Haste Makes Waste

When will they ever learn?
When will they ever learn?
-- Pete Seeger

Last week's Washington Post article on the tussle between the FDIC and J.P. Morgan Chase over which entity assumed or retained WAMU's liabilities to investors in mortgage-backed securities sold by WAMU for claims related to alleged misreprsentations by WAMU, such as not telling investors that the mortgages backing the securities smelled like bat guano. The FDIC says Chase assumed the liabilities and Chase says they stayed with the FDIC. According to Wapo reporter Jia Lynn Lang, "the paperwork for the merger was written so hastily over a 48-hour period that it left ambiguous who should cover the cost of WaMu's liabilities."

The dispute is another reminder of the continuing fallout from the extraordinary - and very rushed - steps taken by the federal government to shore up the financial system as it was teetering on collapse. Decisions were made quickly, and the paperwork sealing massive mergers was signed without spelling out every consequence.

Ultimately, taxpayers could bear the brunt of those hasty actions. Experts say the law may indeed favor J.P. Morgan.

"J.P. Morgan has a very good shot of taking back a substantial portion of the $1.9 billion it paid for WaMu, even after having reaped what I think is a windfall," said Kevin Starke, an analyst with CRT Capital Group.

For those of us who were involved in thrift and bank resolutions in the Southwest in the late 1980s, this set of circumstances is deja vu. A number of Southwest Plan deals were bid and negotiated in late 1988 in great haste. Somehow, it's hard to blame the lawyers for the regulators who drafted documents with gaping gobs of ambiguity dripping from them, or acquirers' attorneys for not parsing all the nuances of those ambiguities, when so much of the negotiations and drafting of documents occurred at god-awful hours when sane people would be sawing logs, or at least making love to their significant other(s). It appears that the WAMU case may have involved similar dysfunctional rushed scribbling in the wee hours of the night.

Haste makes waste. It also makes bank litigators happy, sends their kids to Ivy League universities, and buys their spouses Jaguars.