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.
