Sunday, July 27, 2008

WaMu given's lowest score under the "Safe & Sound" scale:

I still cannot figure out why any depositor over the FDIC insured limits would keep deposits at WaMu. You are making a loan (albeit fairly senior) to what is effectively a junk credit (BBB-) and getting paid basically 0% interest for it. The going rate for credit default swaps (CDS) on WaMu's debt was 19 points up-front - which is enormous - then a few points running. So, as a depositor, you get 0% but Wall Street is telling you that it is a toxic credit. Wall Street may be wrong, but I don't see how you are getting paid enough to take the risk as a depositor.

There is nothing that WaMu provides that differentiates them enough to put at risk any money as a large depositor. I still suspect a slow motion run-on-the-bank is underway (see post from two weeks ago). Would be an epic failute. From a societal perspective, I hope it doesn't happen but it sure would add some spice to an already tangy economic environment.'s Safe & (un)Sound rating on WaMu

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