I hope someone has told Sheila.

"this is the end..."

End for some, new beginning for others; shorting WM turned to be out excellent investment. I wouldn’t want to see WM disappear, because it could spread panic far beyond any reasonable proportions.

What happens to those cd's if the bank goes under? Do they continue to maturity or end and get pro rated?

The FDIC only guarantees the principal.

You think the CDs are high, you should check out the yields on the WM commercial paper. Gracious.

Bank of America just finished their highly publicized 4.whatever CD drive. Obviously the product was a loss leader.

Unanticipated was the number of existing BoA customers who piled (out of higher fee products) into this special.

Apparently, the whole endeavor has been an unmitigated disaster as the lost revenue overwhelmed new deposits by a wide margin.

@ Sparks,

Well shiver me timbers. Go out and play in the street like a good lad.

Spark's why if 1% is worthwhile are you still here reading?

Go enjoy blogging somewhere else and enjoy life..

Probably going to be a real PIA anyway. Citi had a similar offer for a savings accout just rate ware not quite as high.

It was an online deal only and if as happened every two days you would lock your account they would not help you on the phone. You needed to know all of teh information that was only available onlne! Terrible customer service.

Wow its almost like they NEED the money of something...

They should really stop guaranteeing CD's. It enters the realm of moral hazard when a bank hooks people with CD rates so much over the market average.

Woohooo

Regulators are looking at these high yield CDs in the same light as brokered deposits.

Given that Wamu HAS to be front of mind for the regs....I'd say that they are giving them a pass for this. The end must be near.

Daniel

Pulled my money out last month. Sorry Wamu loved the free ATM's while they lasted.

FDIC insures the principal plus interest upto the day the bank was closed. I'd say 5% is a great deal since it is insured by the FDIC.

Why are all these people here? I wish I could figure it out so I could leave already. I have work to do!

"Tanya Stafel writes:
Why are all these people here? I wish I could figure it out so I could leave already. I have work to do!"

They're here because Atrios linked to this post. His minions are legion.

Russia back out of nato?

Russia backs independence for Georgian separatists, ready to sever NATO ties
RTTNews - Latest Earnings,Upcoming Earnings, Pos Pre Announcements, Pos Pre Announcements , Positive Surprises, Negative Surprises, Hot Stocks, Stock Split Calendar, Stock Buybacks, Dividends, Negative, Positive PreAnnouncements,Surprises ....

this could keep the market antsy...

let the financial olympics begin...Day one was bad for America's home team..What will day 2 bring?

"who is Atrios?"

Lefty blogger. Very popular.

Eschaton

Woo hooo!

Get out the oven mitts!

This hot money's going to burn your hands.

John Stark... yeah, yeah. (Clicking and getting on with my life... for a few hours.)

ZERO!

Chris writes:
The Chris writes:
The FDIC only guarantees the principal.

This is not correct.

The FDIC guarantees principal AND accrued interest up to the insured limits at the time of failure. What they can do is choose to not pay anymore interest on monies after they seize a bank.

Secondly, the FDIC cannot sit on monies indefintely. They are required by law to pay out claims "as soon as practicable".

Balance sheet restructuring in disguise.

Recall the commercial paper research note saying the market was drying up for WAMU paper?

They are replacing that with hot moneyed CDs...

Smart if you ask me.

Jim M-Man we missed you, you been hanging out with the lizard king! Some shamen..need some help cleaning up the lyrics?

Jim your music still marches on...

YouTube - The Doors - The end 

the end

This is the end
Beautiful friend
This is the end
My only friend, the end

Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
Ill never look into your eyes...again

How the hell did you end up here Jim on CR, hangin with some old friends?

see ya on the other side...

Let's see... borrow at 5%, lend out at 6.25%, less 2.5% in operating expenses... hmmm... that's negative 1.25%. I guess they're planning to make it up in volume? Bwahahahaha...

Just pathetic.

