WAMU ABOUT TO SNEEZE AND CATCH A COLD

Cramer said that there's "no global economic slowdown." By contrast, Cramer also said, "the world is growing too fast for the Fed's comfort when it comes to inflation”.

In my honest opinion Cramer’s statements are idiotically made by the currently biggest media mouthpiece that was ever hired to pump and dump stocks for Wall Street in the history of stock fraud!

If the world is growing too fast and the Fed is worried by inflation that would mean a rise in interest rates too sooner than later. Why would it be too sooner?

Because right now the housing market has already been deflated by at least 10% over the past year and if that is not enough to signal the beginning of a recession, wipe out $1.4 trillion of home equity across 300 million homes in America and it averages about 3,333.33 per household in lost wealth.

Not much to stir about in a $13 trillion economy with more than 100 million used cars running around is it? A rise in interest rates by the Fed would only exacerbate the problems being confronted by the entire banking industry.

And in California, where housing prices have been hit by as much as 50% in the 6th largest sovereign economy in the world, there is significant deflation and depression setting in, particularly amongst mortgage brokers, real estate agents, builders and other real estate industry service providers. The banks that have fueled their inflated paychecks for the past decade are in for a rude awakening.

Get ready, if you own property in the USA, to take another 10% to 20% hit on your home equity, and if you haven't sold yet, you may not be able to any time soon without shorting your own mortgage, especially if home values drop below your current outstanding mortgage balances.

Both Downey Savings and Washington Mutual are about to catch a cold, perhaps go into a fatal fever and wind up in shot gun weddings with healthier, more financially honest and sound institutions.

Washington Mutual in particular has resorted to some very strange business tactics of late, double charging some customers who have overdrafts, switching accounts which had overdraft protection to no overdraft protection without informing their customers, and in general not acting in a customer friendly oriented fashion.

Cramer said Washington Mutual is worrisome because of sloppy lending practices but better off than its mortgage-heavy rivals because of its’ big deposit base. That is soon changing faster than the Fed can feed a popped balloon with a hole in it.

On Good Friday, a man walked into Washington Mutual branch and told everyone waiting in the long line that they should pull their money out because the bank is in deep financial trouble.

Under federal law, each person who heard that statement could be a count that carries five years prison time and a $250,000 fine for making that statement waiting in a bank line, even if the statement is true.

A law like that on the books tells you how afraid the federal government and the banking establishment is when it comes to financial panics. The financial system in America is about to ruin the lives of over 2 million people who are about to lose their homes and become homeless or at best bad risk tenants, mostly because of fraud, greed, and corruption in America's banking establishment.

It lent money to unqualified borrowers, lied for them on their applications by "stating" their income, and then took their houses away when they couldn't afford the exorbitant interest rates.

In my honest opinion, after 25 years of being in and out of the industry I can only say that the only fair interest is zero interest, but that is the subject of another book.

Whether that was true or not about Washington Mutual triggered me to dig deeper into this corporate citizen of America to see if there was a shorting opportunity here for my clients who like to read the research data that I am able to dig up inside the industry. That is what they pay me $3,600 an hour for, or per annual subscription depending on their level of interest.

I don't own any Washington Mutual stock, but if I had $20 million at my disposal, I'd go short about a million shares at $40 or less per share, and cover when it settles in at $25.00. I've asked over a dozen people if they would loan me the money to short WAMU but none of them had either the money or the knowledge to know why.

Here is why:

Cramer says that "Washington Mutual's a real conundrum. This stock can't rally; the dividend, which is always being raised, is now giving WaMu a yield that is truly outsized.

And the stock is saying that the dividend will need to be cut by subprime problems. There's no use with quibbling about WaMu's loan practices. Forced into buying market share during its nationwide push, WaMu's become a sloppy lender. But more important, how much will it really go down from here if it takes a big charge?

I don't know if it's possible that the dividend can't be maintained, but even if a huge percentage of its subprime borrowers fail, I believe WaMu will take a charge and that nothing else will happen." So says the great Cramer the bear tamer.

Cramer knows more than he is being allowed to mouthpiece for the market mavens of Fleet Street. But the short invasion of WAMU just started. The open short interest went up five million shares within the past month and there appears to be no shortage of shorters for WAMU stock which trades on the New York Stock Exchange under the symbol WM.

Many investors I have talked to personally are either shorting it already or are contemplating it. The writing is all over the walls.

A little over a year ago, WAMU shut down its call center in California. When asked about its' sub prime problems, an employee who didn't wish to be identified said that she believed the executives at WAMU "saw the problems of the subprime market coming over a year ago and planned accordingly".

Maybe they did. If you read my previous articles on the Real Estate Bust of 2006 and the Real Estate Depression of 2007 you will see that at least one other person in or out of the industry knew what was coming.

