JP Morgan Chase is now too big to fail

Congratulations to Jamie Dimon, CEO of JP Morgan Chase, who has made the bank fit the definition of "too big to fail". Earlier this year he picked up Bear Stearns and last night he bought Washington Mutual on the cheap.

This is what CNNMoney.com had to say about the size of Washington Mutual:

"To put the size of WaMu in context, its assets are equal to about two-thirds of the combined book value assets of all 747 failed thrifts that were sold off by the Resolution Trust Corp. - the former government body that handled the S&L crisis from 1989 through 1995." --"JP Morgan busys WaMu", by David Ellis and Jeanne Sahadi

If I can find him, I wonder what SeattlePioneer has to say about all this. He is a long time investor in WaMu and a longtime member of The Motley Fool, if I remember correctly. At one point the dividends paid by Washington Mutual was more than his cost basis of his shares of Washington Mutual that he bought many decades ago.

It can get worse?!

I said previously that the President can't really do much for the economy. I'm wrong, by a huge margin. He can instruct his Secretary of the Treasury (or is it the Secretary directing the President?!) to spend the equivalent of all that we have spent on the Iraq war thus far on domestic and foreign banks...in one week.

THAT will make a difference on the economy.

I'm just shaking my head. This has got to be the most lousy President we have had in the past 3 decades. Record debt, record tax cuts, 2 wars paid for by borrowed money, biggest monetary bail out on record, and poor response to New Orleans post Katrina. Main Street hasn't felt the oppressive burden fully yet, but this feels pretty close to the Vietnam War followed by the oil crisis of the 70s.

Yikes.

cost of Iraq war, as of Mar 2008: $600 billion (source: New York Times article)
cost of bail out, AIG, Bear Stearns, Fannie Mae, Freddie Mac: $839 billion (source: New York Times article)
current debt: $9.7 trillion (source: US Treasury Department website TreasuryDirect)
What a trillion dollar means: New York Times article "What $1.2 Trillian Can Buy"

The next technology revolution HAS to be energy

"Matt Simmons is as perplexed as anyone that it has fallen to him to take on OPEC, Exxon, the Saudis, and all the other misguided defenders of conventional wisdom in the oil patch. Why should one investment banker with a penchant for research be required to point out what he regards as the obvious - that from here on out, oil supplies can't meet demand, and if we don't act soon to solve this crisis, World War III could be looming?

...

"Simmons believes that a radical change in the way we live is inevitable. 'We should basically be going back to creating a village economy, so that we really reduce the energy intensity of how we live,' he says. 'We need bigtime conservation, not feel-good conservation. [emphasis by Joseph] Make things where they're used. You'll end long-distance commuting, and we have the tools to do that now with webcams. Grow food locally. Grow food in your backyard. If they're not commuting, people will have time to do that.'"

Fortune article, "The prophet of $500 oil", by Brian O'Keefe, senior editor.

Handing out Money

You may be curious why I haven't blogged anything about the current state of the economy or the bailouts, giving that I usually have lots to say about such things. After all, I have written and forwarded comments from lots of other financial writers that have warned about the subprime mess. My CAPS score card on The Motley Fool shows my stance too.

Well, I'm simply too mad to write coherently about the continual bail out. Bear Stearns, Fannie Mae, Freddie Mac, AIG, and now all bad debt on the banks' books will be guaranteed in one way or another by the federal government. $1 trillion dollars, and a bankrupt Lehman Brothers. Money continues to flow to the rich, and tax demands continue to come from all of us, especially those of us who saved wisely and did not buy any homes we cannot afford.

Summer is Over

I jumped the gun. Today is the second gray in a row, and light rain has started. The forecast is for 3 more days of clouds and rain, satisfying my definition of the end of summer.

Summer in the Northwest this year was from August 29th - September 17th, 3 full weeks.

How's the Weather?

Here in the Northwest the hours of daylight careens from 17 hours at its longest in June to 7 hours at its shortest in December. That is a huge change. In late June, the sun gets up at 5 a.m. and lasts until 9 p.m., a fact widely celebrated by the denizens here. The price you pay is in late December, when the sun wakes up at 8:30 a.m. and sets by 3:30 p.m. I literally go to work and come home from work in the dark, and spend all of my evening free time in darkness.

