By: Erica Muller www.MySunnyHolidayVilla.com
Washington Mutual, one of the largest bank chains in the United States, has finally sunk under it's enormous load of mortgages that went sour. This is now the largest bank failure in U.S. history. The Federal Deposit Insurance Corp. seized the bank on Thursday and the thrift's banking assets were then sold to JPMorgan Chase & Co. for US$1.9 billion. What makes this story so intense is that WAMU was just one of your everyday savings and loan institutions that was obviously a bit too lax on their lending standards like many others.
I fear this may be the first of many banks to follow suit. The last time we saw a bank even close to this size go under was back in 1984 when Continental Illinois National Bank failed with assets of $40 billion followed second by IndyMac, which was just shut down in July of this year, with $32 billion in assets. WAMU's assets were valued at $310 billion so you can see the magnitude of this situation. The good news is that because JPMorgan swooped in and saved the day the FDIC's insurance fund (which could have been depleted) did not have to cover the funds that could have have been lost.
What does all this mean to the WaMu customers? According to the Canadian Press Sheila Blair, FDIC chairman told reporters, "For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks. For bank customers, it will be a seamless transition." Until today, dismayed depositors have been pulling almost a tenth of their money out over the past 10 days, regardless of the FDIC guarantee of all deposits up to $100,000. All credit card debts and deposits will remain the same but will just be paid to JPMorgan.
It's pretty clear that the U.S. economy is in peril. With imminent danger of a recession looming, financial institutions going under, the rising unemployment rate and increased home foreclosures when will the government finally make a descision on their proposed $700B bailout? Whether it's a bailout or not I sure hope history does not repeat itself and that our American consumers, banks and lending institutions learn from their mistakes going forward.
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