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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

July 14, 2009 at 9:50 AM

Meet your new (distant) banker, wonder about the lost WaMu opportunity

Top of the News: Jamie Dimon, chief executive of JPMorgan Chase, is due in Seattle on Wednesday. I wouldn’t expect much. Dimon is brilliant, tough, charismatic after his fashion and probably the best banker in America. But we’re not his headquarters city. We’re just another market.

Its another reminder of the deep hole left by the loss of Washington Mutual. Over the past two decades, most cities in America have lost major financial headquarters, with their unique density of jobs, capital and civic stewardship. Now Seattle is in the same boat, in a significant blow to the region’s economic diversity.

I am reminded of the debacle again watching the troubles at CIT Group. This is a major lender to small businesses, but it doesn’t pose the “systemic risk” — or have the high-level political connections — of, say, AIG. So it’s an open question whether the feds will step in to save CIT as they did the “too-big-to-fail bunch.”

Regulators decided to let Washington Mutual of far-off Seattle fail, and encourage Dimon to swoop in to acquire its healthy banking operations. This was a critical, though overlooked, policy decision during the worst of the financial crisis.

Another option would have been to save the “good” Washington Mutual as an independent institution, while walling off and (eventually) disposing of the toxic assets — much as has happened with too-big-to-fail players such as Bank of America. (Recall, too, that the banks later got accounting rules changed to value assets at what the bankers, not the market, said they were worth; WaMu would have been a beneficiary).

This option would have accomplished a public good beyond saving an important headquarters and thousands of good jobs in Seattle. It would have helped diversify a banking industry, one of whose biggest dangers is consolidation into a few behemoths that pose a systemic risk to the world financial system. It would have signaled a policy that sought to break up, rather than to further consolidate, this critical industry.

It didn’t happen. Indeed, regulators helped the biggest banks grow even larger through acquisitions. All this was backed by taxpayer money that might have been better deployed to reorder the industry into a safer, sounder sector of relatively smaller players dispersed nationally.

None of this is to excuse the terrible missteps and worse of WaMu executives and directors, and the regulators that enabled them. But the exclusive club of those saved by the feds and those allowed to fail was hardly based on management competence.

The Back Story: Harvard’s Jeff Frankel takes on the question about whether we’re seeing a permanent change to a “savings culture.” He makes the essential point that our rediscovery of savings was ill-timed — during the prosperous years, savings fell into negative territory. A lasting shift is unlikely, especially given the pro-housing bias of tax laws.

Today’s Econ Haiku:

Watchers of The Street

Find there’s gold in Goldman’s sacks

Any left for us?

Comments | More in Banking, Washington Mutual


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