Banking and the Current Fiscal Thesis

They could not foresee the housing market falling as it did, and the number of foreclosures it would create, and so, they aggressively continued to pursue the market when they should have been cutting back. The top executives left the company, but they were not fired, in fact, Killinger retired, comfortably it would seem. The customers of the bank, especially those with mortgages, are the ones who really will suffer in the long-term. The bank will rebound, but those with foreclosed homes never got the chance for a bailout, and so, they lost everything, while the executives and leaders of the bank are not charged with any wrongdoing. Luckily, the American taxpayers did not suffer, either, because JP Morgan Chase financed the takeover and the continuing operations of the bank.

In conclusion, WaMu's failure came about due to a number of reasons. They invested far too heavily in the sub-prime mortgage business, they targeted lower-income homebuyers who could not afford the payments when they inflated, they borrowed too much money to keep them afloat, they suffered a bank run, which reduced their cash flow, and they let their customers down in their failure.WaMu did not totally collapse, they were reinforced by JP Morgan Chase, who took them over and the FDIC, who insured deposits up to $100,000. However, they created a huge deficit for shareholders, who lost everything, and they illustrate that even the mightiest financial institutions can topple if they do not anticipate the market, do not act on it quickly, and do not thoroughly secure their loans and investments.

References

Adler, Joe, and Hopkins, Cheyenne. "FDIC's 'Big One': Long Prelude Gave Way to a Sudden End." American Banker, 29 Sept. 2008, Vol. 173, Issue 188.

Cocheo, Steve. "Kerry Killinger Builds His Dream Bank." ABA Banking Journal 93.8 (2001): 22.

Editors. "Washington Mutual, Inc." New York Times. 27 Sept. 2008. Business, 1.

Ivy, Bob and Shen, Linda. "Washington Mutual Hobbled by Increasing Defaults on Option ARMs."….....