Washington Mutual (WMI) - Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and Examination
In re Washington Mutual, Inc., Case No. 08-12229 (MFW)
United States Bankruptcy Court, District of Delaware
6/11/2010
Docket 4702
Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and Examination
http://www.kccllc.net/documents/0812229/0812229100615000000000011.pdf
In re Washington Mutual, Inc., Case No. 08-12229 (MFW)
United States Bankruptcy Court, District of Delaware
6/11/2010
Docket 4702
Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and Examination
http://www.kccllc.net/documents/0812229/0812229100615000000000011.pdf
Washington Mutual (WMI) - Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and Examination
In re Washington Mutual, Inc., Case No. 08-12229 (MFW)
United States Bankruptcy Court, District of Delaware
6/11/2010
Docket 4702
Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and Examination
http://www.kccllc.net/documents/0812229/0812229100615000000000011.pdf
DISTRICT OF DELA WA June 8, 2010 li."'- ,.- ...~ Chapter 11 .: . WASHGTON MUTUA, INC, et. A., Case No. 08-122 Debtor From: To: Claim: Sub: Dr. Sankarshan Acharya 17636 West Neuberr Ridge Drive Lockport, IL 60441 The Honorable Mary Walrath, Chief Judge United States Bankruptcy Court District of Delaware 824 Market Street, 5th Floor Wilmington, DE 19801 I own 20500 common shas of W AMUQ ... - , Reponse to the objections fled by the FDIC and Department of Treasur to the Equit Committee's motion on invetigation and examination. Justifction of valuation of Washington Mutual asset convee to JPMC. This is an addendum to my previous objection, dated May 11, 2010, to the Debtor' Plan of Reorganization and Disclosure Statement. Dear Honorable Judge Walrath, Te responses fled by the FDIC and the Departent of Treasur to the Equity Committee's motions on investigation and examination reinforce my stong objection to the latest Plan of Reorganization and Disclosure Statement (POR & OS) of the Afliated Debtors ofWMI. Issues Facin g the Court The issues facing the court are (a) ptential collusion aong goverent regulator agencies (FDIC, Departent of Treasur and Federal Reserve), public rating agencies (Moody's, S&P and Fitch) and a few top bankers (JP Morgan & Chase, Goldman Sachs and oter keepers of capitl markets) in seizure of WMI assets by FDIC and tansfer of the assets to JPMC, and (b) fair compensation to various claimants ofWMI assets seized by FDIC and transferred to JPMC. Achara: Examination of goverent agencies ad valuation ofWMI assets June 8, 2010 Pae 1 of6 0q6=*&/+D 0812229100615000000000011 Docket #4702 Date Filed: 6/11/2010 Citizens for Development ad Pro-Prosperity. Com A scenario of potential collusion 1. A few maket making fnancial institutions (MMs) like JP Morgan & Chase ad Goldman Sachs want to usur the valuable assets of WMI by paying little to those who own the assets purchased by their har eaed capitl. 2. The Ms are on the boad of the New York Federal Reserve Bank and on the advisor board of the Boad of Goverors of the Federl Resere System. The MMs even have one of their fiends directly contl the Treasur Departent. 3. The Security and Exchage Commission licenses the MMs for unlimited short selling of securities like the common stock, preferd stck and debt issue by WMJ. The MMs control the federlly insued deposits of We th People and have access to the Federal Reserve's discount window lending to short sell the WMI seurities to decimate teir market prices at will, at least temprarily. 4. The MMs ca cajole the rating agencies like Moody's and S&P to downgrade the WMI secuities. The market prices of WMI securities fall precipitously in response to the downgrdes, taks to the sway of the Ms over the market prices. The MM short seIling action increases te supply of WMI securities, beyond the quatities outstanding under the Compay Act, to facilitate a steep fall in their prices. 5. Te broader credit maket then resicts lending to WMI and to its subsidiar banks afer precipitous fall in WMI security prices. 6. The MMs a privy to a confdential ageement signed by the WMI preferred stockholders based on which new preferre equity capital will be raised for down steaming to WMI's subsidia baks as soon as needed to meet the minimum regulatory capital rquirement. The WMI prefered stockholders cannot unilaterally publicize this agreement, lest they will be sued for breching it, to counter the publicly announced downgrades of WMI securities. 