How Soon We Forget

A year ago, we were shell-shocked.

Fannie and Freddie were in receivership. Lehman had filed for bankruptcy. AIG needed an $85 billion lifeline. And Washington Mutual, the country’s biggest Savings-and-Loan, was acquired by JP Morgan for pennies, wiping out its stock and bond holders.

Is there any wonder that the market declined 20%?

It’s interesting to look at why WaMu failed. It appears that reckless lending and a couple of deposit runs doomed the bank. But the most curious aspect is the “end-game.” On September 8th, WaMu hired a new CEO to try to sell the bank. He was told by the FDIC that he had until the end of the month to find a buyer. Initially, several big banks were interested. After two frenzied weeks, though, they suddenly stopped looking. On the 25th the regulators seized the bank and announced a pre-packaged deal with JP Morgan.

The Feds must have arranged things with JP Morgan ahead of time. Did word of the impending seizure leak out and scotch any potential non-bankruptcy sale? For WaMu’s investors, the question isn’t trivial. About $15 billion in debt and equity was wiped out.

This may be a case of “loose lips sink ships.” But it’s useful to understand that when billions hang in the balance, it’s not healthy to trust your financial fate to a faceless bureaucrat. I know. I’ve been one.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T13:35:49+00:00 October 28th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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