Still no clue how this ends, but let’s be very clear about this: Ken Thompson and gang were utterly indifferent to the extent of the problem they bought with Golden West. The deal continues to haunt the bank. In fact, I am coming around to view that maybe that deal wasn’t the problem, but was intended to mask an existing issue.
Talks over the fate of Wachovia have snagged yet again over the dreck the bank is carrying. The WSJ reports that, “After burrowing deeper into Wachovia’s books, Citigroup and Wells Fargo have been surprised by the concentration of assets they regard as low-quality.”
This would be the second time Wells has been shocked, remembering that Bob Steel thought that he had a deal with Wells before the Citi/FDIC deal, only to see it scuttled when Wells got picky with WB loans. And Citi only would take on Wachovia with substantial FDIC backing. Now it looks like both banks want to cherry-pick assets. This could take awhile.
Meanwhile, a few more dots are connected via WB’s problem loans. For one, now everyone should understand why Wachovia execs have not reached out to state and federal pols to try and steer this process despite the heavy federal hand at work. They just want this over as quick as possible, with least amount of poking around in the last 36 months of their dealings as possible. They are taking their cue from Thompson, who is holed up in Eastover waiting for the all-clear. Rank-and-file Wachovia employees fighting for “their” Wachovia need to understand this.
And two, and by far the most important, the bad loans should, should torpedo any notion that federal ownership of banks can fix this, that any amount of federal cash can fix this. Governments do not create value, markets do. If the market says a loan is worthless, but the government buys it for $250K — it is still worthless. It boggles the mind that anyone thinks differently.
Oh, and that big “coordinated” interest rate cut? Not exactly working either. And go ahead and throw another $35 billion at AIG, what the hell. It is a mad house.
Update: Annnddddd Citi drops out. Fantabulous.
