Time to Bail Out Washington Mutual (WM)?

This can't be good.

As I said we're playing with one arm behind our back since we cannot short individual names. We could use a nice 25-50% gainer right about now. We missed out on Freddie Mac, we missed out on a nice Research in Motion (RIMM) call, we missed out on Lehman - all names we've called out but can't take advantage of on the short side.

For those not familiar, Washington Mutual (WM) is America's largest savings and loan. So now, do we let it fail, do we bail it out (too big to fail?) or do we find a shotgun marriage? Poor Uncle Hank - he has been a busy man. I think they have to arrange a shotgun marriage because funding the $100K FDIC insurance for WaMu is going to empty the insurance piggybank. Hello, Mr Wells Fargo (WFC)? Can I interest you in a blue light special we're running on S&Ls?

EDIT 1 PM: I just had to laugh at this comment in a Bloomberg Report

• Washington Mutual Inc., the biggest U.S. savings and loan, fell below $3 for the first time since 1991 and its debt risk rose to a record on concern a new accounting rule will hinder attempts to find a buyer. Potential acquirers ended talks this year in part because the accounting rule will force acquirers to compute a target's assets at market prices instead of deriving values from measures including the purchase price, two bankers involved with the talks said. (so if I read this correctly - since accounting rules require someone who buys WaMu or any bank, to fairly value their assets at "market prices" instead of "prices we make up by computation and/or the original purchase price" people are walking away. So this is like me saying, I am going to buy your portfolio but I'm going to overstate the value of assets by using the highest stock price of each stock you own, instead of the current market price. Darn accountants - they are ruining the shell game of America. Seriously folks - this is why things are so much worse than they even look - the accounting is mostly set up for shenanighans as it is)
  

Our recent posts on WaMu.... it's just a matter of when, not if. The market has spoken.

[Jul 14: Regional Banks Crushed]

I was (semi) joking in last week's piece about "Whose Bottom Will It Be?" - that after this round of bailouts we'll rally and then we'll repeat this whole process in a few months and the next bottom would be the Merrill Lynch (MER)/Washington Mutual (WM) "bottom".

[Jul 20: Weekly Roundup]

Earnings should continue to dominate and the market reaction to Bank of America (BAC) Monday, and Wachovia (WB) and the death spiral that is Washington Mutual (WM) on Tuesday will be telling. The latter is the largest Savings & Loan in America and frankly appears headed for IndyMac status.

[Jul 26: Government Bank on Naked Short Selling in 19 Financials Created the Greatest Short Squeeze of All Time]

So as all the King's Horses and all the King's Men once again reassure us the financial system is sound, sturdy, and quite frankly a wonderful place to be, 2 more banks went "away" in the still of the night and will re-emerge Monday with the word "Federal" at the front of their name. These are just babies compared to IndyMac. I assume this is now going to happen every other Friday? That appears to be the pattern - quiet knock on the doors late Friday, re-emerge Monday clean and sober. So let's count on Washington Mutual (WM) two Fridays from now or perhaps 4. Oh wait, maybe another shotgun marriage aka Countrywide (CFC) and Bank of America (BAC) will be arranged by the powers that be.... err, I mean perhaps the free markets will rule and another bank will scoop up WM. ;)

[Aug 25: Weekly Roundup]

And so we'll see more and more. I continue to have Washington Mutual (WM) on death watch - the biggest Savings & Loan in America, but they will point to that as yet ANOTHER seminal event that clearly marks the bottom. We have so many seminal events in recent past, soon to be future, and distant future - how exciting. All of them of course will be a buying opportunity pundits assure me.

[Aug 26: FDIC Troubled Bank List]

So far other than Indymac its been smaller names, but just looking at this Washington Mutual (WM) it seems almost apparent that our largest savings and loan will go at some point. Now in the perversity that is Wall Street they will probably celebrate this as (a) that's one less thing to worry about and (b) we don't need to worry about it anymore, it's up to the taxpayers (government) and (c) really how much worse can it get? this clearly marks the bottom! :) (which is what they say during every major event in financial land) Now when you really begin to put these all together, our 2 government sponsored entities about to be "saved", our 5th largest investment bank "gone", and the 4th largest threatened every day.