Americans woke up Friday to more dramatic news about the financial bailout. As a big meeting between President Bush, the presidential candidates and congressional leaders ended Thursday without a consensus, news broke of the failure of the nation's largest savings and loan.
The government seized Washington Mutual, and much of the company is being sold for about $2 billion to JPMorgan Chase, which also bought Bear Stearns after its collapse in March. Like Bear Stearns, Lehman Brothers and IndyMac, Washington Mutual was caught in the implosion of the mortgage market, NPR's Jim Zarroli tells Linda Wertheimer. It's being called the biggest bank failure in U.S. history.
"Washington Mutual in particular did a lot of mortgage lending in California and Florida — which are both states that have had a lot of foreclosures. The Office of Thrift Supervision, which regulates the banks, said Washington Mutual had lost more than $6 billion in the last three quarters," he says.
After the recent ramp-up in the chaos in the financial markets, customers pulled out about $16 billion worth of deposits, which were 9 percent of Washington Mutual's deposits as of June 30.
"The government figured it had to step in, it had to act before things got much worse, so it came in, it shut Washington Mutual down and arranged to sell it," Zarroli says.
Trying to keep more people from taking their money out, regulators are saying it will be a seamless transition — and that the bank is reopening Friday as usual, just with new owners.
The move spares taxpayers another costly bailout, as the Federal Deposit Insurance Corp. would have had to come in with a big federal rescue for the depositors.
"It's an FDIC-insured bank, so the FDIC would have had to pay for accounts up to $100,000," Zarroli says. "The thing is, the FDIC that is supposed to pay customers is running low — there have just been a lot of bank failures this year — so the fact that JPMorgan Chase has stepped in means there's a company with deep pockets getting involved."