The extraordinary times continue. Nobody’s really framing it this way, but a 1930’s-style run on the bank just felled the country’s sixth-largest bank, Washington Mutual. It’s by far the biggest bank failure in American history, and JPMorgan Chase immediately picked its assets up.
The Times has great detail, reporting that the government was slinking around behind WaMu’s back looking for rescuers and that the company’s board of directors didn’t know it was about to be seized. WaMu’s CEO, in the job all of three weeks, will get paid more than $19 million for his efforts.
Here’s the Journal on the health of the banks—the first time I’ve heard a statement this stark (emphasis is mine).
Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.
Most of what I’ve read up to now has said the banking industry’s woes were less severe than the late ‘80s S&L crisis, with far fewer likely to fail. Makes me want an answer to my question No. 3 from yesterday even more.
Geoff Colvin at Fortune says this is not a financial disaster. I’ll take some of whatever he’s smoking.
Roger Lowenstein at The New Republic says this is “the wrong emergency.”
America’s economy does not face an emergency—only its financial system does. This is a distinction lost on the bankers in Washington, but it is one worth remembering. On Main Street, unemployment is 6.1 percent. Home prices are down close to 20 percent and presumably headed lower. These numbers are not pretty, but they do not add up to an economic Pearl Harbor or even close.
I think this argument is wishful thinking. If the financial system collapses, how will it not send our credit-addicted economy into a tailspin?
If you’re still somehow not a believer of how bad the financial system is locked up, here’s a scary chart from Calculated Risk on the key TED spread. What’s that and why does it matter? Here’s an explanation from Kevin Drum when he was at The Washington Monthly.