But the JPMorgan-Bear deal eliminates the prospect of the mortgage crisis’s taking down any other institutions, because JPMorgan went up the equivalent of $15 billion right after it pants’d the Fed and Treasury. They are calling Dimon “Jamie Potter Dimon,” after the Lionel Barrymore character who tried to buy the Bailey Bros. Building & Loan for 50 cents on the dollar when that moron Uncle Billy left the deposits at Potter’s bank. Except in this version, to mix movie metaphors, Potter gets Bear for pennies on the dollar, give or take a few cents when the stunned Bear Stearns stockholders haggle, no doubt successfully, for a higher price. We know now, though, that once you can handle a panic for one bank, you will handle a panic for another and another still. I’m sure a host of solvent banks will be banging on Treasury’s door to get the same deal when the next domino falls. There are probably a dozen white knights who want to see their stocks rally when they fleece the Fed to save the market.
With the systemic risk taken off the table, you can even see a possible end to the housing crisis that got us into this soup. Mortgage rates are at last leveling off, because the federal government has begun to cooperate with Fannie Mae, rather than choke it to death because it leans Democratic at times. The bulk of the most crippling mortgage resets, the so-called 2 and 28 loans, is going to be done in the next six months. And given the big decline in the number of homes being built, oversupply won’t be the issue it was before the credit crisis started. I don’t know a soul who’s predicting an immediate end to the national decline in home prices. But I think that the upticks in the stock market, particularly in banks and home builders, are foretelling the truth: The worst will soon be over.
For some time, I’ve suggested owning only agriculture, infrastructure, and oil stocks, stocks buoyed by the strength of foreign economies. With the bailout of Bear and the implicit guarantee from Treasury that Paulson’s legacy will not be one of advising another Herbert Hoover to worry about inflation while a depression looms, pretty much everything else can at last join the party. I’d say one of the best buys, even after the post-Bear-acquisition bump, is the big winner of the Federal Reserve fire sale: Jamie Dimon and JPMorgan.