{"id":4362,"date":"2008-09-12T08:37:25","date_gmt":"2008-09-12T15:37:25","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=4362"},"modified":"2008-09-12T08:43:32","modified_gmt":"2008-09-12T15:43:32","slug":"washington-mutual-the-spiral-of-death","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4362\/washington-mutual-the-spiral-of-death\/","title":{"rendered":"Washington Mutual: The Spiral of Death"},"content":{"rendered":"

Many people will be surprised to know that “The Spiral of Death or Death Spiral” is actually a financial term and not just reserved for the latest sci-fi film.\u00a0 Ok, maybe its not approved by FASB, but most people in the industry have heard the term once or twice.\u00a0 For those people who may not be familiar, “The Spiral of Death” refers to an event or series of events that triggers and inescapable decline in market value, usually leading to a change in ownership or bankruptcy.\u00a0 The term is most often used in conjunction with Start Ups that issue convertible debt that can be converted to common stock at a deep discount.\u00a0 As the stock price falls, the convertible debt can be converted to a great percent of ownership, until some tipping point where the debt holders own the company.<\/p>\n

But as the title betrays, Washington Mutual is the focus here and they may be facing their own kind of “Death Spiral.”\u00a0 With the recent downgrade of WAMU to Junk Bond status (Ba2), their cost of borrowing increases substantially.\u00a0 This becomes very problematic for a bank because they make money by lending at high rates and borrowing at low rates.\u00a0 As their cost of borrowing increases, the amount they must charge customers for loans must increase and the amount they pay for the use of customers funds must decrease.\u00a0 In\u00a0plain English,\u00a0their lending rates have to increase and their saving\/CD rates have to decrease.<\/p>\n

Unfortunately for Washington Mutual, many of their competitors remain in the A+ credit range, putting them at a significant disadvantage.\u00a0 It does not take an rocket scientist to figure out if your competitors can do exactly what you can do for a much lower cost, you should probably find another line of work.\u00a0 Many investors find this obvious, making it even harder for WAMU to raise much needed capital.<\/p>\n

The only savior for WAMU is the Federal Government’s open lending policy.\u00a0 But with the government up to their eyeballs in debt (Fannie, Freddie, Bear, Lehman???), one has to wonder how long WAMU can survive?\u00a0 In this not so humble writer’s opinion, Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Many people will be surprised to know that “The Spiral of Death or Death Spiral” is actually a financial term and not just reserved for the latest sci-fi film.\u00a0 Ok, maybe its not approved by FASB, but most people in the industry have heard the term once or twice.\u00a0 For those people who may not […]<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[26,5],"tags":[],"class_list":{"0":"post-4362","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-lending","7":"category-real-estate","9":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":4374,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4374\/mortgage-market-week-in-review-9\/","url_meta":{"origin":4362,"position":0},"title":"Mortgage Market Week in Review","author":"Tom Vanderwell","date":"September 12, 2008","format":false,"excerpt":"Well, it\u2019s Friday again, so it\u2019s time for another Mortgage Market Week in Review.\u00a0\u00a0 I\u2019m going to talk just a little about Fannie and Freddie and then deal with some of the other issues that are currently affecting the financial markets. First Fannie and Freddie: As EVERYONE knows by now,\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1307,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1307\/the-future-of-realtor-data-management\/","url_meta":{"origin":4362,"position":1},"title":"The Future of Realtor Data Management","author":"James Hsu","date":"April 15, 2007","format":false,"excerpt":"Following on the heels of Greg's write-up on web technology for blogging, I thought I'd share with everyone a relatively recent technology discovery of mine...one that is quickly transforming how I as Realtor organize and manage all the information I come across with in my work. For whatever reason, going\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5161,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/5161\/mortgage-market-week-in-review-13\/","url_meta":{"origin":4362,"position":2},"title":"Mortgage Market Week in Review","author":"Tom Vanderwell","date":"October 24, 2008","format":false,"excerpt":"Here we are on Friday again.\u00a0 That means that it\u2019s time to try to summarize what\u2019s going on in the mortgage and finance world.\u00a0\u00a0 I\u2019m going to talk about a couple of main things:\u00a0 the economic fundamentals, some earnings reports\u00a0and the \u201cmargin calls\u201d that are going on in the equity\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2550,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2550\/helocs-frozen-preserving-american-homeownership\/","url_meta":{"origin":4362,"position":3},"title":"HELOCs Frozen: Preserving American Homeownership","author":"Brian Brady","date":"January 29, 2008","format":false,"excerpt":"Preserving the American Dream is a position paper authored by John Dugan, Comptroller of the Currency. \"Preserving American Home Ownership\" is the \"initiative\" rumored to be pondered by Countrywide Home Loans, IndyMac Bank, and Washington Mutual. N.B.: The following is rumor; something that was \"heard on the street\". Jeffrey Smith\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17008,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/17008\/overnight-news-entropys-vengeance\/","url_meta":{"origin":4362,"position":4},"title":"Overnight News: Entropy\u2019s\u00a0vengeance.","author":"Greg Swann","date":"September 14, 2020","format":false,"excerpt":"Chicago Tribune: The alarming downward spiral of downtown Chicago. Is a comeback possible? Daily Mail: More people are leaving California than ever before, driven out by worsening wildfires, politics and the skyrocketing cost of living. RedState.com: A Most American City Becoming Increasingly Unlivable. The Federalist: What Life Is Like In\u2026","rel":"","context":"In "Flourishing"","block_context":{"text":"Flourishing","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/flourishing\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/08\/BHBNewTopImage-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":13535,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/13535\/in-which-i-find-more-focus-and-dump-the-hocus-pocus\/","url_meta":{"origin":4362,"position":5},"title":"In which I find more focus and dump the hocus pocus","author":"Teri Lussier","date":"November 7, 2010","format":false,"excerpt":"Disclaimer: If your business is humming along, I doubt you will get much useful information from this post, however, please do feel free to share any productivity hints in the comment section. Thanks! 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