January 16, 2009 – 1:47 am









When JP Morgan led the cabal that created the creature from Jekyll Island, today’s financial environment must have been exactly what he had in mind. Were he alive today, he would call this crisis nirvana.

In 1907, Morgan and his banker pals squeezed the credit markets and caused the stock market, sending the economy spinning toward depression.

There was no FED then, but Morgan still profited enormously by lending credit at interest. The crook put confidence back in the con game he had just crashed. The devil got to pick and choose who lived simply by lending or not lending them money.

Today, the credit markets have seized up on their own, a natural consequence of the falling house of cards known as Ponzi finance. As the economy melts away, the Federal Reserve is busy printing money out of thin air and lending it at interest. This crime is perpetrated in the name of propping up failing banks andthe deadbeats who ran them into the ground. Working guys like you and me get to pay for the privilege of this socialist utopia. Morgan would be proud that his bank is on the dole, never having to do anything useful for the market or for humanity. He would be thrilled that he can be evil without any strings attached; hewould buy into the silliness that he is too big to fail.

“We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States,” said GerardCassidy, a banking analyst at RBC Capital Markets. “We are going to go back to a time when the government controlled the banking system.”

But it is here in the cooling shadow of Ponzi finance that the best laid plans of the mighty and meek are going astray. Even as JP Morgan has posted a surprisingly sweet fourth-quarter profit (thanks to the generous Washington Mutual morsel it was fed by the United States Treasury), one gets the sense that time is running out even for these guys.

JPMorgan Chase reported a surprise quarterly profit Thursday, even as the company suffered a hit in its investment banking business and was forced to set aside a chunk of cash for looming loan losses.

Helping boost the results was a one-time gain of $1.3 billion, related to its purchase of the failed savings and loan Washington Mutual last year. Excluding this, JPMorgan Chase said it would have reported a loss of 28 cents per share during the quarter.

A one-time gain of $1.3B isn’t going to save JP Morgan Chase. The bank is struggling to make new loans and issue credit cards and other lines of credit. As demand for new loans deteriorates further, the credit crisis sinks in deeper to every aspect of the economy and the public psyche.

Then, as if to drive the point home, Jaime Dimon announces that the bank would increase its provision for loan losses by $4.4B to go along with the $2.9B the bank had in write-downs.

You would think that the $25B of TARP injections would more than offset the lone loss reserves and write-downs above, but now, even the feast of Bear Stearns and Washington Mutual is churning in Morgan’s stomach:

“I hesitate to say this a little bit,” Mr. Dimon said on the analyst conference call referring to Bear’s impact on its earnings. “We probably lost several billion dollars more than we would have in the year had we not done Bear.”

JPMorgan set aside $32.5 billion to cover WaMu’s bad loans when it bought the bank back in September. But that was based on the assumption that housing prices were going to fall 25 percent from their peak back in 2007. Based on new assumptions that show a 31 percent decline, the loan losses could reach as high as $36 billion, $3.5 billion more than whatJPMorgan had accounted for.

This means big write-downs for as long as any of us will live. As the assets continue to fall below expectations, will the bank go back for another handout?

After this sour news, Meredith A. Whitney, the banking analyst for Oppenheimer, asked Mr. Dimon if he would consider making another acquisition to continue building the bank’s capital base.

“I would never say never,” Mr. Dimon sighed, “but obviously we are busy with Bear Stearns and WaMu … the hurdle rate would have to be really high to do an acquisition.”

Well, Meredith, it’s not exactly capital base building. It’s more like spreading it thin, but you did get the answer you already knew. He would do it in a heartbeat and he will probably have to.


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