FDIC accused of seizing Washington Mutual to enhance JP Morgan

Washing Mutual former executive Kerry Killinger has accuses the FDIC of seizing the company to enhance JP Morgan, and not because the savings and loan was insolvent.

Killinger appearing before a congressional committee investigating the financial crisis (the Senate Permanent Subcommittee on Investigations) charged regulators unfairly seized the thrift in September 2008.

Killinger stated that, while the company had suffered from rising loan losses, Wamu was working its way through the financial crisis, even as Morgan and many other banks were doing.

On September 25, 2008, JPMorgan Chase & Co bought WaMu's banking operations from regulators for $1.9 billion. Everyone has prompted that the sale was grossly undervalued in Morgan’s favor, even as Washington Mutual was solvent.

If this is true, JP Morgan Chase got the "steal" of a lifetime while WaMu shareholders and bondholders were wiped out.

Reports that have surfaced after the seizure and sale provoke an image of FDIC collusion in the seizure of WaMu.. The largest S and L has since been proven to have been solvent at the time of its seizure, and had plenty of cash on hand, even more than the FDIC requires.

An interesting side note:

Just six business days after the seizure of WaMu, the government initiated a $700 billion Troubled Asset Relief Program, (TARP) and an increase in bank deposit insurance limits to $250,000 from $100,000, a move that helped stop panic withdrawals at all banks.

The government also refused, despite pleas from WaMu executives, to put WaMu on a list of banks in which short-selling of stock was prohibited. That decision contributed to a downward spiral of the stock price, which mirrored dwindling confidence in the bank. Other banks were placed on the list, why not the largest?

It appears that the seizure and sale of WaMu to Morgan, was a gift or payoff or? We just don’t know what for, yet! Stay tuned for the next episode!