There is no inflation. There is an ongoing massive deflation being experienced in the housing market by millions of homeowners in America. That is already impacting the global economy.

WAMU, Downey and other American S&L's are at a very high risk to plummeting asset values which backs their securities which are owned by foreign investors like the Chinese who are now angry about recent tariffs against them implemented by Congress.

This is the butterfly effect at work in the global market. The foreign investors who hold stocks and bonds and securities related to the real estate industry are going to make money dumping them and shorting them at the same time.

They know that 90% of all stated income loan applications contain false and misleading information and thousands of lawyers are standing by waiting for the opportunity to sue these institutions under the securities laws on behalf of these foreign investors. It’s good business if they can get it.

Troubles at Washington Mutual are mounting. The deterioration of the market for mortgage debt at the bottom of the credit ladder has already begun climbing up to the next rung.

According to the Associated Press, Moody's Investors Service said it will name up to 50 banks whose bond ratings might be downgraded as part of an examination into how it ranks debt held by financial institutions. This will impact the entire banking industry more than the sub prime implosion already has.

This comes after the New York-based rating agency said that it needed to refine its assumptions about how governments would react if their banking systems showed signs of a collapse. Its new methodology, rolled out last quarter, has been criticized for relying too heavily on state-sponsored bailouts.

Moody's began recalculating debt ratings of about 210 financial firms since March to consider various funds that banks could receive from government agencies, holding companies or other groups if there is a default. This was not previously taken into account as part of Moody's methodology.

Already, Moody's has dolled out upgrades to companies like Bank of America Corp., JPMorgan Chase & Co., and Washington Mutual Inc. because of the likelihood the U.S. government would not let these institutions fail.

But would the government step in and bail out Washington Mutual, or Downey or Countrywide? They might step in and bail out Fannie Mae or Freddie Mac, but WAMU, Countrywide and Wells Fargo will not fail.

The government is more likely to step in to help the 2 million people who are about to become homeless because of foreclosures during the rest of 2007 and well into 2009 after the national election. It may even become the top political platform issue for the democrats to use against republicans during up and coming political debates for 2008.

If anything, the three largest at risk to asset price deflation exposures could wind up consolidating to survive the real estate depression a la shotgun weddings enforced by the plunge protection teams set up in Washington D.C. by the Federal Reserve and the Treasury Department and being supervised by the Bush administration.

Those boys have recently been answering some serious questions coming out of senate hearings and the truth trickling out to the media does not smell very nice.

Foreign investors, including central banks in Asia and Eastern Europe and the Middle East have deliberately laid a liquidity crisis on the doorstep of America, either as a political card against America’s overzealous imperial ambitions in its fraudulent war on terror, or as an economic tool for ongoing political negotiations for the US to pull out of Iraq and not expand the war by invading Iran.

"There just is not much liquidity for selling loans right now as investors are currently not willing to pay much for loans until there is some comfort that Alt-A will not significantly deteriorate," Goldman Sachs analyst Lori B. Appelbaum wrote in a research report that was reported in the AP article.

Investors who buy the banking industries’ mortgage debt are taking advantage of contractual clauses to force them to buy loans back, sometimes because of payment defaults.

The industry, but most particularly as it relates to this article, Washington Mutual, could be forced to buy back as much as a trillion dollars worth of fraudulently originated mortgage debt, money that neither they nor the FDIC or other government sponsored institutions like the Federal Reserve, the lender of last resort, have the power to cover or create out of thin air.

"Buyers are getting very edgy right now," said Morgan Keegan analyst Robert S. Patten. "Anything that shows any hair on it is going to get put back to the lenders."

Hundreds of thousands of borrowers around the nation have been impacted, some of them having their loans not fund even after signing their mortgage papers and the documents having already recorded, while many title and escrow officers have been frustrated with all the failures to fund of late.

The liquidity crisis in the mortgage industry tells us there is no inflation, but rather deflation and worse than that, only the consumers who took out loans within the last few years and those working in the industry will suffer the brunt of the market forces coming to bear. Pun intended.

Loan repurchases and devalued loan portfolios have become a familiar story for subprime lenders in the past six weeks. The subprime issues spreading upward to higher-quality borrowers is only now reaching the surface.

The problems lie far deeper, even with “A” quality borrowers who took out loans which they cannot afford to pay now because they lied on their loan applications about their true income. Some estimate that as much as 50% of all loan applications taken in the United States contain some if not too much phony documentation. That is how serious the problem is becoming for industry executives. Phony documents include forged signatures, and fake deposits.