7. The FDIC initiates a scrutiny ofWMI to seize its valuable assets to tnsfer the sae to a top M (JPMC), notwithstanding unfettered regulator access to the capital infsion ageement siged by WMI prfered stockholders. The FDIC gives a alibi that bak runs at WMI banks leads tem to seize and tsfer WMI assets to JPMC, despit capital crnch at most top banks with no automatic capital infsion agreements of the type WMI has. 8. The Congess radies a new act to infse T ARP fnds to save may failing baks including tose of WMI. The WMI baks have, in addition, agreements in place to rceive new capital as soon as needed. 9. The FDIC Receiver seizes WMI assets to tsfer the same to JPMC. The FDIC ad JPMC do not disclose the list of WMI assets thus seized. Within the above scenario, JPMC indeed colludes wit the goverment regulator agencies and the Acara: Examination of goverent agencies and valuation ofWMI assets June 8, 2010 Page 2 of6 Citizens for Development ad Pro-Prosperity. Com public rting agencies to usu valuable WMI assets fom those who have invested their hard eared capital to own the assets. Examiner with Full Authority Whether or not te above collusive scenaio factually unfolded in 2008 to make WMI fail to facilitate usuration of its vauable asets by JPMC can be ascertained only by an indepndent examiner wit fll autorit to issue subpoena and take depositions under oath. Collusion or lack thereof has not been ascertained so far in any investigation by the Congress or Cou. The Equit Committee's request for an examiner with complete authorit is tus legitimate. A examination with complete autority is paramount for te Court too in order to detennine whether te assets of WMI, which rightflly belonged to the WMI security holders, hve been seized and tsfered to JPMC via collusion among MMs, goverent regulator agencies and public rting agencies. Estblishing wheher or not collusion ha occured should be paramount to the Court for two reasons: (i) It will prove or disprove if a faudulent conveyance ofWMI assets to JPMC has occurred. If a faudulent conveyance has occured, te court's ruling will be drmatically diferent fom the standad allocation of assets, based on fair valuation, to vaious claimholders of WMI. (ii) Which constitutional rights of We th People have been trnsgressed due to JPMC's acquisition of WMI for pittce will depend on whether collusion occur ed. For example, if the WMI assets were really tansfered t JPMC through collusion, it would be a case of violation of the constitutional right to prpert ofWMI security holders whose assets were usured collusively. Otherwise, it would be a simpler case of te constittional right to fair compnsation for WMI securit holders whose assets were seized by the FDIC Receiver and tsferd to JPMC. Valuation ofWMI assets transferred to JMC My objecton sent to you on May 11, 20 10 to the POR & OS uses a cost of capital of 5% for valuation of anual cash fows fom WMI assets acquired by JPMC. It also uses annual cash fow estimates attibutable t the debt ad equity of WMI derived fm the incremental eaings statements issued by JPMC as rferenced in my original objection letter. The value ofWMI assets transfered to JPMC will be higher (or lower) tha derived in the objection letter if (i) the cost of capitl is lower (or higher) tan 5% or (ii) te cash fows a higher (or lower). I tis section, I argue tha the cost of capital of 5% used in my analysis is sufciently high to derive a conseratively lower value of WMI assets. One canot, however, be absolutely certin about the cash fows at ibutble to WMI debt and equit without having access to interal JPMC dt. Acha: Examination of goverent agncies a valuation ofWMI assets June 8, 2010 Pagc 3 of6 Citizens for Development and Pro-Prosperity. Com The cost of capital can be detenined by two consistent approaches. The approach articulated in my objection letter is the cost of debt funds (Federal Reserve discount rate and interests on bank deposits) that were primarily used to fnd WMI assets. O tis cost of funding apprach, te cost of capitl of 5% is sigifcatly higher than that prevailing in te environment of low cost ad abundant supply of fat money. This means tat the value ofWMI assets tasferrd t JPMC, as presented in my May 11, 2010 objection, is lower than it should be if a