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US Bailout in Chaos, Feds Seize WaMu

US Bailout in Chaos, Feds Seize WaMu

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Published by: bowssen on May 22, 2010
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U.S. bailout in chaos, feds seize WaMu
Thu Sep 25, 2008 9:52pm EDT
By Tom Ferraro and Richard CowanWASHINGTON (Reuters) - A rescue for the U.S. financial system unraveled on Thursday amidaccusations Republican presidential candidate John McCain scuppered the deal, and Washington Mutualwas closed by U.S. authorities and its assets sold in America's biggest ever bank failure.As negotiations over an unprecedented $700 billion bailout to restore credit markets degenerated intochaos, the largest U.S. savings and loan bank was taken over by authorities and its deposits auctionedoff. U.S. stock futures fell by more than 1 percent.The third-largest U.S. bank JPMorgan Chase & Co said it bought the deposits of Washington Mutual Inc,which has seen its stock price virtually wiped out because of massive amounts of bad mortgages. Thegovernment said there would be no impact on WaMu's depositors and customers. JPMorgan said it wouldbe business as usual on Friday morning.Had a bailout deal been reached in Congress, it may have helped the savings and loan, founded inSeattle in 1889. Efforts to find a suitor to buy WaMu faltered in recent days over concerns about whether the government would reach a deal to buy its toxic mortgages.Earlier on Thursday, U.S. lawmakers had appeared close to a final agreement on the bailout, lifting worldstock markets and sending the dollar higher. But things spun off course during an emergency WhiteHouse meeting between Congressional leaders with U.S. President George W. Bush.In advance of that meeting, which included the two men battling to succeed him, Democrat BarackObama and McCain, a compromise bipartisan deal seemed imminent.After the session, Congressional leaders said an agreement could take until the weekend or longer.Republican U.S. Sen. Richard Shelby bluntly told reporters, "I don't believe we have an agreement." Helater said the deal was in "limbo."A group of conservative Republican lawmakers proposed an alternative mortgage insurance plan,eschewing the Bush administration's Wall Street bailout just weeks before the November 4 election asmany lawmakers try to hold on to their seats.Democrats said McCain had scuppered the anticipated agreement by throwing his support behind thatscheme."Sen. McCain has sided with the House Republicans who want to start with a completely differentapproach and reject what President Bush put forward," said Rep. Henry Waxman, chairman of the HouseCommittee on Oversight and Government Reform."It's hard to imagine where we go from here," he said.The
conservative group's plan calls for the U.S. government to offer insurance coverage for theroughly half of all mortgage-backed securities that it does not already insure
The architects of the original plan, U.S. Treasury Secretary Henry Paulson and U.S. Federal ReserveChairman Ben Bernanke, rushed to Capitol Hill for late night meetings to urge House Republicans to getback on track."It is critical that this legislation get done quickly," White House spokesman Tony Fratto said. "We haveserious concerns about the state of our credit markets."U.S. Senate Banking Committee Chairman Christopher Dodd said a deal could take beyond Friday toreach and took a firm swipe at McCain, who returned from his presidential campaign to try to broker adeal."What this looked like to me was
a rescue plan for John McCain for two hours
," Dodd told CNN. "Tobe distracted for two to three hours for political theater doesn't help."INJECTION OF POLITICSAlso speaking to CNN, Obama said of McCain's involvement, "The concern that I have ... is that whenyou start injecting presidential politics into delicate negotiations then you can actually create moreproblems rather than less."Earlier, news that a deal was near stabilized beleaguered money markets, frozen by a reluctance bybanks to lend. The rate on one-month U.S. Treasury bills shot higher as traders unwound safe-haventrades.Still, officials from France to China voiced alarm."A crisis of confidence without precedent is shaking the global economy," French President NicolasSarkozy said in a speech in Toulon, France.As Thursday's meeting began, Bush warned, "We're in a serious economic crisis in the country if we don'tpass a piece of legislation."U.S. Rep. Barney Frank, the powerful Democratic chairman of the House Financial Services Committee,said before the Bush meeting that the deal would give the money to the U.S. Treasury in installmentsrather than a $700 billion lump sum the Bush administration wanted.The enormity of the deal, which would cost every man, woman and child in the United States about$2,300, led many lawmakers to ask Paulson during two days of rancorous hearings this week to take thecash in installments.
The bailout exceeds total lending by the International Monetary Fund since its inception after World War II. The IMF has loaned $506.7 billion since 1947
to countries in crisis as far flung asArgentina, Britain, Turkey and South Korea.Frank also said
the deal would allow the government to take part-ownership of banks and bancompanies that sell toxic assets to the government from paying massive "golden parachutes" toexecutives
being fired.Reflecting that the current crisis appears to be the most serious since the Great Depression of the 1930s,fresh Federal Reserve data showed
U.S. banks and money managers have borrowed a record $188billion daily in recent days from the Fed -- a daily amount roughly equal to Argentina's annualeconomic output.

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