One way to earn higher interest...
Put your money in a soon to be failed bank. Just make sure you are FDIC insured and you'll be safe.
I'm kidding of course, but there is also a bit of truth in that.
Washington Mutual just offered a 1 year CD that is paying a full 1% higher than anyone else.
Why is that?
Are they just trying to be nice?
Are they "giving back to the community?"
Have they made enough money this year already?
Or are they strapped for cash (capital) and need to raise some serious dollars?
That's more likely the case.
Wamu has a very large lending exposure in both California and Florida. Both of these states have experienced some of the highest yearly declines in value. That's not a good thing.
Wamu also has a high percentage of Alt-A and Option ARM loans on their books. Experts agree, this is the next wave of borrowers to default.
A homeowner that stops paying their mortgage becomes a Non-Performing Asset.
Here's what concerns me the most.
Prior to their collapse, many banks (Indymac is a prime example) offered high yielding CD's in a last ditch effort to raise capital.
I just hope I'm wrong. We need more lenders not fewer.
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Good point- I am glad they never eliminated the 100,000 insurance on banks, hich they considered during the Carter days.
All the best and keep on blogging.
Bill
Mike, this from someone trying to "get it": an insured loan would require that the bank has an equal amount in escrow (or whatever it would be called). Inaccessible funds. Is this the case? If that's the case, are these funds intact? When they unload a non-performing asset, was the amount held (if that's the case (?) ) depleted, and then some, to get rid of it?
Not lending (or lending with real discretion) isn't due to any lesson learned, it's due to the fact that they don't HAVE $ to lend, connected to the above. (?)
Banks are inundated with unexpectedly huge extraneous costs in the way of loss mitigation manpower. To let houses simply foreclose may be more cost efficient. (?)
What is or isn't accurate about the above that I've been reading (and trying to connect the dots so that it can be explained in simple terms)?
I think that there are very valid concerns, and want to get a better grip. That could be a new pattern of cash-raising is something that bears watching.
If it's ALL wrong, your accounting would be really helpful (or, links to easy to comprehend facts).
Not a bad idea on that investment in Wamu. Hmm. But then, their plans just might work to get them out of their hole.
Didn't you have this up before...
And you are absolutely right. Of course, if the lenders could deal with their NPAs in less than 120 days to answer an offer, they might also be able to raise a little cash that way...
This reminds me of the high-end restaurants that advertise for 50% off meals in those large cupon books sold in fundraisers. It's just anecdotal, but I've noticed that many of those "really nice" restaurants that offer great bargains seem to go under at a high rate.
Same logic? I think so.