To Avoid Failure, Get Really Big; Everybody Else, Watch Out

Jamie Dimon is a beast... he was spurned from top leadership at Citigroup (C) years ago and then went to JPMorgan (JPM) and look who's talking now. For a nice $31B writeoff and $2B he now owns the largest S&L in America and has branches all over the West where JPMorgan Chase was lacking.

Now my question is, what happens if management changes at either Bank of America / Countrywide / Merrill Lynch (BAC) or JPMorgan / Bear Stearns / Washingtong Mutual (JPM) and someone takes them in a very risk-taking path in say a decade. If you thought ABC Bank stock was too big to fail, holy smoke. These two now dominate, along with Citigroup (C) a vast amount of our financial network. But they are smart - because if you get big you will never be allowed to fail.

There is a great divergence happening in financial landscape and today's action is really showing it

JPMorgan (JPM) +4%
Wells Fargo (WFC) +5%
PNC Financial (PNC) +r%

National City (NCC) -40% (Ohio/Midwest focused)
Wachovia (WB) -28%
Downey Financial (DSL) -44% (CA focused)
Peoples Community Bancorp (PCBI) -25% (Ohio/Indiana)

If this bill does not pass, Wachovia is the next WaMu. Downey is already a walking zombie, as is Peoples Community, which should be put out of its misery by FDIC on a Friday night soon.

The strong are getting stronger, and the weak weaker (keep in mind even the strong have a lot of warts but it's all relative) A landscape removed of many competitors 2 years from now will give us some nice near monopolies in banking. [Sep 15: Wilbur Ross: Possibly a Thousand Banks to Go]

I will say I am thrilled the American people have finally woken up from their slumber and finally got mad about something. I thought it was just me, and a handful of readers. I guess it takes really big numbers for them to realize what has been going on for months upon months. Each Fed cut that robs them of savings, each bailout that puts more obligations on their kids and grandkids - eventually it became enough to snatch their attention from Paris Hilton's exploits. Alleluiah.

Thought of the day - I wonder what the rest of the world is thinking as they watch this madness unfurl. "Free market capitalism devoid of regulation and only focused on maximization of profits and funneling excessive compensation to the few at the top" - I'll have a post out this weekend with the thoughts of the world...

Comments

[css1971]

If you're too big to fail then you're a threat to national security...

2008 Sep 26 01:46 PM

[raising4daughters]

I wish Paulson and Bernanke and Bush and the other criminals would at least attempt to explain why it's bad for weak and poor performing banks to go out of business. They allow it in every other industry and explain that it's important to rid industry of weak companies. I guess capitalism applies everywhere but in banking. Good riddance.

2008 Sep 26 01:57 PM

[AlexS]

Because the banking industry exists to carry out the Fed's wishes, as expressed through their money rates. Your local hamburger stand can't do that.

2008 Sep 26 02:41 PM

[John-Galt]

When you get down to it, this crisis is a failure of the Federal Reserve System. Perhaps that is where we should start? We may end up with a defact gold-based system before it is over.

2008 Sep 26 03:34 PM

[bobomite]

The Federal Reserve System is owned by the largest of those banks. I am going to take a wild guess that the banks doing well own the shares.

The Fed is not our friend at all. Neither Bernake or Paulson can be trusted in this matter in the least.

The US Government is charged with issuing currency, debt free currency. Paying interest to the "Fed" for our own currency is the beginning of this debt spiral we now see unwinding.

The solution is really simple.

2008 Sep 26 04:14 PM

[who]

C can't go down since it would prove its bailout several years ago by US government would have been wrong.

the cause is lack of supervision and regulations on lending and leveraging...

2008 Sep 26 04:40 PM

[CaptBob]

Who was it said??--If you steal a million you go to jail, if you steal a Country they crown you king!".
Sounds like W.C. Fields wisdom.
None the less In the Monarchy of Benny and Hank, there'll sure be a lot of Princes running around.

Raise Taxes!--HA--Get ready to scrap the 40hr work week and--Pony Up.

2008 Sep 27 10:44 AM

[TinyTim]

If you're too big to fail then you're a threat to national security.


right on. let's keep em smaller in the future & reduce leverage to 25% & ban derivatives.

2008 Sep 27 01:01 PM

[Emerald]

Bobomite has it right! The major banks own the Federal Reserve, not the taxpayers. FDIC insurance comes from the premiums banks pay, not the federal government. if the Feds don't put new dollars into the FDIC, it will go under soon and then who will cover depositors? Notice how Hank and Ben don't ever mention this? We are facing a bailout of the bailouts. Ron Paul has talked about this endlessly, but the major media won't cover it. Try buying U.S. Mint gold or silver coins. They are out of stock all of a sudden! More fiat money will be created to keep the bubbles blowing.....

2008 Sep 27 03:35 PM

[nyka]

Bobomite -- make it neither Bernake NOR Paulson. Neither NOR, not neither or.

2008 Sep 27 10:17 PM

[PeteK]

Watch the debate ? now are you sorry that it was not
Hillary out there doing the debate ?
She & Bill know how to fix things, this financial mess is nothing to them, too bad nobody asked.

2008 Sep 27 11:49 PM