We’re from the Government, We’re Here to Help.

Washington Mutual becomes J.P. Morgan Chase.

I’ve decided to share with you my take, from a business/political perspective, on the deal J.P. Morgan Chase just struck with the U.S. government to take over all of Washington Mutual’s assets, and some of their debt. That’s right, I said only some of their debt.

I’ll start by telling you how the game is supposed to be played. People buy shares in a company. Shares represent ownership of the company itself. If a company has to liquidate, (sell of it’s assets, in an effort to pay its debts,) whether it be forced to do so by the courts, or chooses to do so, because the shareholders decide it is the best route to recouping as much of their investment as possible, the shareholders will at least get what’s left over, after the company’s creditors get their cut, with the idea being that the shareholders at least have a chance of getting a recoup on their investment. I think it is fair to note though, that is not often what happens; often the debts of the company are so great that the bond holders, who are considered creditors, end up owning the company, that is, if the assets involved are too meager so as to pay them off sufficiently. Much of this is contracted ahead of time.
No shareholder in their right mind would prefer this option. It is a measure of last resort. Let’s say you are working for a company like TPG capital who reportedly invested over 7 Billion dollars in an effort to start the revitalization of WAMU, and you find out that WAMU went under, so then you are thinking to myself, wow, we are going to take a very dramatic pinch on this one, but at least the company owns prime real estate in 23 states, to the tune of 5300 locations. That’s a great asset. Worst comes to worst, and we sell it off piecemeal. We have been paying our insurance premiums to Uncle Sam, so they will pick up the customer deposit up the $100,000 per account type. The losers in this version of the game will be the customers that are holding over $100,000 in their accounts, as they will not get reimbursed past $100,000, and the of course everybody loses access to their funds while Uncle Sam gets around to paying off it’s debt. Worse things could happen.

Keep in mind that this isn’t some kind of hand out. This is an insurance policy that the banks pay into to make sure that their customers are not going to lose everything if they mismanage the banks funds like they did at WAMU. It is mandated on their part by the government. Like any insurance company/business, the government should be coming out ahead on the deal, if they are not incompetent, and or corrupt in their fiscal management practices, after all, they have been collecting their premiums for decades.

As you may have heard, however, that is not what happened, the government instead chose to seize WAMU’s assets, and let J.P. Morgan Chase take over.

J.P. Morgan Chase struck a great deal. They get the assets, the customers, the deposits, (which means they can loan money to customers) the land, the locations, and didn’t have to take on the worst debt that WAMU was going to have to content with, such as their senior unsecured debt.

What do the creditors and the shareholders get, as reward for following the American Dream, they get a big fat middle finger stuck right in their face. How come they don’t get anything? Simply because the Feds saw fit to seize the assets instead of letting it default.

Now, you might be asking yourself, isn’t this the kind of madness we would expect from a third world tyrannical dictatorship?

Sorry folks, simple politics. The deposit holders at WAMU far exceeded the stockholders, and we only get one vote per person. The government gets to save it’s insurance money for a rainy day, that’s assuming they haven’t been mismanaging “their” money to begin with, and that’s a big ‘if,’ if you ask me, but you didn’t so I won’t belabor it. As far as I’m concerned, it’s enough to remind you what Congress did with Social Security.

The problem, besides the fact that it’s so against the principles we are supposed to stand for as America, is that the message to corporate America is, - as long as we can save the government money and a little embarrassment, the rules don’t apply to us, the rights of everyday people are ours for the taking.

I’m not too sure, if this is the bunch, you’d want walking with that particular swagger. It’s not like your kids are going to go to school with theirs’, assumptions provided.

Well, as promised, you have my metaphorical two cents. As a bonus to any of my readers who might be worried if their bank, and or investment is next, this is one of the places I go to check on my bank’s financial standing. www.bankrate.com