(Carried to the top, likely for the rest of the day)
Are the following events coincidences? I don’t think so.
More like 2 + 2 = 4.
As in, two ….
Bailout Failure ‘Will Cause US Crash‘”
The US stock market could suffer a devastating crash with shares losing a third of their value this week if Hank Paulson’s financial bailout plan fails, US Treasury officials have warned.
….. plus two …..
WaMu Bondholders are ‘Stranded’ in Thrift Seizure
“It seems that WaMu’s major debt holders have been stranded by regulatory intervention,” David Hendler, an analyst at bond research firm CreditSights in New York wrote in a report today. “The deal structure seems to be unprecedented in that it excludes bondholders at the holdco and bank levels from the major assets and liabilities of the operating bank.”
….. equals four:
Lawmakers Reach Tentative Bailout Deal
WASHINGTON — Top U.S. policymakers emerged from hours of tense negotiations with a clear message just after midnight on Sunday morning: A deal to bail out U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.
My take: The way the WaMu bondholders are being treated is unprecedented (I also read that at another link), and is a major and again (sorry for the tired word) unprecedented threat to the markets’ confidence.
I think that Hank Paulson threatened to tank the markets himself if the bailout deal didn’t get done very quickly. Maybe Ben Bernanke, too.
If the government changes its position on the treatment of WaMu bondholders and makes them whole or almost whole, you will know that I was right. If the government treats future situations as it did pre-WaMu, you will know that I was right.
You have no idea how much I want to be wrong.
This is sickening.
UPDATE: More on this from the UK Times Online (where is the US Press?) –
The broader debt markets were crippled by fears on Friday after the sale of WaMu. Unlike other recent bank deals, this one saw senior creditors wiped out alongside shareholders – an unexpected blow.
The wipeout of WaMu bonds is likely to make it much more difficult for any struggling US bank to raise new finance. If bondholders can be wiped out so easily, there is little point in extending debt to struggling firms. The added uncertainty is likely to make it harder for all companies to renew their debt facilities, and put a further squeeze on the price.
Chances are very great that the uncertainty will bleed into the equity markets, perhaps even giving Paulson & Co. the 1/3 meltdown “Treasury officials have warned of.”
I detect a whiff of financial sedition.
UPDATE 3, Sept. 29: Related, from istockanalyst.com –
Did FDIC Sabotage WaMu Management And Erode Investor Confidence?
FDIC Chairwoman Sheila C. Bair, together with JPMorgan Chase (JPM) CEO Jamie Dimon shared the spotlight for saving Washington Mutual (WM) depositors without costing the government a dime. The story is old by now; JPM got the good and the bad of the bank without the holding company’s ugly debt. (Think Clint Eastwood.)
After the glory fades, the reality will come out that the FDIC cannot be trusted. JPM and others were conducting real negotiations with the FDIC at the same time they were conducting fake negotiations with WaMu’s management.
….. (did) FDIC undercut WaMu’s management ….. before or after the fall of Lehman? WaMu started to face a bank run on September 15 – the day Lehman filed for Chapter 11.
The FDIC alone could be proud of its accomplishment, but in the overall context they further eroded investor confidence. Now the moral hazard has spread beyond equity holders to bond holders.
….. The Paulson/Bernanke team has not been very pragmatic in creating value in the form of investor confidence for their bailout money. Punishing or killing shareholders and now bond holders have proved very expensive to the government. With each new implementation of moral hazard, the government has to lay out more money to lift investor confidence
….. If the government lets another large financial or insurance institution fail, or severely punishes their shareholders, Paulson $700B slush fund would be the same as you know what in the wind.