prperly lower cost of capital tha 5% wer used. The cost of capital can b detenined, alteratively, as the credit market expected rate of retu consistent with te risk of WMI assets tansferd to JPMC. The WMI assets tsfered to JPMC ae primarily mortgage loans. Losses on most of te delinquent loans have been already provisioned by discounting (reducing the value of tese assets on the book. The banks currently ask about 4.9010, on average, to fnd the types of mortgage loans included in WMI assets and acquired by JPMC. The banks' crditors expect t receive less (by the sprad eaed by baks for teir service to creditors) ta te 4.9% rate collected fom mortgage borowers. The spread is about 2.5%. This implies tat te credit maket expected rt consistent with te risk of mortgage loas is about 2.4% which is equal to te mortgage interest of 4.9% minus bank spread of 2.5%. Even in September 2008, when WMl's assets were tsferred t JPMC, the mortge interest rat was also about 5% ad te credit market expcted rate of ret was about 2.5%. Tis means the true value of WMI assets tansfered to JPMC is sigifcantly higher ta that presented in my objection letter of May 11,2010. Again, te exact composition ofWMI assets tsferd to JPMC, not yet disclosed by the FDIC, is necessary to ascerain the cost of capital for valuation of the cash fows generated fom these assets. Eiter approach indicates a lower cost of capital than the 5% used in my valuation of WMI assets tsferd to JPMC. This means a tuly higher value of acquired WMI assets tan te conservatively lower fgure prsented in my valuation analysis dated May 11, 20 I O. Intuitively, when money is being crated virually by the Federal Reserve and supplied to banks at negligible cost, te price of everthing real skyrockets in tenns of the fat money. The WMI assets tnsferred to JPMC a primaily eiter mortgage loans in good stnding that ea income as reported by JPMC or real estte prperties possessed fom te defaulting mortgage holders. The possessed real estate proprties may have no curent cash fow and may have been written of fom the book, but tey a wort a lot in tens of fat money. These assets have not entered into my valuation of WMI assets tsfered t JPMC. These assets will fer raise te value of trsfered WMI assets beyond tha prsented in my objection of May 11, 2010. One needs to have the complete portolio of properies and loans in WMI assets tnsferd to JPMC to obtain a more accurate value of these assets. Creibilit of my analysis My limited claim to WMI assets, as an equity holder, is tly incidental to me as a selfess researcher. If I were not a claimholder, te court would not have entrtained my objection to the POR & DS of Afliatd Debtors of WMI. Being a claimholder tus allows me to send valid communication to the court on the issue of morl hazrd and economic teor of constitutional goverance on which I have Achara: Examination of goverent agncies ad valuation ofWMI assets June 8, 2010 Page4of6 Citizens for Development and Pro-Prosperity. Com rsearched ad published since 1989.1 Is a claimholder's analysis necessaily biased? Could my analysis be deemed to be prejudiced simply because of my legitimate claim on WMI assets, notwithstanding my consistent record of selfess rsearch and absolue integrit since childhood? Well, if I did not purchase ay WMI security, despite my own detennination of a great value of investent in this company, anyone (including I) would credibly impugn my conviction about my analysis. If I did not invest my hard eaed capital in WMI, my analysis would be rightfully deemed to lack conviction and credibility. My ownership of WMI security, based on its signifcant valuation as compard to the market price, should rightfully enhance credibilit of my analysis. My ownership of WMI equity is not a case of frst buying a security trough speculation and then rationalizing the investent tough some analysis. It is rater a case of crdible investment based on a torough ex ante analysis. My aalysis includes a deep conviction that the goverent (Judicia, Legislative and Executive) of We the People will b ultimately impelled (a) t prserve the integit of ou system to let people prosper based on ow perseverance and (b) to penalize indolent usuration of te fuits of labor (stored as capital in baks and capitl makets) of those who prsevere to prop ad secure the nation and goverent. My analysis, tus, does not