I think we are having a stealth run on the banks. People are wiseing up RE: $100,000 FDIC insurance.

Brokered deposits are definately being used for liquidity purposes.

Dave writes:
Let's see... borrow at 5%, lend out at 6.25%, less 2.5% in operating expenses... hmmm... that's negative 1.25%. I guess they're planning to make it up in volume? Bwahahahaha...

Just pathetic.
Dave | 08.25.08 - 5:09 pm | #

The irony also being that 5% does not even keep up w/ inflatio

414 Visitors Online

Can any of you people spell?

Why dont nobody talk about 10 year Treasury yields .... huh?

(repeating myself from an earlier thread.)

I just can't see the FDIC taking over a large bank for fear of generating runs on other weak banks.

If many banks are indeed on shaky ground, then any run anywhere, could cause a run elsewhere.

As a regulator, I would be exceedingly careful in the steps I take so as to not create panic.

And why shouldn't WAMU 'borrow' your money. A CDS for their debt was over 11% last report I heard and you had to pay for it up front. FDIC charges what? A nickel ( maybe a bit more for WAMU) per $100.

This is the insanity of the FDIC system as currently run. They sell discount CDS, I mean real discounts! A troubled bank can suck up deposits from a strong bank by offering high interest rates insured for peanuts by the FDIC. Why shouldn't they put the risk on the taxpayer. No one else is going to loan WAMU money.

This is going to take down our banking systems if the FDIC doesn't put a stop to weak banks scrounging for deposits at the expense of the strong.

BECU, a healthy institution: ~3%.

"This is going to take down our banking systems if the FDIC doesn't put a stop to weak banks scrounging for deposits at the expense of the strong."

If FDIC put a stop to this, then only a couple of banks would exist in the US. All other banks can't compete with the largest banks because people always put the money in the safest banks. Do you really want that to happen?

Anon writes:
FDIC insures the principal plus interest upto the day the bank was closed. I'd say 5% is a great deal since it is insured by the FDIC.
Anon | 08.25.08 - 4:42 pm | #

So who insures the FDIC? Taxpayer is on life support folks ask Arnie up in Sacto how that is working out.......
When this train wreck is done the cabal will close-down the FDIC to save on costs-might as well send "plastic" straight from Treasury like they did for Katrina victims via H.S. (i.e. my goose-step tic gets aggravated when I say Homeland Security).

Like the Chinese National Anthem, even makes the old POW's jump to attention!

"Can you people spell?
This is going to impact dividends and reinvested cash, and this will slow the economy very fast IMHO,"

I can not spell, however I can tell you that the above is Bullocks and dividents have little impact on economy.

i knew something was fishy when Treasury Direct started limiting I-series purchases at 5 large this year; thank goodness for my one-year old's linked account.

who was the dumbass trashin C.R., you think these folks are nuts try Mish's sight those people are using dilithium crystals to power their T.F.H.'s

The spread between mortgage
rates and Treasury yields, currently around 280 basis points, is 100 basis
points wider than it was one year ago and the widest since 1986. Why?
Investor skittishness about continued delinquencies and defaults has
resulted in higher risk premiums, with additional fees layered on by Fannie
Mae and Freddie Mac also increasing costs to borrowers.

"Market participants are having a difficult time pointing to a single reason for the drop in yields."

• Hello Earth,
  inflation expectations / market volitilety forces investors to be more risk averse.

simply mad! New Evidence on the Interest Rate Effects of Budget Deficits and Debt
http://www.federalreserve.gov/PUBS/FEDS/2003/200312/revision/200312pap.pdf

Corporate yield curve estimates, and hence long-horizon corporate forward rates corresponding to the Treasury series, are not available for a sufficiently long period. Based on regression analysis, I find no evidence that yield spreads between corporate bonds and Treasuries, adjusted for cyclical variation, are systematically related to projected deficit-to-GDP ratios. By contrast, Krishnamurthy and Vissing-Jorgensen (2007) argue that increases in Treasury debt held by the public lead to a decline in the yield spread of AAA corporate debt over Treasuries, which suggests a muted transmission to corporate yields.

