A record week: sales, bailouts, suspensions and profits

This week has been all about history-changing events: Washington is asking for the biggest bailout for Wall Street ever; a presidential candidate “suspended” his campaign because he’s too busy campaigning via TV interviews; and now, after the implosions of Bear Stearns, Fannie Mae, Freddie Mac, AIG, Lehman Brothers, and Merrill Lynch, Washington Mutual enters the crisis as the largest bank failure in history. Yesterday, the FDIC swept in and sold the bank to J.P. Morgan Chase for the fire-sale price of only $1.9 billion. That’s an eye-popping low price considering WaMu had combined assets of $307 billion and deposits worth $188 billion.

Why so low? According to Housing Wire, WaMu’s $231.1 billion loan portfolio included $52.9 billion in  ARMs and $62.5 billion in home-equity loans and lines of credit.  J.P. Morgan said it would write down WaMu’s loan portfolio by roughly $31 billion to account for losses.

Still, other questions remain: Some of the loans J.P. Morgan Chase now holds (via WaMu and Bear Stearns) will be eligible for sale to the U.S. government when a bailout package is finalized. So just how much will J.P. Morgan Chase make on the backs of taxpayers given that they snatched up these tenuous loans at next-to-nothing prices? The WSJ notes: “The deal will vault J.P. Morgan into first place in nationwide deposits and greatly expand its franchise.” In other words, J.P. Morgan Chase has billions to gain from a federal bailout while homewoners and consumers still have much to lose.