Size Matters...Especially on Wall Street
My latest column is in today's Sun-Sentinel. You can read it here. I also want to draw your attention to a very good criticism that one reader posted beneath the column; I will reprint their comment and my reply here. "WMI_Investor" writes:
Washington Mutual seizure by the FDIC is FAR from sucessfull.... in the end it will cost the government BILLIONS in lawsuites that have been filed against the FDICAs the facts up to the seizure become more clear - it should have never been seized in the first place.JPM was able to pick and choose what it wanted and has left the reciever (FDIC)holding the bag on much of debt that JPM was allowed to shed from WAMU in the acqusition.Plus FDIC seized property that was not part of the BANK... WMI was not a BANKYou need to do some more investigation and get the facts straight!
My response:
WMI Investor,Thank you for your feedback. I agree that we need a better resolution procedure than the FDIC receivership that was used for WaMu, but we didn't have such a procedure in place back then. We have to compare what happened against what would have happened if the FDIC had not taken it over. Kirsten Grind's outstanding investigative article in the Puget Sound Business Journal indicates that WaMu probably would have suffered repeated bank runs until they finally went bankrupt if the FDIC didn't step in.That said, WaMu has a good case in their lawsuit. Specifically, the FDIC's decision to wipe out WaMu's senior unsecured debt shook the wholesale interbank market and spelled the end for Wachovia. Clearly, there is more to this story than I could fit into the word limit of my column, but the fact remains that nationalization is better than Chapter 11 in the short run and TARP/PPIP in the long run. (As an investor, though, if you feel WaMu was slighted relative to Citigroup and B of A, I completely agree with you.)Thanks again for your thoughts,Anthony W. Orlando
I wanted you to see that exchange because I realize now that "successful" was too imprecise as I used it in the column. I meant it as a relative, not absolute, term. Regardless, the bottom line is that "too big to fail" is a very complicated (and heated) issue. To get my full take on the issue, you'll have to buy my forthcoming book. In the meantime, I hope you enjoy today's column.