posit the goverent institutions, created and fnded by We the People through acts of our Congess, as ou adversaries. If policies and procedures of these institutions are not constitutional, We the People can pursue for reforming the same through the normal democrtic prcess.2 We the People ca ad should actively seek to r our goverent institutions to sere, not some selfsh agenda of individuals who run tem, but to flfll the common longing of people, namely, absolute integit and faiess in goverance. Investi g atin g Government Re g ulator Ag encies The Equit Commitee has sought to exaine ad investigate the role of the FDIC, Depatment of Treasu and Federal Reserve Board in the failure of WMI. The widely known events that unfolded during the Great Recession (as described in the Scenaio above) raise serious concers that the individuals in chage of tese institutions during the time did not fulfll the common longing of We the People. Their actions rater accomplished selfsh agenda of indolent usurpation of capital eared trough perseverance of We the People. The cause for investgation/exaination of the acts of the individuals runing the goverent agencies is not only good, but also seriously importt for tese institutions and for American nationhood. Te argment of the FDIC and Departent of Treasur, contained in their objections fled with the court, tat te cost of exaination/investigation will outeigh any benefts is specious. Se "An Economic Theor o Constitutional Goverance" and the references cited in it. available on the interet here: htp://proprosperity.cmlesearhlMoraIHaardUberty.pdf. Se "Constitutional System of Money and Finance" avilable on the interet at htp:/pro prosperity.cmIesearch/Constitutional-Monetary-Finance-Syster.pdf Achara: Examination of goverent agencies ad valuation ofWMI assets June 8, 2010 Page 5 of6 , Citizens for Development and Pro-Prosperity. Com
The benefts of examination/investigation ae unfathomably enormous bcause te seizure of WMI
has potentially (a) trampled on te constitutional rights to property of We the People, (b) demised the ethos of fee market economy on which a great nation has been founded, and (c) destroyed te trust between institutions and pople tat is very necessa for social stabilit amid prosperit based on perseverance. Trust is te basis of credit which is the capital eare by persevering individuals. The institutions like banks, goverent rgulatory agencies, public rating agencies and other keepers of capitl markets must preserve tust with utost integit for stable constitutional functioning of a nation. Trust is te crux of banking. The Congess has estblished bauptcy courts and laws to prserve trust for stable fnctioning of fnancial and non fnacial corprations. Erosion of tst leas to (i) destruction of hard eaed capital and (ii) debilitation of a constitutionally mandated capitalist economy. Trust was decimated due to the seizure by the FDIC of a ver lage solvent institution (WMI) for potentially avaice-driven tnsfer of private assets to lP Morgan & Chase. WMI was a repertoire of hard eaed capitl of many persevering households. Collusive tansfer of WMI assets to JPMC appas obvious to me afer reading the filing in the Bauptcy Court of a confdential agreement between the preferred stockholders of WMI and a subsidia of WMI to downsteam sufcient amount of new capital by rising the same feshly fom involved investors of WMI contingent on te capitlevels of te seized WMI banks receding below the regulator requirements. Under this agreement, WMI baks could never be undercapitalized, unlike most major bnks tat did not have such agreements in 2008. The individuals runing the FDIC ought to be awae of such confdential ageements. Yet, they seized the solvent WMI banks which faced no threat due to teir capitals dropping below the rgulator minimums. Again, the tth can be established through an independent examiner with unfeterd access to all the communication aong goverent agencies, public rting agencies and bankers and with the power to subpoena and to depose involved individuals under oath. With best regas, . SANKARSHAN ACHARYA PS: Cerifcation of service: I have sent by frst class USPS today a copy of this leter to the attoreys of te concered paries in this case. Achara: Examnation of goverent agencies ad valuation of WMI assets June 8, 2010 Page 60f6
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