The president of the Service Employees International Union, Andrew Stern, has an op-ed piece in the Wall Street Journal arguing for tough rules on private equity funds that invest in banks. He doesn't deal with Wilbur Ross's objection that the rules are so tough that they'd discourage him from investing in banks at all. He also has a peculiar narrative of the demise of WaMu: "Private equity's recent track record suggests that it needs regulation on this front. For example, the Texas Pacific Group's (TPG) disastrous investment in Washington Mutual last year prevented the financial giant from raising additional capital until it was too late, resulting in its forced fire-sale to J.P. Morgan Chase. This wiped out TPG's entire investment."
This is really some theory, the idea that it was TPG's investment in WaMu that prevented it from raising capital. And here I had thought, based on this very persuasive post by John Hempton, that what prevented WaMu from raising additional capital was a wave of negative stories in the press sourced by investment bankers hoping to acquire the bank "on the cheap," followed by the abrupt and what Mr. Hempton calls "reckless and irresponsible" seizure of the bank by the government. As Mr. Hempton puts it, "government action was as responsible as anything else" for the run on the bank, effectively "taking away the rights of the senior debt holders to an orderly liquidation."
It's one thing for regulators to heavy-handedly put a bank under, abusing the property rights of the bank's senior debt holders. That's bad enough. But to then use that as argument for giving regulators even more power — well, that's really something.