FDIC and OTS Miscalculations Costs Taxpayers Tens Of Billions
April 20, 2009 — The FDIC and OTS have caused American taxpayers monumental losses due to mismanagement, but they have not had their fair share of “credit” for their misdeeds and negligence. The capricious seizure of Washington Mutual Bank (WMB) and resulting fire sale played a significant role in the stock market crash of 2008. This decision has affected all Americans either directly or indirectly through the loss of jobs and general downturn in the economy.
The OTS preemptively seized WMB on September 25th, 2008 from Washington Mutual Inc (Stock Symbol: WAMUQ). The FDIC proceeded to transfer the assets to JP Morgan Chase (Stock Symbol: JPM) almost immediately. A memorandum, released by the Wall Street Journal, supports the conclusion that WMB was indeed solvent when they were seized. The monetary damages alone total over $60 billion in immediate losses in conservative bonds and debts. Far more damaging was the blow to the United States’ image and credit market. Investors across all sectors panicked. The market could not decide between safe and risky investments. The stock market severely crashed immediately after this seizure (see the graph at www.WamuStory.com), causing severe generalized economic losses throughout the world.
Ironically, TARP was on the horizon and just a week away. The boost of confidence intended by TARP was not able to overcome the damage done by the FDIC’s fire sale of WMB. In one hour, a bank that was worth hundreds of billions of dollars was “gifted” to JPMorgan for $1.9 Billion. As a practical matter, our regulatory bodies should act within reason and good faith. They did not.
In a memorandum to its Board of Directors the FDIC states that it did not find that WMB was “in default” or “in danger of default”. Washington Mutual Bank was well capitalized with a tier 1 capital ratio of 7.8 percent. It had access to $54 Billion cash. The OTS made its decision to seize WMB solely on its jurisdiction to act preemptively and panicked fear.
The FDIC would not have had a chance to bungle the sale of WMB, had it not been for the missteps of the OTS. They seized a bank that was not in failure, and indeed was liquid and well capitalized. The sale by the FDIC finished it off, due to their negligence in arranging the transaction.
This is one of the most expensive mistakes the government made in the “economic meltdown” of 2008. Ms. Sheila Bair said this seizure would not cost taxpayers anything. She could not have been more wrong. Read more about these issues at www.WamuTruth.com.
Contacts for this Release:
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Phone Number: 360-790-1149
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