US Banking System + Washington Mutual (WaMu)

[Xzin]

I don't like to post an off topic message as a general rule. But this is important.

I am not trying to cause a panic here but as an active investor, I watch the markets very closely. There has been considerable concern about many banks - from investment banks, extending to stalwarts of industry that are failing left and right. Goes with the territory when you leverage yourself 30x or more. While FDIC insurance exists, it fails to cover account balances in excess of $100,000.00. Plus, it is grossly underfunded and payouts can take months or years. There are a number of banks that will implode or have already. Some are difficult to forecast but there are usually warning signs. I would urge anybody who banks with Washington Mutual (WaMu) to look at their numbers and make an informed decision as to if that institution is the type that you feel comfortable leaving your money in. Myself? I would not touch it with a 10 ft pole. If you are in excess of the 100k limit, at WaMu or elsewhere, you are a fool. It is possible somebody buys WaMu and bails everything out but why bet the farm on it? Take the time to consider current market conditions and ensure you take the proper steps to protect yourself.

http://chart.finance.yahoo.com/c/2y/w/wm

Edit: 9/25/08 - WaMu has gone under. Biggest bank failure in history. JPM Chase has bought most of their assets and it appears that they are backing up the deposits. Which is good, because the FDIC only has less than 50 billion and WaMu had more than 300 billion. Not all of that was on the line mind you but a decent percentage was. Most likely in excess of 50 billion. It would have wiped out the FDIC's entire balance.

[Hachoo]

Thats good advice. I don't use WaMu or have an excess of $100k at any specific bank, but my brother does use WaMu for his primary checking/savings, so I'll advise him to move to a new bank.

I personally use USAA for a lot of my finances and as far as I know they are still going strong.

[Qlimax]

Yeah, with Lehman Brothers, AIG and Merill Lynch's recent standings, I would love to be sitting on the Bank of Americas board of directors. The fact that they can afford to buy their 2nd rival in this market is quite peculiar.

[Anjuna]

I have a Visa with them, with a >$1000 balance. Should I pay it off and cut it up?

[Xzin]

Yeah, with Lehman Brothers, AIG and Merill Lynch's recent standings, I would love to be sitting on the Bank of Americas board of directors. The fact that they can afford to buy their 2nd rival in this market is quite peculiar.

They are still absorbing Countrywide no less. It was a shotgun marriage, at best. But who else? JPM just "bought" Bear Stearns. There is really nobody bigger.

[Multibocks]

Thats good advice. I don't use WaMu or have an excess of $100k at any specific bank, but my brother does use WaMu for his primary checking/savings, so I'll advise him to move to a new bank.

I personally use USAA for a lot of my finances and as far as I know they are still going strong.

I love USAA!

[Anjuna]

I have a Visa with them, with a >$1000 balance. Should I pay it off and cut it up?

Don't worry about debt. Somebody will ALWAYS be around to collect the payments.Cool, I figured. ;) I usually pay it off every month anyway.

[Xzin]

I have a Visa with them, with a >$1000 balance. Should I pay it off and cut it up?

Don't worry about debt. Somebody will ALWAYS be around to collect the payments.

Sadly, I have to /agree there. But if they implode, nobody is around to pay you. Debt however, is an asset and just gets bought by somebody else.

[Drizzit]

They are still absorbing Countrywide no less

oh no what is happening with countrywide? I have my mortgage though them.

[Xzin]

They are still absorbing Countrywide no less

oh no what is happening with countrywide? I have my mortgage though them.

And you still do. If you owe them money, you simply pay it to BAC instead of Countrywide. I am sure they will tell you where to keep sending funds to :)

[Xzin]

It will still impact your credit but I have heard of instances of that and don't doubt it in the least.

[Drizzit]

There is this weird thing going on. I don't promote this, and I wouldn't even try it myself.

But with all the companies imploding, and mortgages bouncing around like crazy, and foreclosure happening left and right.... a lot of the paperwork is getting lost. What do I mean you ask?

When you buy a house, you sign the note. Thats how the company "owns" your mortgage. That thing can change hands = who you make your payments too, and who can rightfully collect those payments.

Well, from what I read, a lot of this required paperwork is getting outright lost in all the transfers. Some shady people are letting there mortgages foreclose, then when they go to court they say "please show me proof that I owe you money". And the courts are apparently siding with the borrower when the "new" leader / note holder can't produce anything.

All and all, this is just a lawyer came to delay things, but I'm reading its working for some people.

