On the heels of news that Lehman Brothers is fighting for their survival, a Morningstar analyst commented that:
“[Washington Mutual] is the next most likely candidate to have major issues… They got into subprime lending, they got into ARMs. Their home equity book is quite large, and these losses are building and building and building… and they simply do not have the capital to absorb these easily.”
Wow, tell us what you really think. Apparently WaMu’s biggest mortgage bets are in areas with the weakest housing markets, making them especially vulnerable. Oh, and did I mention that WaMu recently entered into a “Memorandum of Understanding” with the Office of Thrift Supervision? No wonder they’ve been offering high-yield online CDs — they need capital.
The scariest part of this is that, according to Douglas McIntyre, editor of 24/7 Wall Street, a WaMu failure may be too big for the FDIC to handle alone, meaning that the U.S. Treasury Department would have to step in.