Lack Of Lending To American Consumers Precipitated By Governmental Seizure Of Well-Capitalized Bank

Houston, TX (PressExposure) May 08, 2009 -- The New York Fed has released a report regarding liquidity hoarding which clearly implicates the cause of the current troubles Americans are having receiving loans with the arbitrary seizure of Washington Mutual Bank in September (Link below). As more information surfaces every day regarding the players involved in the financial crisis, it is clear that the decisions of regulators served only to worsen it.

As the American economy continues to flounder as a result of the inability for businesses to obtain loans to grow and create new jobs, it has become clear that one of the key factors for a successful recovery is to remedy the unwillingness of large banks such as Bank of America (BAC), Citigroup (C), JPMorgan (JPM), Goldman Sachs (GS), and Wells Fargo (WFC) to lend money to businesses and consumers.

As shown in the graph below from the report, it is clear that upon the seizure of Washington Mutual, interbank lending froze with an unprecedented increase in loan basis points. Simply stated, the banks started hoarding money which immediately transported the financial crisis from Wall Street to Main Street. Without the ability to move and lend money, the economy froze and began an immediate decline which is most clearly evidenced through American’s losses of their jobs and retirement savings.

Through the actions of Sheila Bair, chairman of the FDIC, banks and private investors learned that the federal government could seize an institution which, by the FDIC’s own admission, was well-capitalized through the day of seizure and sell it for pennies on the dollar, wiping out investors.

Every major bank at this point realized that they too could also be seized if they also had a temporary drop in liquidity and immediately stopped lending in an effort to preserve as much cash as possible. Foreign governments, such as China which lend money to the American government and banks, also were affronted by this unheard of action and began efforts to stop storing their capital in the United States thereby destroying one of the main funding mechanisms of American financial institutions.

Although individual stockholders lives were also ruined, their losses pale in comparison to the effect on the United States economy as a whole. It is clear that wrong decisions were made. Someone needs to be held accountable for these actions and a remedy needs to be provided for all of the wronged parties. If the FDIC is responsible for this collapse then it is reasonable to ask if these mistakes could have been avoided. The legislative branch of the US government is making preparations for increasing both the FDIC's funding and power. Before the keys to the kingdom are handed over it would be prudent to investigate what wrongs have been committed. Only once this is done will economic recovery be possible. New York Fed Report:

About the Organization: The chief aim of WamuTruth is to explain the implications of the unprecedented Washington Mutual seizure to the media and the general public. More information can be found at our website or


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Press Release Submitted On: May 07, 2009 at 4:44 pm
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