Spero Consulting

Wolf! Wolf! Wolf!

The sky is falling! The sky is falling! The sky is falling!

The biggest bank­ing col­lapse in US his­tory, and, as far as we can tell, Chicken Lit­tle, despite all the noise noth­ing much has hap­pened. Oh, cer­tainly some folks, includ­ing a pri­vate equity firm, lost a good deal of money, but that seems to be the nature of pri­vate equity and spec­u­la­tion, espe­cially dur­ing highly volatile times. We don’t make light of their losses, but we’ve lost lots on par­tic­u­larly invest­ments in the past, and we sus­pect that most of our read­ers have, too. So, we say join the crowd and try to repress your bad expe­ri­ence like the rest of us.

JP Mor­gan was able to sub­stan­tially increase its retail net­work – at what seems to be a rel­a­tively low cost. Good for them. If all of WaMu’s bad stuff is now Morgan’s respon­si­bil­ity – and it seems to be – then that merger should remove a sub­stan­tial amount of bad mort­gages and mort­gage secu­ri­ties from the bailout pot, and that seems to be good for all of us.

We’ll be inter­ested in see­ing whether the Trea­sury and the Fed reduce the ask­ing size of the pro­posed bailout now that Mor­gan stepped up to cover Wash­ing­ton Mutual’s losses. (Var­i­ous reports sug­gest that WaMu expects to lose about $19 bil­lion on its mort­gage port­fo­lio.) We’re not sure of the esti­mated size of WaMu’s assets that the Fed and Trea­sury planned to pur­chase, i.e., the sup­posed mar­ket value or non-​loss por­tion of those mortgages.

The $700 bil­lion had to include some of those mort­gages, right? So, shouldn’t the $700 bil­lion be smaller now? By the way, how was that $700 bil­lion esti­mated? Does any­one know? Mr. Paul­son? Mr Bernanke? We have a sneak­ing sus­pi­cion that no one quite knows for sure, but it cho­sen because it seemed rel­a­tively big – more than half a tril­lion but less than a whole trillion.