Bailout Deal Dies, Morgan Takes WaMu, Market Bets Now Off

For the day on Thursday, the Dow Jones Industrial Average was up 196.89 points on the hope that a Wall Street bailout was a done deal. But all bets are off Friday as the news sinks in that no deal has been reached and and Morgan has bought the Washington Mutual Bank, which the FDIC had seized. The day after President Bush went to the airwaves to ask the nation for $700 billion, he met with the John McCain and Barack Obama, plus other Republican and Democratic leaders of Congress. It isn’t clear yet what happened at that meeting, but “contentious shouting match” has been used to describe it. Key to the implosion of the deal, which included compensation caps for executives and other pro-taxpayer provisions, was GOP Senator Richard Shelby (pictured).The president had warned of a “long and painful recession”–that is, a depression–if Congress doesn’t act right now. Not everyone in Congress is so sure about that, and neither are the American people for that matter, and push continues for changes in the plan suggested by the administration, such as an equity stake for the government in companies that it bails out. Something like what Warren Buffet is getting. Some groups are even planning to take their dissatisfaction with the bailout to the streets: protests are planned for all over the country today, though their scope isn’t clear yet. Sales of new houses in the United States decreased last month 11.5 percent to the lowest annual rate since the recession of 1991, according to new figures by the US Commerce Department. Median prices were at a four-year low. Thursday didn’t end with a bailout agreement in Congress, but it did end with JP Morgan Chase acquiring Washington Mutual for $1.9 billion after the FDIC seized the bank–the largest seizure in U.S. history. The buy includes all the banking operations of WaMu, including $307 billion in assets. Yesterday, Washington Mutual took a hit with Standard & Poor’s downgrading the bank’s debt further into the realm of junk. According to the New York Times, that was one more indication that the troubled bank is going to be sold, and sold fast–and sure enough, it was. Other potential buyers included Citigroup, HSBC, Banco Santander, and Wells Fargo. It seems that there was a good old-fashioned run on a bank in Hong Kong yesterday when there was mass withdrawal from the Bank of East Asia, the fifth largest in the territory. Troubled mortgage debt apparently wasn’t a factor. The bank’s customers were reportedly spooked by unfounded rumors that the bank was in trouble, sparking a run that might have put the bank in trouble–a classic bank run scenario, fueled by the international impact (even if only psychological) of the Wall Street meltdown. In short order, Hong Kong billionaire Li Ka-Shing did a Warren Buffet and bought a chunk of the bank, and the Hong Kong Monetary Authority injected liquidity into the local banking system. Bank of East Asia stock rebounded somewhat, and the run looks like it’s over.