Based on the evidence that a higher dividend yield predicts higher future excess returns on stocks (e.g. Campbell et al., 1997, Ch. 7), it may be interpreted as a sign of elevated risk aversion. Periods when investors demand higher than usual compensation for bearing risk may coincide with greater demand for safe Treasury securities, reducing their (current and expected) yields. The t statistics on the coefficients range from 1.1 to 1.3. Despite the fact that they are not significant at conventional levels, most of the subsequent regressions will include the dividend yield as regressor.

JMS people with more than a modest checking or savings account shop interest rate if they are buying CDs.

I bought a Wachovia CD last month because it was offering 1/2% more than SunTrust where I do most of my banking.

The problem is the FDIC lets me do this because they, in effect, offer me a FREE CDS or rather they make the bank borrowing my money pay it. As it is only a nickel or so per $100 a desperate bank will gladly pay this modest fee to get my money.

This 'upside down' CDS insurance is why troubled banks cost the FDIC so much. Banks do what they can to stay solvent especially if they can borrow money from the public and have the FDIC insure it.

Treasuries also benefit from a flight to quantity, safety be damned.

Where are you going to park all those trash treasuries we've been printing?
The biggest parking lot in town...

There is no fear of principal risk in T-paper but you lose money with inflation at 6% and yields under 4%.

Look at the yield on your money markets. Your purchasing power is being eaten alive.

It is all being very carefully orchestrated, thank you very much.

This is all very depressing. Everyone knows that money goes to where it is treated best.

Let's lighten up and talk about capital flight and exchange controls.

What Canton is YOUR money in?

How can the FDIC fund itself, given the shortfall?

Buy CDS's on the banks they cover!

They have good insider information they could use to their advantage!

Libor Signals Credit Seizing as Banks Balk at Lending (Update2)
Libor Signals Credit Seizing as Banks Balk at Lending (Update2) - Bloomberg.com

The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.

These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion.The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''

Rate Spreads

Banks are charging each other a premium of about 78 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average over the next three months to lend cash. The spread is up from about 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, prices in the forwards market show.

May as well see what rates you can get from the FDIC because that's who will pay you back when it matures.

madcow, why are you panicing? Hope you are not one of those, bet it all, day traders.
by 2010, the economy will be all right and kickin!

panicing? You have it wrong:

The first usage of the word is traced to the 1692 edition of Origines de la Langue Française de Ménage—which mentions 'pique-nique' as being of recent origin; it marks the first appearance of the word in print. The term was used to describe a group of people dining in a restaurant who brought their own wine. For long a picnic retained the connotation of a meal to which everyone contributed something. Whether picnic is actually based on the verb piquer which means 'pick' or 'peck' with the rhyming nique meaning "thing of little importance" is doubted; the Oxford English Dictionary says it is of unknown provenance.
The word picnic first appeared in English texts in 1748 (OED), and may have entered the English language from this French word or from the German Picknick,

Ross,

Anyone with T-Paper is a fool NOT to have it in CD's. Same guarantees.

a CD has pretty significant penaltiies for early withdrawal... the tbill is liquid...

does'nt seem very foolish

Re: Anyone with T-Paper is a fool NOT to have it in CD's. Same guarantees.

Maybe the reason 10 year treasuries are falling is because The Treasury is getting ready for bank failures and they are a little low on cash as well? Thus, WaMu can suggest 7%, as long as The Treasury and FDIC go along for this retarded offer!

INFLATION ADJUSTED TREASURIES, will probably do better, not that I expect inflation, just very dark October.

Hey DrChaos,

I think madcow is a little panicked since he's writting his masters thesis online.

October can be a cruel month. Specially if we get an early frost and the corn crop doesn't make.

Seriously, I do think we need to at least start talking about the potential for exchange controls. I see no way to avoid them. They may be down the road a piece but that eventuality will really curl my toes.

