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Thursday, September 25, 2008

Paulson Plan Update and JPMorgan WaMu

by Calculated Risk on 9/25/2008 10:05:00 PM

Paulson Plan Update: No Deal Yet.

“If money isn’t loosened up, this sucker could go down.”
President Bush, Sept 25, 2008
NY Times: Bailout Plan Stalls After Day of Talks; Paulson Heads Back to Capitol Hill
The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, warnings from an angry president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.
It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets ...

[The] House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling press conferences and interviews rife with partisan finger-pointing.
From the WSJ: Leaders Wrangle Over Bailout
It was unclear if an agreement would still come together Thursday night: The emergence of a competing plan was threatening to derail a carefully crafted compromise previously taking shape.

Earlier Thursday, congressional leaders had hammered together the outline of a compromise that involved allotting the bailout money in installments. However, after a meeting at the White House -- attended by President George W. Bush, congressional leaders and the two presidential candidates -- the gathering broke without announcing a deal, despite widespread expectations that one was imminent.

One cause of the delay: opposition from House Republicans who have tried to fashion an alternative "free market" plan that, instead of relying heavily on taxpayer money, could let banks buy insurance for the troubled assets weighing down their books.
On JPM Wamu (scroll down for earlier posts), here is the investor presentation. Basically JPMorgan - in an asset only acquisition - acquired the toxic WaMu loan portfolio and deposit base (all branches). JPMorgan paid the FDIC $1.9 billion, and they expect to take write-downs of $30 billion to $54 billion on the WaMu toxic loans. That is the primary cost of the acquisition - the write-downs.

The holding company is responsible for all lawsuits (good luck). The shareholders are wiped out, and so are most of the bondholders. See the previous post for a couple of interesting charts. I will post on their house price assumptions tomorrow.