Sunday, April 27, 2008

LETTER: Wachovia Bank In "Deep Doo Doo"

Please take a look at the Wall Street Journal Friday and Saturday of this week.

Cities are bagging their downtown projects due to economic conditions and four cities are cited.

Saturday's WSJ article was about Wachovia Bank. They are being investigated for two problems: First for targeting seniors and now for laundering drug monies from Mexico and Columbia.

After reading this article, one will want to take any money they have with Wachovia and run. If you are a borrower, no problem. The bank is in deep doo doo.

Editor's response:

Wachovia is too big a bank to be allowed to fail. The worse case scenario is that it will be merged into another institution. The bonds will continue to be guaranteed, although the credit rating might go from AA to something less. Or they may even go up! But probably neither will happen.

More likely, Wachovia will cut back on staff and expansion. Its stock will drop in price. But it will stay in business and ultimately fully recover.

Yes, the bonds were offered to other banks who declined to guarantee them. Wachovia took a giant risk, and they may have done it as a quid pro quo for some benefits elsewhere. But the latter is speculation.