True, but it is a huge risk that you have to take. I really suck at chances, so my luck and i will go to the court and ask for the paper work and i can see the other lawyer saying i can do one better, he is the paper work, he is the pen you signed with that has you finger prints on it, he is the video tape of you signing (in color with sound), here are the witnesses that saw you sign all the paper work, and here is the rest of the water that you asked for and didn't finish... Well at least i will get to finish that water.

[Havelcek]

I'm on a consulting engagement at Merrill and my wife works for AIG...nuff said.

[Sanctume]

I thought you were posting about a new US server and a new guild forming there.

The chart also made me think it's a decline in WoW subscription from the few handful of players playing Warhammer. :D

[xyzzy]

Xzin hardly needs my voice to lend him credibility, but I'll throw this out there as a securities analyst for a wall street investment bank (thankfully not one of the two going away today). We've spent a lot of time analyzing various financial institutions' exposures and looking at the systemic backstops.

While the risks of having more than $100k on deposit at any single FDIC-insured institution are fairly well known, no one should be relying on the FDIC to provide security on their short-term funds. Yes, regulators are likely to be there to protect your money and you shouldn't lose much sleep over the seventy five grand in your savings account. However, if you need money short-term, (eg for closing on a new home, funding education expenses, starting a business, etc) the process of getting access to your cash may take longer than is reasonable for your needs. Don't expect the FDIC to provide immediate access to "your" money in the event of a bank failure. You'll get what is yours, it just may take some time.

Anyone banking with institutions at risk of going away (a list that is much longer than most people believe, even after this weekend's news) should take a serious look at moving funds they need in the next few months to a safer bank.

edited for too many prepositions in the final sentence

[KSboxers]

Multiboxing bank runs

http://i532.photobucket.com/albums/ee329/jamie8637/Bank-Run.jpg

[Ellay]

I suppose at this point none are 100% solid but from the current status what would everyone say they feel is the most stable / safest banks at the moment.

[Mac]

Anyone banking with institutions at risk of going away (a list that is much longer than most people believe, even after this weekend's news) should take a serious look at moving funds they need in the next few months to a safer bank.Where would one find such a list?

[xyzzy]

The situation is much more complicated than credit union good, thrift bad. (Meridien Federal Credit Union and New London Security FCU failed in July, Port Trust Credit Union failed in August.)

Without going into ratios of nonperforming assets to tier one capital, access to captive or wholesale funding, and a bunch of other "stuff" that no one here should really care about, you should generally be more comfortable at banks that generate most of their liabilities from deposits and haven't loaded up the balance sheet with assets they don't understand. How can you find this? Short of paying a few hundred thousand dollars for bespoke research or spending eighty hours a week reading financial statement footnotes for a few months, you can't.

You may want to avoid banks on this ('http://bigpicture.typepad.com/comments/files/troubled_bank_list.pdf') list for starters. For what it's worth my money is at JPMorgan Chase and Citigroup.

More pew pew, less financial meltdown please.

[Skuggomann]

Lol, i like living in iceland (most of the time) XD

I got this bank called "pillow" and i put my monney in it and no one takes it away form me :)

[Tonuss]

Is WaMu in a "death spiral"? Once people get nervous and start pulling out cash and closing accounts, it can snowball and from that point it becomes near impossible to avoid bankruptcy/closure.

[Xzin]

Finding a list of banks that are not likely to go belly up is HARD right now because all of the big boys played by the same rules and most leveraged themselves to the hilt - and then some. If you take a deep look at the top 10 banks by deposits, you get a feeling that most all of them have loaded up their level 3 assets in a "mark to fantasy" type of deal. Without getting into bogus changes in account rules or off balance sheet items, it isn't pretty. In fact, many of them owe more than they have. As much as double, or more. Not only can the FDIC not be relied upon (they only have ~50 billion to backstop against trillions) but the backdrop of the economy is terrible right now. 6+ right now, 7% unemployment before too long does not make houses easier to pay off. This is the stuff that in history has brought down entire empires. So pay attention.

The entire economy is based around fractional lending and sustained growth. When that growth stops, the system fails. Miserably. This is not a crisis of liquidity, this is a crisis of solvency. Think Great Depression or worse. Will that happen? Not sure yet. But derivatives and the like are all systems of financial mass destruction. And once the boulder gets pushed off of a hill, it doesn't just stop right away. Buffett saw it YEARS ago. And he was right. All they are doing right now is buying time. But I don't expect earnings to come around anytime soon. It will be a long and slow recovery in my opinion. I fully expect many bank failures over the next few months, amid a backdrop of slowing economic growth. You think subprime was bad? Alt-A is still shaking out. Next up? Commercial lending and credit cards.

