Comments on: The FDIC’s WaMu suit http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: ademangone http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25446 Tue, 29 Mar 2011 21:56:51 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25446 OK, perhaps I’m bit late to this party, but I do have a bit of a problem with the standard. Specifically, this part:

k. To conduct WaMu’s business in compliance with all applicable state and federal laws and regulations.

That is a high standard, and I very much doubt that any organization can reach 100 percent compliance. The rules are too many, they change too often, and there often are many areas within regulation and laws that are less than clear. I’d rather see the establishment of a reasonable compliance program rather than a declaration that one would comply with every conceivable legal standard. No compliance program will achieve perfection. But good ones will circle back when problems are unearthed and make improvements.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25270 Tue, 22 Mar 2011 03:30:22 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25270 I’m days late to this post but my color on why the FDIC has so much spite for the WaMu boys is they caught the FDIC’s hand in the cookie jar.

You see unsecured depositors, (those over the FDIC limits) are JUNIOR to senior secured bond holders. The FDIC badly wanted to end runs on the nations banks which at the time of the WaMu takover were beginning to happen in earnest.

They move in and take over a company with a positive value just hours before all the other TBTF banks get saved by the Fed and Treasury.

The WaMu boys correctly called the goverments bluff and still lost the hand because the goverment changed the rules in the middle of the game.

By covering all deposits (including HUNDREDS OF MILLIONS deposits above the FDIC limits) while giving senior secured bond holders losses they insured that the entire shadow banking system would crumble. The FDIC honestly didn’t realize at the time that the shadow banking system was actually larger and more imporntant than the commercial banks they regulated.

After the bid for even high quality financial assets vanished the feds looking into the abyss and saw that the dominos simply would not stop falling on their own. It took TARP, TALF, Zero Interest Rate Policy, QE1&2 to reboot the system.

Stuff of legend… I’ll remember 08/09 for 50 years!

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25227 Sun, 20 Mar 2011 15:24:32 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25227 Danny_Black, I don’t know about MSM but I was quite critical of certain practices in finance at the time — and I didn’t even know half the story!

* Compensation is excessive. When compensation in some divisions is half of revenues, and bonus-structured on short-term targets, it encourages stupid risk-taking.

* The lending practices generated huge short-term profits, but practically guaranteed that there would eventually be matching losses. How many years of profits were wiped out in the crash?

But has the economy outside of Wall Street truly tanked? Or is it simply the result of retrenchment in the banking/construction/real-estate businesses? That is a pretty big part of the economy, and activity today is a small fraction of where it was at its peak.

What I don’t understand is how the directors and shareholders allowed the system to develop as it did. The board of directors is SUPPOSED to take a long-term view on behalf of the shareholders. Were they truly doing that?

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25225 Sun, 20 Mar 2011 10:49:25 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25225 MainStreetMuse, i assume you were also bitching about banks when an artificial credit bubble pumped up the economy for 5 years?

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By: MainStreetMuse http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25180 Fri, 18 Mar 2011 20:41:41 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25180 “I don’t like the idea of criminalizing failure. Banks by their nature are leveraged institutions which are vulnerable to runs and to declines in their asset values.”

What I hate even more than “criminalizing failure” is socializing the losses made by very well compensated bankers – excessively huge compensation granted to them for their “risk management” skills.

And what I hate even more than THAT is seeing funding for education and other social services cut throughout the country because the economy outside of Wall Street, tanked, thanks to the poor risk management skills of people paid millions to know better, screwing over the budgets of individuals, families and state and federal government alike…

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By: markclose http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25173 Fri, 18 Mar 2011 20:12:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25173 It is worth noting that the FDIC is not “criminalizing” anything. The have no authority to bring criminal charges and are seeking civil money penalties in the current litigation.

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By: AABender1 http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25169 Fri, 18 Mar 2011 19:22:53 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25169 “the FDIC has been particularly vindictive when it comes to WaMu…”

Yes, there is a particularly nasty dog-eat-dog history there as the FDIC believes that WaMu should be one of our poster children of regulatory capture.

WaMu’s primary regulator was the OTS, not the FDIC. The FDIC could only get involved once WaMu was rating was downgraded to a CAMEL 3, 4, or 5. Wholly inconsistent with the gross negligence allegations in the FDIC suit and incredible in retrospect, the OTS was rating WaMu a CAMEL 2 in August 2008, one month before failure.

WaMu, given its size, accounted for approximately 13% of the OTS operating revenues. Although John Reich publicly denied any such capture, other evidence points to WaMu having wagged the OTS dog rather forcefully.

When the financial crisis started, the OTS apparently stonewalled the FDIC when it started raising alarms about WaMu’s condition. The OTS stonewalled by not downgrading WaMu’s CAMEL rating below a 2 and thereby effectively kept the FDIC at bay.

And the FDIC is the one now baying at what is left of the dead dog. And indirectly baying at the soon-defunct OTS as well.

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By: Josiah_Bartlett http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25167 Fri, 18 Mar 2011 19:02:57 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25167 An issue that seem to be overlooked is that from 2001 through 2008, the bush* administration was very anti-regulation and frequently put the foxes, industry insiders, in place to regulate their own industries. These insiders obstructed any effective regulatory actions and let the “invisible hand” stuff money in their pockets.

How can a regulator be effective when their boss doesn’t let them?

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By: CavelCap http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25154 Fri, 18 Mar 2011 17:20:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25154 Ah, never mind. I just glanced over and saw the 208 comments on the actual article. I’m sure those were simply teeming with insight and good sense.

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By: CavelCap http://blogs.reuters.com/felix-salmon/2011/03/17/the-fdics-wamu-suit/comment-page-1/#comment-25144 Fri, 18 Mar 2011 16:49:06 +0000 http://blogs.reuters.com/felix-salmon/?p=7667#comment-25144 Wow, it’s only March 18 and we already have a strong candidate for comment of the year! Congratulations Radelta, you managed to squeeze an ad hominem, and an implied straw man into one line. All on a completely unrelated article!

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