By now the Citi bailout is almost certainly in the bag, so that should keep everyone busy over the short pre-holiday week.  However, I’d like to get one thing out of the way before everyone starts agonizing over Black Friday and Ben’s mea culpa.

Yesterday one of the local Seattle papers had a speculative piece about WaMu’s recent collapse.[1]

Since the moment Washington Mutual became the nation’s largest bank failure, blindsided executives and devastated investors have spun conspiracy theories about what did it in.

The obvious answer is the implosion of a runaway mortgage market in which WaMu had been a dominant player. Bad loans caused its profits and stock price to crater, and regulators say an accelerating outflow of deposits led them to close the bank Sept. 25.

Yet Oliver Stone-style sleuths are digging for something darker, like regulatory missteps or the federal government sacrificing WaMu to pressure Congress to approve a multibillion-dollar bailout for the financial industry.

 As it happens, the smoking gun is readily available in this 4-year-old PowerPoint deck.[2]

It’s the same old Enron trick of enriching income by quietly goosing risk using off-balance-sheet accounting. This wrong-foots the company when the bubble bursts, just as Fannie’s QSPEs did them in after Lehman pointed out they would need extra capital.  The only real difference is that in this deck WaMu is calling their vehicle an EPF instead of a QSPE.  How many more institutions will be found to have done this once FASB completes Rule 140 reform and forces trillions of dollars to be consolidated back onto balance sheets?  My guess — just about everyone.

 

UPDATE:

Igor gets on some pretty weird mailing lists, but as far as he can tell this mailing was real.  Whatever else it is, it’s unquestionably a sign of the times.

 

We are currently running a special offer on Human sign holders. Human sign holders are an ideal way to increase traffic, creating a magnitude of exposure for your open houses.

 

Mrs. M thought this was a joke, but I think I was able to explain the evolution of sign-spinners from promoting new developments in the desert to this. Eric M. forwards the following, which documents the next phase …

[1]: "WaMu conspiracy theories abound, but there’s no smoking gun", by Melissa Allison, Seattle Times, November 23, 2008.

[2]:"Innovative Funding Strategies" (PPT deck), by Michele Perrin, Mortgage Banker Finance, WaMu, at MBA National Convention, October 26, 2004.