Banks Face Capital Punishment

Editor's note: The credit markets have been the epicenter of volatility on Wall Street throughout the second half of 2007. Falling home prices and subsequent defaults on mortgage-backed securities led to a liquidity crisis that's expected to get messier in 2008. The outlook for companies in the financial sector and beyond is dim as corporate profits weaken amid a weakening economy and rising inflationary pressures. This is the second installment in an ongoing series about how the tumult in the credit markets will affect the economy and the markets in 2008.

Washington Mutual(WM Quote) built itself from an obscure Seattle-based savings and loan into a national retail banking powerhouse with a heavy emphasis in mortgage lending.

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