Washington however the state faced fifteen months’ worth

Washington Manual, also known as WaMu, was a conservative savings and loan bank which became bankrupt by the end of 2008. In addition, it is currently the largest bank failure in the United States history.

(Grind, 2012) Therefore, WaMu failed firstly because of the plenty of businesses it carried out in California where the housing market was the worst out of all the other states in the country. The home values across the whole country in 2006 started plummeting after rising to the highest yearly growth percentage of 20% in 2004. Thus, the national average home value was down 9.8% by December 2007. California typically had six months of inventory however the state faced fifteen months’ worth of unsold inventory at that point of time.

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On top of that, the loans WaMu were forced to contend with exceeded 100% of the home’s value. Even though the company wrote 20% of its mortgages at greater than 80% loan-to-value ratio, it was off the subject and no longer significant when the housing prices dropped. (Amadeo, 2017) Aside from that, WaMu had expanded its branches too hastily, causing poor location choices for the different markets. This led to the creation of numerous subprime mortgages to ineligible and incompetent buyers. (Amadeo, 2017) The collapse of the secondary market for mortgage-backed securities in August 2007 also contributed to WaMu’s bankruptcy. Since WaMu could not resell those mortgages, the bank had troubles raising cash.

Consequently, this led them to have a net loss of $67 billion for that year as compared to a dwarf profit of only $3.6 billion in 2006. (Amadeo, 2017) WaMu was also not big enough to be “too big to fail”. This resulted the U.S Treasury and Federal Reserve to not bail it out the way they did for companies like Bear Stearns and American International Group. (Amadeo, 2017) https://www.


housingpredictor.com/2015-california-housing-market/https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2935695/Impact:Lehman’s bankruptcy, filed on September 15, had caused WaMu’s depositors to panic thus causing them to pull out all of their cash.

Therefore, this led a total amount of $16.7 billion to be withdrawn out of the savings and checking accounts. (Comlay & Stempel, 2008) Due to the 9% loss of WaMu’s deposits, WaMu could not operate its day-to-day businesses normally as they did not have sufficient funds.

(Amadeo, 2017) As a result, the Federal Deposit Insurance Corporation sold the bank to JPMorganChase for $1.9 million soon after taking over it. (Comlay & Stempel, 2008) The bank’s 56,000 shareholders were wiped out and the bondholders lost all their investments in WaMu which amounted to a total of $30 billion from this move. (Barr, 2009)


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