To get a feel for the larger and more solid banks, take a look at the FDIC site: http://www4.fdic.gov/idasp/index.asp
But just because an institution is large is no guarantee of anything. I tend to like larger banks than smaller ones as a general rule though.

Batten down the hatches - a storm is upon us.

Which is great if you are looking to start a new venture. There is always a silver lining.

[Xzin]

And yes, WaMu is in a ratched death spiral. It can't raise capitol.

http://seekingalpha.com/article/86462-citi-merrill-wamu-death-spiral-financing

"TPG invested in Washington Mutual to the tune of $7 billion at $8.75 per share, a substantial discount at the time to WaMu’s stock price of $13. Today WaMu’s stock is $6. Last month AIG raised $20 billion when their stock was trading at $37 per share. Today AIG stock is just above $30 per share. ...

We believe it is more accurate to call them “death spiral” securities. They work as follows. The investors in the equity raise would have their investment “protected” by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free. It doesn’t take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral."

[Zite83]

Lehman lists debts of $613 Billion In Chapter 11 Filing Monday!!! The company I work for is taking a good chunk of that...We will be filing majority of their phone services that will be placed under bankruptcy... I should of stayed in collections ;( but instead took a pay cut to do a less annoying job. Owell... data entry for the win!

[Xten]

Yeah, with Lehman Brothers, AIG and Merill Lynch's recent standings, I would love to be sitting on the Bank of Americas board of directors. The fact that they can afford to buy their 2nd rival in this market is quite peculiar.

They are still absorbing Countrywide no less. It was a shotgun marriage, at best. But who else? JPM just "bought" Bear Stearns. There is really nobody bigger.Countrywide is going down also. My Friends dad here -was- the head department manager for the southwest region. They are in deep trouble as well and stocks/credit cards and Home loans going down with them as well. just my 2c

[Sanctume]

I suppose at this point none are 100% solid but from the current status what would everyone say they feel is the most stable / safest banks at the moment.I think guild banks are pretty secure. But I prefer alt banks too for the not so common loot. :D

[Mac]

Countrywide is going down also. My Friends dad here -was- the head department manager for the southwest region. They are in deep trouble as well and stocks/credit cards and Home loans going down with them as well. just my 2c B of A wrote ('http://newsroom.bankofamerica.com/index.php?s=press_releases&item=7956') they bought them.

[Xzin]

BofA has a lot to lose if Countrywide went under though. The deal isn't officially done yet either.

[Binaryzero]

Yeah, with Lehman Brothers, AIG and Merill Lynch's recent standings, I would love to be sitting on the Bank of Americas board of directors. The fact that they can afford to buy their 2nd rival in this market is quite peculiar.

They are still absorbing Countrywide no less. It was a shotgun marriage, at best. But who else? JPM just "bought" Bear Stearns. There is really nobody bigger.One thing to consider it Bank of America is still posting a profit this year (even with Countrywide) Also it was an all stock deal so there is not much real cash out of pocket. They are one of two bank to post profits first two quarters this year.

[Binaryzero]

BofA has a lot to lose if Countrywide went under though. The deal isn't officially done yet either.Legal Day one was a weeks ago, Bank of America and Countrywide are running as one business...

[mmcookies]

Lol, i like living in iceland (most of the time) XD

I got this bank called "pillow" and i put my monney in it and no one takes it away form me :)BEWARE OF THE TOOTHFAIRY!

[Xzin]

BofA has a lot to lose if Countrywide went under though. The deal isn't officially done yet either.Legal Day one was a weeks ago, Bank of America and Countrywide are running as one business...

Material adverse events... etc.

[Xzin]

One thing to consider it Bank of America is still posting a profit this year (even with Countrywide) Also it was an all stock deal so there is not much real cash out of pocket. They are one of two bank to post profits first two quarters this year.

Not much cash but they still vastly overpaid. And it is easy to massage for a few quarters by hiding toxic junk in level 3s. Will it stand the test of time? My money says no.

[Skuggomann]

Lol, i like living in iceland (most of the time) XD

I got this bank called "pillow" and i put my monney in it and no one takes it away form me :)BEWARE OF THE TOOTHFAIRY!
DAM! thanks for the warning.

[Lance]

Lol, i like living in iceland (most of the time) XD

I got this bank called "pillow" and i put my monney in it and no one takes it away form me :)A stupid joke but actually has some relevance ironically. If enough people did this then hmmm....

