Wachovia Bank down the tubes. What’s next?
1. Some people are saying they’ll tweak the rescue plan and re-vote.
Others saying it’s toast and they’re back to Square One. If so:
Price controls, anyone?
(Requires no Treasury investment, just lots of regulation. Doesn’t solve all problems, but stops the utterly nonsensical mark-to-market accounting of instruments that (i) were not created to trade in the secondary markets and (ii) for which no market to speak of has existed since August 2007.)
2. Wachovia Bank went under this morning.
The first giant commercial bank. After the first giant S&L (Washington Mutual) and giant broker Lehman Brothers last week.
The Wachovia carcass is being bought by Citigroup (itself on the ropes) — at pennies on the dollar. As WaMu was last week by JPMorgan.
In each case, banks with over $300 billion deposits have been bought for less than $2 billion. Grand theft, of a sort.
(The bankrupted Lehman bits are also being bought at fire-sale prices, mostly by Barclays and Nomura.)
Thus: The crisis is concentrating financial services into the hands of a very few mega corporations: JPMorganChase. Bank of America. Wells Fargo. US Bancorp.  And maybe Citigroup, if it hangs on.
Credit cards, checking accounts, small business loans, mortgages, insurance … All are going to get harder to get and more expensive. For the duration.
3. The Wachovia CEO went on prime time last Tuesday and said everything was fine.
Q: What happened in the four trading days since?
A: A ton of mortgage bonds and similar on Wachovia’s books had to take horrendous write downs — because of the publication of the fire-sale prices at which the Washington Mutual assets were bought (stolen) by JPMorgan.
Is the insanity of it all at last plain? There has been no market worthy of the name for mortgage bonds since August 2007.
Yet the accounting regime requires that institutions holding such bonds mark them on the books at (non existent) market price.
Price controls would put an end to this aspect of the general madness.
But the Free Marketeers continue to insist on the pursuit of “price discovery,” razing cities and scorching fields as they chase Phantom Market.
ed says:
Ach! Now they’re talkikng about removing the FASB and related accounting rules entirely. Madness.
Price controls are a specific address to the same problem, but incomparably safer and fairer.
September 30th, 2008 at 4:24 pm