job creation. This bailout is a part of that."

So, that's all clear then. (Thanks to the Los Angeles Times for having the nerve to transcribe that. I would have just shot myself.)


I really ought to try to make it up to the Empire sometime this weekend, since there'll be some excellent photo-ops and also there'll be quite a few people there whom I know and whom I haven't seen for a while.

Unfortunately today is a no-no because it's the last day to clear a Party bonus Still, we'll see how the day progresses.


Lunchtime addition: BoE announces that on Monday it will be auctioning £40bn in three-month money, far larger than the paltry $10bn it's putting overnight and $30bn in weekly cash. Looks like yesterday's recommendation in this here blog was under consideration all the time.

The weekly rate puts the banks through the end of the third quarter. The three-month rate effectively puts the banks through to year-end. That should at least slightly alleviate (although I doubt that it will ennd) the dislocation between three-month-LIBOR and the overnight rate.

It's also a win either way for the BoE. If the banks hoard the cash made available, then they have to put it back in the BoE at the overnight rate, meaning that the BoE is earning an annualized 2% on that cash without it ever leaving the vault.

If, on the other hand, the banks do something else with the money, then the BoE will have achieved its aim of returning some liquidity to the market.


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