In re:

UNITED STATES BANKUPTCY COURT

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.
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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.
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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
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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
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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.
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