Washington Mutual fails

Washington Mutual failed yesterday as the financial industry continues to transform. WaMu is the largest bank in the history of the U.S. to fail. The FDIC seized it Thursday night. This company scaved off failure through the great depression but could not handle the 2008 financial crisis. The interesting part is that WaMu was presented earlier in the last few weeks about being bought out by JPMorgan. JP was offering about $4 per share, which was a great deal, but WaMu turned it down. Well then WaMu of course went belly up as there was $17 billion in deposits were taken out in 15 days, making the company insolvent and doomed to failure.

So why did they turn down the offer by JP? They were not being rational. Analyst predicted its failure but those running the company did not want to sell the company sell for what were virtually pennies. They thought they should get a better deal, they were wrong. Now the company is dead and the FDIC offloaded the assets of the company to, guess who, JP Morgan. Luckily none of the customers of the once proud company will lose any money, the stockholders are not so lucky.

Trickle down doesn't work, but trickle up may...

Trickle up economics has been proven right, again. The troubled banking system has proven that as middle-income to low-income people foreclose on their homes, lose their jobs, or have depressed wage growth, it flows to the top.

The mortgage foreclosures have been brought on by a host of events; deregulation in the market, short-selling, predatory lending, investment banking, et al, have helped bring us to where we are today. As low-to-middle income individuals started accumulating toxic debt they either assumed their incomes would growth -- which for the past 6-7 years they have not -- or they did not understand the terms of their indebtedness. Add to that increased fuel costs and you have a receipt for disaster for low-to-middle income people.

Next it’s Wall Street

Good new may not trickle down, but the bad news sure does trickle up. Wall Street now feels what others have been feeling. The huge profits that were being seen by these companies were unstable. As people stopped paying their bills and foreclosed on their homes, businesses saw less free cash flow as their revenue stream was derived from people making payments on their mortgages or paying off their debt. Investment banks that offered these loans, or who had purchased them, now do not have the liquidated capital to pay their fixed costs and general business expenses. When companies do not have cash they do a fire sale or they go bankrupt, either way people get laid off and the economy slows down.

So while wealth doesn’t trickle down to the bottom, poverty sure does seem to trickle up to the top.