Appelbaum said banks like Wells Fargo & Co., Washington Mutual Inc., Capital One Financial Corp., SunTrust Banks Inc., National City Corp., and First Horizon National Corp. could face softer demand for their Alt-A mortgage debt for the next three to six months.

This in turn will force these banks to lend in other areas like leveraged equity buyout deals not related to residential and commercial real estate.

Last month the law firm of Keller Rohrback announced that it is investigating the WaMu Savings Plan. In particular the investigation focuses on investment options made available under the Plan and fees and expenses pertaining to those options.

According to their press release - Keller Rohrback is one of America's leading law firms handling ERISA retirement plan litigation. They say they are committed to helping employees and retirees protect their retirement savings. Will the government allow WaMu to be the next WorldCom or Enron? Probably not.

Keller Rohrback serves as lead and co-lead counsel in numerous ERISA class action cases, including cases against Enron, WorldCom, Inc., HealthSouth, and Marsh & McLennan Companies, as well as ERISA cash balance pension plan cases, including JP Morgan Chase & Co.

According to the firm, Keller Rohrback has successfully provided class action representation for over a decade. Its’ trial lawyers have obtained judgments and settlements on behalf of clients in excess of seven billion dollars.

There is no evidence provided by the firm that they in fact actually collected that much money for their clients, but if they are putting money into investigating Washington Mutual, where there is smoke there must be some spark of fire.

A former Loan Consultant with WM was terminated for criticizing the poor customer service the clients received and for sending a copy of a credit report to a customer who had been involved in an auto accident and did not understand what was going on.

Another WAMU employee, who refused to be named, said that for “$100 he would put money in your Washington Mutual bank account to verify you have enough of a down payment or enough reserves to buy or refinance a house with outside lenders”. He would take it out after you got the loan.

The former employee, who continues to criticize WM, said he had witnessed some of the most appalling incompetence ever. “Documents were routinely lost and clients could never get the status of their loan. Some loans lasted over a year. WM is a company of failures and does not fire incompetent and mediocre managers, just recycles them.

Customers do not realize the risk they run by applying online or over the phone”, according to the former employee. There is an entire website devoted to the problems at WAMU if you google it.

Mortgage fraud is punishable by up to 30 years in prison, a $1 million fine, or both. The FBI is now investigating over 1000 cases of mortgage fraud and recently indicted four people who did business with Washington Mutual under their stated income program, however the Justice Department has so far failed to go after the loan officers, underwriters, and executives at Washington Mutual who allowed or failed to not allow those four people to make millions in profits from just one transaction that involved the sale of a $400,000 Newport Beach home for more than $2.4 million.

According to its web site, Washington Mutual, Inc., together with its subsidiaries, operates as a consumer and small business banking company in the United States. It operates in four segments: Retail Banking, Card Services, Commercial, and Home Loans.

The Retail Banking segment offers deposit and other retail banking products and services, which include checking and interest-bearing checking accounts, personal checking, savings, money market deposit, and time deposit accounts to consumers and small businesses; loan products comprising home loans, home equity loans, lines of credit, and mortgage loans; and investment advisory and brokerage services.

The Card Services segment’s operations consist of issuing credit cards, holding outstanding balances on credit cards in portfolio or securitizing and selling them, servicing credit card accounts, and providing other cardholder services.

The Commercial segment provides finance to developers and investors for multi-family dwellings and other commercial properties, services multi-family and other commercial real estate loans, and provides limited deposit services to commercial customers.

The Home Loans segment originates and services home loans, manages capital market operations, fulfillment and servicing of portfolio of home equity loans and lines of credit, originates and purchases mortgage loans to higher risk borrowers, provides financing and other banking services to mortgage bankers for the origination of mortgage loans, and offers insurance-related products and reinsurance services.

This segment offers various real estate secured residential loan products and services primarily consisting of fixed-rate home loans, adjustable-rate home loans, hybrid home loans, option ARM loans, and mortgage loans to higher risk borrowers.

As of December 31, 2006, the company operated 2,225 retail banking stores and 472 lending stores and centers in 36 states.

Washington Mutual was founded in 1889 and is headquartered in Seattle, Washington. It had acquired Providian and Home Savings of America as part of its national growth drive of the past decade.

This current downward economic cycle is yet to envelope the commercial real estate market as much as it has negatively impacted the residential market but it is coming sooner than we might expect. To all those who would make a killing during the current real estate market economic depression – the words on the street are – you gotta be quick!

Washington Mutual plans to have an earnings conference call on April 17th. If Cramer is right, there will be a huge charge off against future earnings stemming from existing sub prime loan buybacks. I wouldn’t be surprised if WM cut its’ dividends completely out to stem the bleeding.

Copyright © 2007 by Alex S. Gabor All World Rights Reserved!