Washington Mutual: Going down in flames

First let me disclose my long term dislike for Washington Mutual; therefore it difficult to describe this bank without some level of bias. I heartily cheered when this institution stopped doing business in North Carolina after the state banking regulators basically told them to take a hike.

Even the most ardent optimists would have difficulty in seeing a shiny side of the WaMu coin now. The recent stock price slide pretty much tells the story as WM now hits lows not seen for over 7 years. All the risk items that I have outlined in the past about this bank have come home to roost, and this appears to be only the leading edge of the story.

In the opinion of many people, Washington Mutual has had a long history of shady business practices, abusive interactions with customers, and financial statements that are less then transparent. Some of the particular items that WaMu has been accused of include:

• Improper handling of acquired loans in a manner that was abusive to customers with the sole intent of generating increased revenues for the firm.
• Pushing people into improper loans that had higher fees. Regularly breaking the federal truth in lending laws in a deliberate manner.
• Pushing for appraisal of homes above market value. WaMu is currently being investigated for this by N.Y. Attorney General Andew Cuomo.
• Improper reflection of the both the loan write-downs and derivative pricing on company books. Failure to disclose the actual financial state of the company and follow standards consistent with GAAP.
• Lack of proper understanding regarding the handling of credit risk and failure to disclose relevant business information to shareholders.

One of the classic articles about WaMu and their improper treatment of mortgage holders can be found at:
'I Can't Believe They Treat People Like This.'
Washington Mutual, the nation's no. 1 mortgage lender, calls itself a customer-friendly bank. Many customers beg to differ.
http://www.smartmoney.com/mag/index.cfm?story=nov02-wmutual

Further information critical of Washington Mutual can be found at:
http://www.wamufraud.com/

I would urge people to read all of this information before doing business with Washington Mutual.


Recent Washington Mutual Press Articles:
N.Y. Attorney General says WaMu demanded higher appraisals
http://biz.yahoo.com/bizj/071101/1545150.html?.v=1

Washington Mutual: Things Are Worse
http://www.forbes.com/2007/11/07/washington-mutual-closer-markets-equity-cx_cg_1107markets44.html?partner=yahootix

Washington Mutual Falls Hard, Again
http://www.forbes.com/2007/11/07/washington-mutual-credit-markets-equity-cx_cg_1107markets29.html?partner=yahootix

What is a QDIA? and why should I care?

QDIA stands for ‘qualified default investment alternative”. The recent determination of what investments qualify as QDIAs opens the door for automatic enrollment of many Americans into their corporate 401K plans. Nearly 20% of workers do not enroll in their corporate plans, many times missing out on company matching and the ability to accumulate funds for retirement.

Under the Pension Protection Act of 2006, employers can now automatically enroll their employees in the company’s 401(k) plan. However firms have been waiting on the ruling by the U.S. Department of Labor regarding what meets the requirement to be QDIAs before moving forward.

Employers can now direct the funds of automatically enrolled employees to balanced mutual funds, lifecycle / target-date funds, and managed accounts. Stable value funds and guaranteed insurance contracts (GICs) no longer meet the criteria to serve as QDIAs in 401K plans. Most financial planners view this change in a positive light; balanced and lifecycle funds are far more appropriate for 401K retirement plans then fixed rate investments focused on capital preservation.

Qualified Approval
http://finance.yahoo.com/focus-retirement/article/103820/Qualified-Approval?mod=retirement-401k

Banks: The Worse is Ahead

Speculation is buzzing about size of the upcoming write-downs at investment banks. At this point it is nearly impossible to continue to hide a pile of unmarketable derivatives whose value is at best 40 cents on the dollar. Many firms such as Goldman’s will have to come clean with their balance sheets and mark their level 3 items to market.

A slew of revelations indicate that the worse lies ahead for the investment banks. The write-downs for mortgage CDO losses is just at the leading edge; and the pile of troubled credit card and commercial paper derivatives have not even be looked at yet. Ignoring the issues is no longer an option; regulators, shareholders, and the press are demanding proper disclosure.

The credit crunch at these banks also has left many wondering if the structured financial wizards have any type of sound reasoning behind their creation of CDOs, or if the entire market is entirely based on greed. The quick tumble of these derivatives demonstrates a total lack of adequate risk control. Unfortunately the pain is not simply endured by the fixed income departments of investment banks, but will impact the entire New York economy due to reduced bonuses and impending financial sector job losses.

The most startling point in the recent press was the sacking of all the risk management executives in these firms who objected to the derivative practices. At Merrill, O'Neal sacked a senior fixed-income executive who had rung alarm bells last year. There are multiple examples of firms where CEOs sent risk management executives packing nearly a full year before the credit meltdown simply for doing their jobs of raising the alarm. This is likely to become relevant fodder of upcoming shareholder suits.

