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No end in sight to credit crisis - Views on News from Equitymaster
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  • Sep 26, 2008

    No end in sight to credit crisis

    The biggest bank failure in US history
    JPMorgan Chase has agreed to acquire Washington Mutual (WaMu), the Seattle-based bank, for US$ 1.9 bn after regulators seized the bank. WaMu was among the worst hit by the housing crisis. Moreover, it had witnessed customer withdrawals of nearly US$ 17 bn since Sept. 15 leaving it with insufficient liquidity. WaMu is the 13th bank to fail so far this year. It is also the biggest bank failure in US history.

    The irony is that WaMu had resisted an acquisition offer from JPMorgan in March that valued the bank at US$ 4 per share. Now that it has been seized, there will be little left for the bank's shareholders. JPMorgan will acquire WaMu's banking operations and its assets and financial contracts. WaMu and a subsidiary, Washington Mutual FSB, have total assets of US$ 307 bn, total deposits of US$ 188 bn and a presence in 2,300 locations across the US.

    While it is anybody's guess when these tragic events will end, we are reminded of what Warren Buffett once said, "There is seldom just one cockroach in the kitchen."

  • Also read - 'TBTF' at its best...yet again

    US bailout in trouble?
    A meeting was arranged in the White House yesterday between President Bush, congressional leaders and the presidential candidates for negotiations over the US$ 700 bn bailout package by the US government. However, it ended in chaos with lawmakers fighting over proposals and counter proposals.

    The finger pointing witnessed between the Republicans and the Democrats in the face of an acute economic crisis reminds us of the political negotiations that happen in India. The Indian Parliament had witnessed unruly scenes in the recent debate over the nuclear agreement with US. Ironically, the same agreement might now become a low priority for the US, which is witnessing unruly scenes over its worsening credit crisis.

    Inflation remains flat @ 12.14%
    The Wholesale Price Index (WPI) based inflation remained unchanged at 12.14% for the week ended September 13. While price of items like cereals, pulses, sugar and edible oils declined, those of salt, sea fish, tea, fruits, condiments and spices increased. It is expected that this will provide the RBI with elbow room to keep the interest rate unchanged. It may be noted that the central bank has hiked interest rates thrice since June this year and would now be cautious of another increase in the face of worries over a slowdown in the economy.

  • Also read - Inflation last week



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