JPMorgan's $29 Billion WaMu Windfall Turns Up The Heat On Sheila Bair

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Here’s some fresh fodder for angry ex- WaMu shareholders who think FDIC chief Sheila Bair impropertly shut their bank down and gifted it to JP Morgan (JPM).

According to Bloomberg, JPMorgan will reap a windfall on the order of $29 billion on the deal. WaMu shareholders will no doubt use the data in court.

Felix Salmon: It increasingly seems as though a panicked FDIC thrust WaMu into the arms of Jamie Dimon, who could — and did — ask for pretty much anything he liked, including the right not to have to pay back any of WaMu’s creditors. The result was that the bank wholesale-funding market went straight into crisis: one sui generis default (Lehman) might have been navigable, but when you have two in as many weeks, it’s pretty clear which way the wind is blowing.

We’ve had endless rehashings of the weekends leading to the Bear Stearns and Lehman Brothers failures, but I’ve seen much less on the subject of WaMu, which is equally if not more fascinating and just as systemically important. The news out of JP Morgan that it massively undervalued WaMu’s loan books certainly seems to indicate that the likes of John Hempton have a point when they say that Sheila Bair got this particular decision spectacularly wrong, and in doing so put the entire US retail banking system on a much more fragile footing than was necessary.

In the past, Salmon has been sceptical of the idea that the WaMu seizurem played such a significant role in the crisis seen last October, so it’s interesting that he’s coming around to what to some may seem like a conspiracy theory of crazed former shareholders.

But beyond that, it suggests that the real fear for business is arbitrariness. We spend a lot of time worrying about the US debt load, but the reason the dollar remains a global reserve currency is that it remains a trusted, solid medium of exchange. What could actually hurt the dollar — or, a willingness to invest in dollar-denominated assets — is a belief that the game is rigged, whether in support of politically favourable banks or interest groups, as in Chrysler.

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