[Sarduci]

Lol, i like living in iceland (most of the time) XD

I got this bank called "pillow" and i put my monney in it and no one takes it away form me :)A stupid joke but actually has some relevance ironically. If enough people did this then hmmm....Then you'd have inflation.

For our Europe friends, don't worry, you're doing the same thing.
http://finance.google.com/finance?client=ob&q=NYSE:AIB
Down roughly 60% since the beginning of the year...

[Sarduci]

Finding a list of banks that are not likely to go belly up is HARD right now because all of the big boys played by the same rules and most leveraged themselves to the hilt - and then some. If you take a deep look at the top 10 banks by deposits, you get a feeling that most all of them have loaded up their level 3 assets in a "mark to fantasy" type of deal. Without getting into bogus changes in account rules or off balance sheet items, it isn't pretty. In fact, many of them owe more than they have. As much as double, or more. Not only can the FDIC not be relied upon (they only have ~50 billion to backstop against trillions) but the backdrop of the economy is terrible right now. 6+ right now, 7% unemployment before too long does not make houses easier to pay off. This is the stuff that in history has brought down entire empires. So pay attention.

The entire economy is based around fractional lending and sustained growth. When that growth stops, the system fails. Miserably. This is not a crisis of liquidity, this is a crisis of solvency. Think Great Depression or worse. Will that happen? Not sure yet. But derivatives and the like are all systems of financial mass destruction. And once the boulder gets pushed off of a hill, it doesn't just stop right away. Buffett saw it YEARS ago. And he was right. All they are doing right now is buying time. But I don't expect earnings to come around anytime soon. It will be a long and slow recovery in my opinion. I fully expect many bank failures over the next few months, amid a backdrop of slowing economic growth. You think subprime was bad? Alt-A is still shaking out. Next up? Commercial lending and credit cards.

To get a feel for the larger and more solid banks, take a look at the FDIC site: http://www4.fdic.gov/idasp/index.asp
But just because an institution is large is no guarantee of anything. I tend to like larger banks than smaller ones as a general rule though.

Batten down the hatches - a storm is upon us.

Which is great if you are looking to start a new venture. There is always a silver lining.Making my living directly by support banks, this was obvious 5 years ago to someone who has no exposure to the actual financial side of things. When capital expense budgets dried up 3 years ago we started branching out into completely different fields to apply our systems to. Hearing "Sorry, it's not in the budget to reduce transaction costs by 53%" kinda paints the ugly picture right on the wall.

[Mac]

Which is great if you are looking to start a new venture. There is always a silver lining. I'm interested in this statement, care to expound on this idea?

[Stabface]

I do most of my day-to-day banking through WaMu, since it's free, they have good service, enough ATMs around, etc... but I carry a pretty small balance there (float only around ~2 months of expenses). I have enough reserve cash in non-WaMu savings accounts to cover ~6 months of essential expenses at zero income. So it would be a hassle if they went under, but not a life-breaker for me.

I'm more concerned about my 401K, to be honest.

[Xzin]

Fur,

Despite the obvious taunting and not completely unjustifiable accusations displayed in your post - believe me when I say I walk the walk. You can either believe it or you don't. I don't wish to engage in talk about matters that I prefer to remain private just to prove my point but I do still intend to post pictures and a lengthy writeup of my last setup once the current one is finished and operational again. I hope to coincide that with the release of my latest venture that I have invested a significant amount of time and capital into. If it gets some press, it would be a nice way to jump start the new venture. Should be quite exciting actually.... I believe it will dovetail quite nicely into the mindset of the common multiboxer although remain distinctly different from multiboxing at the same time. But in the mean time, it is batten down the hatches and prepare to buy some once loved capital equipment at firesale prices as companies struggle under stupid levels of debt load amongst a background of slowing global economic growth. At least for the medium term.

Xzin

[Xzin]

I'm interested in this statement, care to expound on this idea?

It involves rapid prototyping technology and some rather fun and exciting custom manufacturing. Unlikely that it will change the world but is quite fun. Should be a good venture for a few years to tinker around with and grow.

[Havelcek]

I'm interested in this statement, care to expound on this idea?

It involves rapid prototyping technology and some rather fun and exciting custom manufacturing. Unlikely that it will change the world but is quite fun. Should be a good venture for a few years to tinker around with and grow.You should invent working real-life totems!

:D

[Suvega]

I don't like to post an off topic message as a general rule. But this is important.

