WAMUQ: * 8 Points of FACT
Fact1: FDIC has been conducting secrete negotiations with at least 6 private firms, including JPMChase, behind the back of WuMa?s management and board in the weeks leading to WM?s collapse. These 6 or more insider firms need to come to light and answer questions. Their transactions in the market must also come to light.
Fact2: According to FDIC?s public release, WM?s liquidity squeeze was not pre-existing. It happened from 9/15 to 9/24. More than $16B were withdrawn during this period while FDIC was conducting their secrete negotiations. Important to note, FDIC?s secrete negotiation started before this period.
Fact3: According to FDIC (Ms. Bair?s) own public disclosure, FDIC?s action was prompted by a leak to the media of FDIC?s secrete negotiation. The damage and responsibility of FDIC?s act needs to be investigated. The leak to the media makes FDIC?s act a proximate cause of the bank run. Even that FDIC is given broad authority, but when its own action caused the peril of a target, FDIC?s own accountability and liability have to be called into question.
Fact4: The bank run withdraw were mostly in the deposit above $100,000 which was not covered by FDIC, according to FDIC?s record. The deposits within $100,000 were mostly intact. It was a run about confidence, partly contributed by FDIC?s negotiation and its leak to the media. Even under such circumstance, FDIC still had other less damaging alternative mitigations than the abrupt seizure, and therefore FDIC should have considered those as emergency measures. For example, a temporary guarantee of FDIC to raise the ceiling of coverage to $250,000, like what is included in the new Senate bill, would have stopped run and cost the FDIC virtually nothing.
Fact5: JPMorganChase had been making phantom negotiation with WM during the same period while negotiating with FDIC.
Fact6: Similar case as precedent. A recent court ruling on the case of Wachovia (WB) shows that when FDIC forced a target into a grossly unfair sale, the court will not support such deal. Under the pressure of FDIC, Wachovia was threatened to sell itself to Citigroup at $2B, or faced the fate of being seized. WB signed sales agreement with Citi. Wells Fargo later offered $15.1B to WB. The courts ruled against Citi?s claim and allowed Wachovia to proceed with Wells. This sets a precedent: FDIC?s forced transaction will not be support in front of justice when it is grossly and obviously unfair.
Fact7: A case of First City Bancorp in 1993 and its settlement sets another precedent. In this case, FDIC seized and sold First City?s asset with $450 million surplus on the open market. First City sued for $3B in compensation and damages. The case settled in favor of First City. This shows that FDIC?s action of seizure and sale, even with government immunity, has to be reasonable, fair, and justified. The immunity gave FDIC the protection for discretionary error, but not for gross injustice, negligence, or abuse.
Fact8: If FDIC?s action is arguably unconstitutional or abuse of power, their immunity is stripped off. Here, FDIC?s secrete dealing with a small group of connected entities deprived WaMu the basic right of commerce to be valuated on the open market. Furthermore, FDIC knowingly dealt with JPM behind the back of WaMu knowing that WaMu was negotiating with JPM. Such act undermined WM?s fair chance of negotiation. It is arguable that issues may be raised in both unconstitutional and abuse of power.
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