I hope you are right about 2010. But just for kicks, I'll see your 10 and raise you 5.

"I'll see your 10 and raise you 5."

5 as 5/12 ot 5*(12/12) ?, cause both my current job nor cash resources won't last that long. However since I don't have any debt you'll be the first in line to collect your "kicks".

"how do they pay customers high interest rates, while continuing to burn cash?"

It depends on the current reserve ratio; let's say you borrow $1 make c95 in new loans and hope those produce enough of cash flows to cover interest and possible withdrawals.
You also hope you other loans won’t deteriorate fast enough so your assets will cover the minimum that is required to continue operations.
- Something like that, I am more of asset allocation rather than banking guy.

The FDIC said Citizens Bank and Trust did not purchase about $268 million of brokered deposits at the failed bank. The failed bank had approximately $46 million in uninsured deposits held in approximately 610 accounts that potentially exceed the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers, regulators said.

The FDIC said that as of June 30 Columbian Bank had about $46 million in uninsured deposits held in about 610 accounts that potentially exceeded insurance limits.

The failed bank also had about $268 million in brokered deposits that are not part of Friday’s transaction. The FDIC said it would pay the brokers directly for the amount of their insured funds.

The FDIC has a list of problem banks that its examiners closely monitor. The regulator does not name institutions on the list, but at the end of the first quarter 90 were on it.

The failed institution’s records do not reflect the level of ownership represented in the tree. Thus, sub-tier notification must originate with the first-tier broker. The first order of business for Apple Brokerage is to notify the sub-tier brokers of the closing, to cease all trading activity on the account and restore the account relationships to those in effect on the closing date. In our example, Apple Brokerage would notify Banana Brokerage and the four investors of the closing and request specific documentation from them to prove ownership of their funds. Banana Brokerage would in turn notify Coconut Brokers, Inc., Kiwi Brokers and the investor. Coconut Brokers would have to notify the Newport Family Trust and Mango Financial who in turn would notify its customers – the nine investors. Kiwi Brokers would notify its investor and Fourth National Bank who would notify its customers – the four investors.

During the notification process, all parties with an ownership interest in a deposit should be informed of the documentation required by the FDIC to prove ownership of the deposit. All ownership information must be forwarded up through the tree and eventually provided to Apple Brokerage for submission to the FDIC. The FDIC will not accept documentation directly from a sub-tier broker because our records do not show them as owners of the funds. All information in this ownership tree must flow through Apple Brokerage to the FDIC.

FDIC: Deposit Broker's Processing Guide

Now wait just a frigg'n fuc-ing secnd here ya'll, the FDIC wanted to slow down or stop Hot money flows. I think, and then we get WaMu trying to gun rates, as it goes under.. huh and WTF??

FDIC Chairman Sheila Bair warned recently that new banks that rely on hot money from brokered accounts would be examined more carefully. The agency is also exploring ways to restrict banks from offering these accounts.

These accounts are not necessarily illegal or unwise, federal regulators said. They can help small rural or regional banks rapidly raise money to pay depositors who want to withdraw their money.
Banking Stocks Take a Lashing - washingtonpost.com

hot money:
Interest-sensitive deposits in domestic accounts, such as short-term bank CDs, that are subject to withdrawal at maturity if another bank offers a higher rate.

This WaMu rate is not logical and does not compute!!!

OT?

Beijing swells dollar reserves through stealth
Beijing swells dollar reserves through stealth - Telegraph

China has resorted to stealth intervention in the currency markets to amass US dollars, using indirect means to hold down the yuan and ease the pain for its struggling exporters as the global slowdown engulfs the economy.

A study by HSBC's currency team in Asia has concluded that China's central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate interventio

Lehman Brothers warns of a risk that a housing slump and the 55pc equity crash since October could combine with a global downturn to set off a "vicious cycle". House prices have already fallen 18pc in Guangzhou and 9pc in Beijing. Prices are now falling in cities that make up over half China's population.

