No Such Thing as Perfect Storms

It was a comment made for headlines: Washington Mutual's (NYSE: WM  ) CEO, at a Lehman Brothers (NYSE: LEH  ) conference, and the "perfect storm" sound bite. It's been repeated in dozens of headlines since yesterday, but unfortunately, it hasn't been dissected for what it is: shameless blame-shifting and buyout-begging.

Here's what CEO Kerry Killinger said:

However, there is significant anecdotal evidence that the decline has become even more pronounced in the third quarter of 2007. Now, the combination of rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity is creating what we call a near perfect storm for housing.

Guys like Killinger choose their words carefully. "Perfect storm," is clearly meant to be scary, but more importantly, it's meant to make the current problems in the credit market sound random and unforseeable. While the current mortgage difficulties might be horrifying for lenders and borrowers -- not to mention stockholders of outfits like Countrywide Financial (NYSE: CFC  ) and Novastar Financial (NYSE: NFI  ) -- they're most certainly not a situation that blew in from the ocean by chance. The mortgage crunch was the inevitable result of cheap money, opaque financial instruments, and widespread greed.

Now that things have gone exactly the way they were always heading, Killinger, like so many others in his field, wants a government bailout. While the legislators flap their lips, Killinger clearly puts his hopes on a simple reopening of the spigots by the Federal Reserve, saying "I just trust that the Fed will ... fully appreciate how quickly the economic conditions are changing, and that they act accordingly."

Keep in mind that this pandering and scaremongering comes from a company that was relatively clever about the mortgage blowup. According to its own accounts, WaMu began reducing its exposure to the toxic housing market early. That wasn't good enough, apparently; in the same speech, Killinger predicts that this year's loan loss provisions will rise by half a billion bucks (or about 35% more than it predicted back in July).

I've got no suspicions that WaMu might go under. It's big enough to stay afloat in this storm -- and in the right environment, it could probably even benefit from industry consolidation, and the sinking of weaker peers. But there's still abundant risk that the bank could be dead in the water for a while.

I suspect that WaMu's really worried about its card services division, which provided more than one-fourth of its revenue for the first half of the year. If the housing market tanks badly enough, and consumers stop buying on plastic, WaMu might be hit with a major double whammy.

Nasty storm? Maybe. But it's no surprise, and no accident. If you run your boat out into the gales, you shouldn't be surprised when it starts taking on water.


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