With such varying sunshine and the persistent cloud cover, summer this month only lasted 3 weeks. Yup, you read that right: 3 weeks, if you use my definition. To me, summer starts when there is 5 continuous days of sunshine. It ends when there is 5 continuous days of cloud. This summer has been abysmal, as visitors to Seattle will testify.

(edit: I upped the summer from 3 weeks to 5 weeks. Long range forecast says we will be getting 3 days of continuous rain and clouds, but not 5. By October we should be getting 5 days of continuous clouds. Wouldn't you know it? The 3 days of continuous clouds and rain falls on the weekend.)

(re-edit: I wrote too soon. Summer ended.)

While Californians tease each other with the comment that you only talk about the weather when there is nothing else to talk about, weather here is a serious topic of discussion. You never know how many hours of sunshine you may get each day, if any.

CERN

Cool particle physics! The scientists can rap.

Thanks to Tim Suatan for the link.

The Decline of (Most of the) Seattle-Based Evil Empires

Times are looking rough for the Seattle-based monopolies and oligopolies. They came into power when people drank their coffees, used their computer operation systems, and flew their planes. No more! Below is a run-down of the key Seattle-based empires.

Microsoft -- ah, when you think of Seattle you think of Mr. Softy, don't you? Unless you are thinking of the second company on this list. Microsoft, despite being first in the console wars with the next iteration of X-Box, has now cut the price of the console below its cute competitor: the Nintendo Wii. On the Zune front, you may ask: Microsoft is still selling that thing? Google is nipping at its heels with Chrome, Yahoo! spurns a merger-takeover, and things just plain look glum. Even the almighty operating system is showing cracks with the rise of Apple-Intel and VM Ware's virtual machines. You can't count the giant out, but can you count on Mr. Softy to generate mind-boggling innovations any more?

Starbucks -- who knew the dark aromatic drink found in every office corner could become a premium product? Who knew that the buzz of the caffeinated culture of Seattle would translate so well around the world? Who knew that there is an end, Mr. Schultz, to the amount of coffee civilized men and women can consume? Now Starbucks knows. Stores are being closed in the US as same-store returns are dropping.

Boeing -- fly the friendly skies. Oh wait, that's a different company. High fuel prices, spoke-and-wheel model, and the fear of terrorist attacks all contribute the general airline industry's decline. That doesn't seem to affect the latest maker of the 787 Dreamliner, however, as most of its customers are overseas and they want the latest fuel efficient planes. One thing does stop the company dead in its tracks: the machinist strike.

Real Network -- Real Network? Who are they? Well, enough said.

Washington Mutual -- the thrift lost its thrifty ways and instead hungered after the more profitable variable mortgage. There is a reason why they are more profitable: they are more risky. Today Kerry Killinger got walked out the door after the bank's share price lost 89% of its value in a little over a year. Now, losing 90% of something as ephemeral as a stock price may not excite some of you readers, but surely the lost of the homes in the mortgage portfolio would garner attention.

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Amazon -- hmm... about the only major consistently profitable Seattle-based large company is Amazon. Their profits are up as Jeff Bezos' bet in the Internet super store pays off.


Alright, alright, so there are other companies headquartered in Seattle that you may recognize: Nordstrom, Alaska Air Group, FlexCar, Holland America Line, Corbis, Getty Images, SafeCo, Mike's Hard Lemonade, and more. The big empire builders are all in trouble though, and these other smaller companies simply can't make up for the revenue lost by the big boys.


Thanks to Archie Chan for the original idea of this post.

Americans spend money on everything

New York Times article
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September 4, 2008

What Your Global Neighbors Are Buying

How people spend their discretionary income – the cash that goes to clothing, electronics, recreation, household goods, alcohol – depends a lot on where they live. People in Greece spend almost 13 times more money on clothing as they do on electronics. People living in Japan spend more on recreation than they do on clothing, electronics and household goods combined. Americans spend a lot of money on everything.

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Check out the accompanying graphic.

Be a Hero