'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Monday, October 22, 2007

Washington Mutual is in the fight of its life 

James Cramer of thestreet.com sounds the alarm on savings and loan Washington Mutual, which increasingly appears to be the poster child for the catastrophic consequences of the credit crunch provoked by the subprime mortgage crisis. Watch his video interview not only for the incisive analysis of the dire condition of Washington Mutual, but also for the way in which he integrates it into larger anxieties about the financial lifeblood for the US economy.

It is an excellent short primer on what has happened, and, implicitly, what will transpire in the future. Rumor has it that Washington Mutual has been booking interest obligations from negative amortization mortgages as profit. Oh, you say that the problem is just adjustible rate mortgages for people in places like Florida and California? Perhaps, you should consider the following:

US banks have raised reserves for loan losses by at least $6bn over the second quarter and by even larger amounts from last year, indicating financial executives believe consumers will be increasingly unable to make payments on a variety of loans.

Banks are adding to reserves not just for defaults on mortgages, but also on home equity loans, car loans and credit cards.

What started out merely as a subprime problem has expanded more broadly in the mortgage space and problems are getting worse at a faster pace than many had expected,” said Michael Mayo, Deutsche Bank analyst.

On top of this, there is an uptick in auto loan problems, which may or may not be seasonal, and there is more body language from the banks that the state of the consumer was somewhat less strong [than thought].”

Gee, people who can't pay for their houses are having trouble paying for their cars, too? I never would have guessed. The credit crunch, like a virtual, spreadsheet Godzilla, has only begun to devour its victims.

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