Bloomberg Writes: Is JPMorgan Getting a Bad Deal?

In resolve a handful of state and federal investigations, JPMorgan Chase (JPM) has tentatively agreed to pay $13 billion—more, as my colleague Nick Summers points out, “than the combined salaries of every athlete in every major U.S. professional sport, with enough left over to buy every American a stadium hot dog.” Thirteen billion is also equal to 61 percent of the bank’s profit for 2012, so it’s a significant sum. But does that make it a “shakedown,” as some have suggested?

But there’s no getting away from the fact that the Obama Administration has taken a great deal of criticism over the lack of accountability pertaining to the financial crisis and for not punishing those who had a role in bringing the economy near collapse.

I am no fan of big banks nor the bailout of said banks in 2008. In fact, I was a big proponent then, as I am now, that those banks should have failed. Yes, it would have caused a lot of economic pain, but we would have been on the way to a real economic recovery now. Instead, they have created even a bigger moral hazard.

With that said, I am troubled by this settlement. The US Government is now going after the those who were willing to step in and backstop the economic collapse by taking over failed financial institutions on request from the US Government. It’s like begging your neighbor for money to buy food (because you are starving) only to slap him with a lawsuit a few years later for lending you that money. Not only is it unfair, it is downright idiotic as it brings even more risk into the financial system.

Listen, I understand that there was a lot of back room dealings and billions of dollars changing hands that we do not know about. Yet, one thing is clear. If this is to happen again, good luck finding anyone willing to step in. Yes, I am talking to you US Government.

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Bloomberg Writes: Foreigners Sold U.S. Assets as China Reduces Treasuries

Foreign investors were net sellers of U.S. long-term portfolio assets in August as China reduced its holdings of Treasuries to a six-month low.

The net long-term portfolio investment outflow was $8.9 billion after a revised $31 billion inflow in July, the Treasury Department said in a statement today in Washington. Net sales of U.S. equities by official holders abroad were a record $3.1 billion, and China lowered its holdings of U.S. government debt for the second time in three months, the department said.

Today’s report showed China remained the biggest foreign owner of U.S. Treasuries in August even as its holdings dropped $11.2 billion to $1.27 trillion.

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In my previous posts I have argued that the biggest impact of the US Government shutdown will not be any sort of a default, but a shaken confidence of foreign investors.

No one in their right mind, not the Chinese nor the Japanese, would trust the fiscal future of their nations to a government that acts like little children fighting over a toy.

As predicted, we are now beginning to see the consequences associated with shutting down the US Government with China cutting their US Treasuries buying. While this outflow doesn’t make a trend, just yet, it is certainly something to watch over the next couple of years. I guarantee you that China and Japan both are discussing the issue at the highest levels. Their confidence has been shaken and they can no longer trust the US Government to the extent that they have in the past.

The result? Very simple. Lower demand for the US Treasury, higher interest rates, slower growth, a substantial decline in economic activity, much lower financial markets, a decline in real estate and auto sales. Not a good picture.

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