And finally, back to the 10 year Treasury-thing and the correlation to WaMu:

Banks are charging each other a premium of 77 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average over the next three months to lend cash. The spread is up from about 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, prices in the forwards market show....

Increased turmoil in the money markets may again serve as a catalyst for a surprise year-end rally in Treasuries like the one in 2007...

WaMu is going down baby!

ades:
Did you get one of these?
Bank of America Visa Signature® with WorldPoints

I think (am not sure) that there is a corporate division here, like a wall, between the CC and the savings. So yeah, it looks like on paper you have maxed out your card (albeit with a 0% APR) and meanwhile the Bank's cash balance goes up....not sure how the minimum payment thingy kicks in though...couldn't tell from the description on the website...presumably there is one even if no interest is part of that....

just a guess, but seems plausible.

"how do they pay depositors high interest rates while continuing to burn cash?"

Wamu's preferred stock and convertable preferred stock is yielding 20%. Wamu can no longer issue commercial paper or subordinated bonds. The sole reason Wamu remains in business is that the FDIC allows them to fund with insured deposits. When are these idiots at the FDIC going to wake up and close this turkey, and others like it, down. Does the FDIC really believe if they ignore the problem it will go away. Its beyond belief.

Collateral damage
Page not found
During its first 73 years, San Diego Metropolitan Credit Union never lost money on a real estate loan.
That ended last year, when it wrote off $527,681 in bad real estate debt. The credit union also took a paper loss in 2007 as it bulked up reserves by more than $1 million. Reserves are funds set aside to cover possible loan losses.

In total, 19 banks of our 58 regional banks disclosed some measure of loans considered problematic, but not yet included within nonperforming assets. The median bank in our analysis reported a 19% increase in potential problem loans in second-quarter 2008 versus first-quarter 2008 (up 209% year-over-year), a modest deceleration from the 30% last-quarter (sequential) increase for this group of banks in first-quarter 2008.

Interestingly, this data differs from our early read of 30-89 day delinquency trends disclosed in regulatory filings, which is also used as an indicator of future problem loans.

Second-quarter 2008 30-89 day delinquencies pointed to only a modest uptick in early-stage problem assets for the industry as a whole and a healthy decline at a number of our banks, including many western regionals. For example, City National posted a 40% last-quarter increase in watch-list loans in the second quarter versus a 39% decline in 30-89 day delinquencies.

Potential Problem Loans Still on the Rise
Potential Problem Loans Still on the Rise - Barrons.com

Hmm. I am seeing a WaMu Banner ad at the top of this article...

Coincidence?

Ross,

Got all of MY shekels stashed in Canton, Ohio....

"Schwab last summer. If both banks go down, then we might have a cash flow problem. "

• by the way, most "BROKERS" have an extra insurance, mine is up to a 900K for cash deposits and 50mln for equity part.
  p.s. I doubt any of the brokerages will go down .

I actually went thru every post and concluded that any reasonable thinking mind would have to agree with sparky.

That being said I'm going to share something possibly semi useful and definitely semi funny:

Told my super conservative parents (78yrs of age, house of large value free and clear, fully retired on moderate to small income, no debt) that WAMU had about a 70% chance of failing within the next 12 months. Thye were suprised to say the least. Today, after reading about the 5% rate, I'm emotionally drawn to transfer $60K we've got sitting around with no use for getting 1% at Schwab to 5 times that at WAMU.

Goes to show the extent of empty suits, greed, market fools, and randomness.

Another glass of wine , please.

WaMu is going DOWN, just like McShame.

At the gates of oblivion they stand, offering nice rates to those who really don't need their money and who'd really like to see what happens when the FDIC takes over a bank.

Wamu is WHAMO!

What you didn't mention is that they are offering 48month CDs at 4%. How's that for admission of a short term funding issue?

wa mu is a cow right now... moooooove over.

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