Did the Feds Just Gift JPM another $50 billion in Taxpayer Bailout Dollars!
According to the Purchase and Assumption Agreement dated 25 Sept 2008, the Federal Deposit Insurance Corporation had until this past Monday to adjust to fair value, the selling price of the assets of Washington Mutual Bank. During the financial chaos of September 2008, the FDIC, in coordination with the Office of Thrift Supervision and the Federal Treasury, deemed the 100 year old bank "unfit to conduct business", and sold the assets and deposits for a hastily arranged deal with JPMorgan Chase for a questionable $1.88b. Left behind scratching their heads were a carnage of employees, shareholders, bondholders, and retirement accounts desperate for answers, considering the value of assets sold (by conservative estimates) exceeded $50b in fair value.
In its role as "receiver", the U.S. Congress has entrusted the FDIC with virtually complete responsibility for resolving failed federally insured depository institutions. In exercising this significant authority, governing policies and regulations require the FDIC "by statute to maximize the return on the assets of the failed bank or thrift and to minimize any loss to the insurance funds." Further guidelines direct "adjustments to the closing books may be made between the date of the closing (25 Sept 08) of the institution and the "settlement date." The settlement date may be from 180 days to 360 days after the bank or thrift closing, depending on the failed institution's size. Adjustments reflect (1) the exercise of options by the acquirer, (2) either any repurchase of assets by the receiver or any "put back" of assets to the receiver by the assuming institution, and (3) the valuation of assets sold to the acquirer at market prices." (FDIC Resolution Handbook)
Ongoing court litigation and counter lawsuits estimate the value of assets received from the sale exceed $52 billion dollars, adding over $1 billion monthly profit to JP Morgan Chase bank. While JPM has publicly stated that the assets received were of greater value than the purchase price, the FDIC has yet to properly value the assets sold, or for that matter, even unable to determine what exactly was sold to JPM during the frantic evening of 25 Sept 2008. In the span of less than 24 hours, the Office of Thrift Supervision closed Washington Mutual, named the FDIC as receiver for the 100 year old institution, and then sold assets of $307 billion and total deposits of $188 billion to JPM for the conspicuously lowball price tag of $1.88 billion.
Have the taxpayers been fleeced overnight once again, or does FDIC Chairman Sheila Bair have a logical explanation?
Dom says ...
On Wednesday, Sep 23 at 1:24 PM
Very good thoughts.