Certainly the bonuses on the street are not going to look good this year. Predictions early in 2007 stated that they would be 20% over the record levels of 2006. Now that reality has set in, the most optimistic projections call for a 10% drop in 2007 bonus payouts across the industry. Many are likely to be simply rewarded with a pink slip for the holiday season.

Loss leaders
Nov 1st 2007
From The Economist print edition
The costs of the credit crunch mount. There may be more pain to come
http://www.economist.com/finance/displaystory.cfm?story_id=10064677

“Mr O'Neal fell in a falling market, but perhaps nearer the top than the bottom.”

Banks are braced for months of pressure
http://www.ft.com/cms/s/0/4cd5c262-8bd6-11dc-af4d-0000779fd2ac.html?nclick_check=1

Big Mack Attack
Morgan may be next CDO Write-Down victim
http://www.nypost.com/seven/11072007/business/big_mack_attack_23276.htm

Teflon Traders
Street eyes Goldman’s lack of subprime woes
http://www.nypost.com/seven/11062007/business/teflon_traders_248972.htm

Wall Street's bonus anxiety
With Citigroup warning of $11 billion more in losses, the bonus outlook for many on Wall Street is getting dimmer as the year comes to a close.
http://money.cnn.com/2007/11/05/news/companies/bonuses/index.htm

HingeFire Stock Screener - November Newsletter

Just some tibets of information from the HingeFire Stock Screener November Newsletter. The stock screening tool can be found at http://www.hingefire.com A series of articles about how to screen for winning stocks will be posted over the upcoming weeks in the blog.

Release 1.2 is now Available
See the release notes at http://www.hingefire.com/release-note.html

Win an iPod
One of the benefits of being a HingeFire user is that you get to drive the future development directions for the product. Please take the survey found at: http://www.hingefire.com/user-survey.html

The survey only takes about 20 minutes and all users who take the survey are added to a drawing for an iPod! We look forward to your feedback!

Registration Issues
A number of users have experienced issues during the registration process. Our development team is working to sort out some of the problems, and I would like to thank the HingeFire user community for their patience. Here are a few points that might help out in some situations:

1) If you lose your password, users can go to the following link to have a new temporary password emailed to them: http://www.hingefire.com/recoverpassword.aspx We are shortly going to update this link so all you will need to provide is your email address and both your user name & temporary password will be emailed to you.

2) Look in your spam filter for the temporary password email; sometimes these emails get blocked.

3) The temporary numeric password in the email has a period at the end of the line; do not cut & paste the period when entering your temporary password in the change password screen. Only the numeric characters are needed.

4) The site is still experiencing some incompatibilities with non Internet Explorer browsers. If you are using Opera, Mozilla, Netscape, Firefox, or another non-Microsoft browser; then please consider using IE6 or IE7 to complete the registration process (until we can sort out all the incompatibility issues with .ASP at our site).

Monthly Tech Tips
Windows Vista - Run as Administrator
In order to run HingeFire in the Windows Vista operating system; you have to set the program to "Run as Adminstrator". You can easily do this by selecting the HingeFire icon on your desktop, right clicking it, and then select "Run as Administrator" from the menu.

Sorting your Results
Did you know that you can quickly sort your results in the lower HingeFire executon panel. Simply click at the top of the column to sort the results in sequence, and a second time for reverse sequence. For example, clicking on the word "Symbol" at the top of the first column will sort the symbols below in alphabetical order. Clicking a second time will sort the symbols in reverse alphabetical order. The same can be done at the top of any other column; name, open, high, low, close, etc. to sort the stocks appropriately in either alphabetical or numeric order.

HingeFire Group at Yahoo
Join in the discussion about HingeFire at Yahoo Groups: http://finance.groups.yahoo.com/group/hingefire/ This group has been created so HingeFire users can discuss the screening tool.

Some Commonsense Advice about Debt

The first words about debt --- “Avoid it”. If possible the only debt you should incur is mortgage or business related debt. There two types of debt are for types of assets which are appreciating (hopefully) and have tax advantages. All other types of debt used by consumers are for items that depreciate the moment you purchase them; boats, cars, and all that stuff from the mall.

If you do have an array of credit card and other debt, the most important consideration is creating a plan to get out of debt… and sticking with the plan. It is possible to both get out of debt and save at the same time. The following article explores some of the key savings and debt payment details that must be contemplated.

How to Dig Yourself Out of Debt and Save at the Same Time
http://finance.yahoo.com/how-to-guide/banking-budgeting/12830

Name the company with the largest Market Cap?

Thinking Exxon (XOM) at $488B? Try again. PetroChina tripled on its first day of trading in Shanghai becoming the world’s first company to be valued at $1 Trillion.

PetroChina's Value Tops $1 Trillion, Surpassing Exxon
http://www.bloomberg.com/apps/news?pid=20601087&sid=afq.WPd_zCO4&refer=home