The Failure of Washington Mutual
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The paper describes the Washington Mutual failure, the largest bank failure in history, that led to financial giant JP Morgan Chase to take over the bank. The paper examines the reasons behind the bank's collapse and explains that Washington Mutual invested far too heavily in the sub prime mortgage business, it targeted lower-income homebuyers who could not afford the payments when they inflated, it borrowed too much money and eventually suffered a bank run which reduced its cash flow. The paper points out that although WaMu did not totally collapse, it created a huge deficit for shareholders who lost everything,
From the Paper:"It seemed that WaMu was at the top of the banking game and could never topple. That is what make WaMu's fall so shocking to most Americans. It seemed to happen so quickly, and that one so large could fail so fast was doubly frightening. WaMu made some major mistakes that led the bank to fail, and sub prime mortgage leading was a huge part in Washington Mutual's downward spiral. Sub prime mortgage lending began in 2004 as house prices soared throughout the country. The economy was strong, people were buying and selling homes at a rapid rate, and prices continued to climb out of reach of many Americans. The sub prime mortgage game became a way for Americans to afford the home of their dreams with payments that seemed within reach - at least for a while. These low-interest rate mortgages used very low introductory interest rates to lure buyers in, and then, in a specific number of years, these variable-rate loans would mature, and so would the payments, leaving scores of buyers unable to pay their increased mortgages by 2007 and beyond. Unfortunately, a major part of WaMu's investment portfolio included these sub prime, adjustable-rate mortgages."
Sample of Sources Used:
- Adler, Joe, and Hopkins, Cheyenne. "FDIC's 'Big One': Long Prelude Gave Way to a Sudden End." American Banker, 29 Sept. 2008, Vol. 173, Issue 188.
- Cocheo, Steve. "Kerry Killinger Builds His Dream Bank." ABA Banking Journal 93.8 (2001): 22.
- Editors. "Washington Mutual, Inc." New York Times. 27 Sept. 2008. Business, 1.
- Ivy, Bob and Shen, Linda. "Washington Mutual Hobbled By Increasing Defaults on Option ARMs." Bloomberg.com. 15 Sept. 2008. 11 Dec. 2008. <http://www.bloomberg.com/apps/news?pid=20601087&sid=aNSwdt57nTBI&refer=home>
- Schmitt, Bernd H. Customer Experience Management: A Revolutionary Approach to Connecting with Your Customers. Hoboken, NJ: John Wiley & Sons, 2003.
Cite this Term Paper:
The Failure of Washington Mutual (2010, October 26) Retrieved August 17, 2019, from https://www.academon.com/term-paper/the-failure-of-washington-mutual-145112/
"The Failure of Washington Mutual" 26 October 2010. Web. 17 August. 2019. <https://www.academon.com/term-paper/the-failure-of-washington-mutual-145112/>