Washington Mutual's Bank Failure

Topics: Federal Deposit Insurance Corporation, Washington Mutual, Mortgage Pages: 3 (1011 words) Published: April 29, 2011

Washington Mutual's Bank Failure
Rodney Hightower
University of Phoenix

Washington Mutual's Bank Failure
Having spent the early part of my professional working career as a Vice-President with Western Savings & Loan enabled me to experience firsthand the recent collapse of Washington Mutual through different lenses. (According to Dr. Housing), the story begins in the 1920s. Back then, houses typically cost $5,000. Sure doesn’t sound like much until you consider that the average annual income in the US was $1434 in 1925 consequently, few people could afford to pay cash for their homes, just like today. So, people borrowed the money from banks again, just like today. But the loans were structured differently back then. A common clause in the loan agreement gave banks the right to demand full payment of the loan at any time, if you failed to repay your when asked, the bank had the right to take your house from you and sell it to get its money back. So although the terms called for you to send in a payment every month to pay off the balance over 30 years you knew you suddenly might be required to repay the remaining balance in full at any given time. However, you just didn’t worry about that clause simply because they knew if the bank asks for the balance in full they might as well ask for the moon. When the stock market crashed, millions of investors lost he sums of money. Problem was it wasn’t their money to lose that they had lost. Back then most investors bought stocks with borrowed money, money lent to them by stockbrokers called, “a margin account.” Under the rules back then a investor could buy $4100 worth of stock for just $10, the broker would loan you the other $90. When the crash (1929) hit knocking 30% off the value of everyone’s stock portfolio the account was worth only $70. But the investor borrowed $90 to buy them. This led to a, “margin call,” when the broker would tell the investor they had...
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