Teeka Tiwari

Does the Government Owe JPMorgan?

    Tweet This

Free Trading Guides

Coup No. 2: Washington Mutual (WM)

A big problem for Dimon was how to expand JPMorgan's retail footprint out West. With their recent purchase of Washington Mutual for $1.9 billion, that problem is solved. The takeover gives JPMorgan 5,400 new branches from California to Florida, and $188 billion in deposits.

Let's not kid each other though, JPM is going to book at least $30 billion in losses off the inherited WaMu portfolio.

But guess what? Jamie is going to dump that bad debt onto the government and be left with a very clean, national retail bank chain. Jamie wins again!

All this lovin' going the way of JPMorgan begs the question: Does the company have a special relationship with the government?

After all, JPMorgan is the only bank that secured government debt guarantees. And how is it that JPM got the first shot at WaMu even before WaMu itself knew it was for sale? (The FDIC had been planning to take over WaMu for weeks and worked with JPMorgan ahead of time secretly to take over the company.)

JPMorgan's Government Bailout

Is the creature from Jekyll Island paying back its debts?

John Pierpont Morgan is widely credited with twice rescuing the banking system and the federal government itself. In 1895, Morgan put together a private syndicate that loaned the federal government gold to shore up the U.S. Treasury. Then, in 1907, Morgan pressured other financiers to inject cash into the failing banking system and crashing stock market. That was before the Federal Reserve existed to provide liquidity.

Many people believe that the Federal Reserve is nothing more than an inside coterie of banks with familial ties that go back for generations. Fact or fiction, is it time to do away with the Fed and try a different approach? If so what should we replace it with? You tell me.

It certainly smells like inside baseball. But you know the old saying: It's not what you know, it's who you know. And that other old saying: To the victor go the spoils.

In JPM's case, we've got a company that is seriously well connected and very well run.

So, if you are looking for not only one of the survivors, but also one of the winners from this meltdown, take a good long look at JPMorgan. When the credit cycle turns, and it will turn, JPMorgan's earnings could explode to the upside, along with its stock price.

Teeka Tiwari is the Chief Investment Officer for Tycoon Publishing's Point & Profit. To learn more about him, read his bio.