History before our eyes: largest U.S. bank failure ever

money burning

Looks like the earlier “bailout” of Washington Mutual was actually a nice way of saying biggest bank failure in U.S. history. Once again, JPMorgan Chase scoops up the assets of the losing bank, just as it did when Bear Stearns collapsed in March.

It’s like watching a real-life game of Monopoly.

WaMu didn’t exactly go willingly. It was closed by the Office of Thrift Supervision and put into receivership after a two-week run on the bank drained $16.7 billion from its balance sheet since September 16. Washing Mutual is now under the control of the FDIC.

The collapse of Washington Mutual surpasses the previous record for a bank failure, Continental Illinois National Bank & Trust, by a factor of 4 (roughly calculated, adjusting for inflation).

And speaking of collapse, the compromise on a Wall Street bailout fell apart tonight in D.C. Tomorrow will be an interesting day.

Today was the first time I’ve heard co-workers at the office talking about the sickly economy since it became obvious that the house of cards was tumbling — which to me has been more than two years. (Not that I’m an economic genius in any sense; we put our house on the market in the summer of ’06 and found out pretty quick the hard way that real estate prices had peaked and were heading down.) The failure of WaMu is likely to push this crisis more deeply into the mass consciousness. Have we reached a point where we’ll see runs on banks with relatively healthy balance sheets?

Here’s another question: The failure of IndyMac, a $30 billion bank, has taken a bite of the FDIC’s resources. WaMu was a $300+ billion bank. Will the Treasury and the Federal Reserve be able to cover the estimated $150 billion needed to protect Americans’ savings when the FDIC runs out of money next year?

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