I am not trying to cause a panic here but as an active investor, I watch the markets very closely. There has been considerable concern about many banks - from investment banks, extending to stalwarts of industry that are failing left and right. Goes with the territory when you leverage yourself 30x or more. While FDIC insurance exists, it fails to cover account balances in excess of $100,000.00. Plus, it is grossly underfunded and payouts can take months or years. There are a number of banks that will implode or have already. Some are difficult to forecast but there are usually warning signs. I would urge anybody who banks with Washington Mutual (WaMu) to look at their numbers and make an informed decision as to if that institution is the type that you feel comfortable leaving your money in. Myself? I would not touch it with a 10 ft pole. If you are in excess of the 100k limit, at WaMu or elsewhere, you are a fool. It is possible somebody buys WaMu and bails everything out but why bet the farm on it? Take the time to consider current market conditions and ensure you take the proper steps to protect yourself.

http://chart.finance.yahoo.com/c/2y/w/wm

A) Investing greater then 100k in any bank = bad idea
B) Although the above is prbably smart for teh individual investor, everyone that removes theie money from a stressed bank is just causing a ripple affect.
1929/30/31 was makred by everyone trying to withdrawl there money from their bank, the bank entering bankruptcy. Rinse repeat x 3000.

[Suvega]

Furthermore, good warning to an upcoming bank solvency issue:

Watch their bond ratings. When they start getting degraded, that means they'll have to offer higher interest rates to raise capital.
In layman's terms:
When their ratings go down, it costs more for them to function.

WaMU just hit junk bond status (B- I think). GG have fun with that.

[Xzin]

B) Although the above is prbably smart for teh individual investor, everyone that removes theie money from a stressed bank is just causing a ripple affect.
1929/30/31 was makred by everyone trying to withdrawl there money from their bank, the bank entering bankruptcy. Rinse repeat x 3000.

A run on the bank is caused by enough people no longer having faith in the institution. The people who do not act get wiped out, thus creating a sudden need for people to all withdraw their money. Until we move away from a fractional reserve system that loans every deposit out 100:1, we will continue to have these problems in times of crisis. And probably rightfully so - institutions that are failing should not be institutions that are solvent simply because you "should keep your money there to avoid a run on the bank". Classic cartel, prisoner's dilemma, etc. And we know how those turn out.

[Suvega]

Well XZIN w/o the modern banking system that you are so freely to call out it's weaknesses, you would have no money for your startups.

Lack of capital = fail.

Maybe you don't have any loans, but somewhere down the line your investors relied on the fractional banking system to generate wealth.

[Sarduci]

I actually work with a decedent of the Mr. Duer from this article. He's quite proud that his family crippled the national economy in one swoop.

http://www.americanheritage.com/articles/magazine/ah/1999/3/1999_3_20.shtml

[Xzin]

Well XZIN w/o the modern banking system that you are so freely to call out it's weaknesses, you would have no money for your startups.

Lack of capital = fail.

Maybe you don't have any loans, but somewhere down the line your investors relied on the fractional banking system to generate wealth.

I self funded my first startup and never once obtained a bank loan for it. Leverage works both ways.

[Xzin]

WaMu is getting hammered. Looks like JPM is going to buy their deposits.

http://news.yahoo.com/s/nm/20080926/ts_nm/us_washingtonmutual_jpmorgan_news

[Suvega]

Well XZIN w/o the modern banking system that you are so freely to call out it's weaknesses, you would have no money for your startups.

Lack of capital = fail.

Maybe you don't have any loans, but somewhere down the line your investors relied on the fractional banking system to generate wealth.

I self funded my first startup and never once obtained a bank loan for it. Leverage works both ways.

You or your investors, or the person who bought it never used a loan to finance any of it?



Then you had the worst finacial structure possible. L2leverage

[Xzin]

Just like the banks who learned to leverage 30x and experienced 2 or 3% losses that eroded their entire capital base and caused them to go bankrupt? No thanks. Plus, I didn't need more than I spent anyway. It would have just been wasted. Even a 10x leverage is a huge problem just waiting to happen. I have seen it time and time again. No thanks.

[Solon]

Sometimes I wish my dad had taken the time to teach me something about money when I was a kid. Still, this is interesting stuff. I have no real assets, but not a dime of debt either, better off than some of the big boys. :S

[Youngceo]

lol love how ever forum has their "act rich on the internet" guy. those that have money dont try their hardest to let everyone know about it, those that dont have got plenty of time to talk about it on the net.

<3 Australian banks... suckers.

[Metalocalypse]

And here I thought this whole bail-out thing was to devalue the dollar to a level at which americans will scream for the Amero.

[Caspian]

And here I thought this whole bail-out thing was to devalue the dollar to a level at which americans will scream for the Amero.*whistles*