Posted by Sada Mosler on September 26th, 2008
Just saw a regulator on TV saying WAMU went down due to ‘liquidity’ as they were running out of funds to give to fleeing depositors.
He also said it was not at capital problem, just a liquidity problem.
Taking him at his word (just for the purpose of making the following point), this totally flies in the face of our banking model and should not be allowed to happen.
It serves no public purpose to close a bank due to ‘liquidity’ when it has more than adequate capital.
It does serve public purpose to remove the issue of bank liquidity completely and let the Fed lend unsecured to ‘adequately capitalized banks’.
Anything less, like what the regulator says happened, is unnecessarily destabilizing and counter to public purpose.
If WAMU is in fact insolvent due to insufficient capital to cover losses on a matched maturity, hold to maturity basis, yes, it should be closed down. And that very well may have been the case, and the regulators may not have been doing their jobs in the public interest.