I'm not sure how I missed this story in the New York Times, which was published on October 24th, but it's a doozy.
A NYT reporter secretly called into a JP Morgan employee teleconference. During this teleconference, it was made pretty clear that the company was not interested in loaning money out to help jump-start the economy.
Of course, you may know that JP Morgan agreed to take $25 billion from the Federal Government in the middle of October. And you may also remember that JP Morgan received some of the first money doled out as part of the bailout package.
As the Times points out, this money was intended to help revitalize the economy, which had seized up due largely to a credit freeze.
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.
The money was made available to JP Morgan on about October 13th; and of course the bailout has been quite unpopular among people across the political spectrum. It was widely understood that the bailout was a measure of last resort, that credit markets freezing would have an enormous impact on not only Wall Street, but also "Main Street," where employers would lose their short-term lines of credit and be unable to make payroll for their employees.
But just four days later, on October 17th, JP Morgan had this employee teleconference, and Joe Nocera, an NYT reporter, dialed in secretly.
So the question came up about what JP Morgan Chase planned to do with this $25B which was obviously intended to go towards loans aimed at starting up the economy again.
But here's what a JP Morgan Chase exec answered:
What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.
So there you have it. JP Morgan Chase thinks the money would be great to acquire more struggling banks and build its own company up.
What about loans?
"We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side." In other words JPMorgan has no intention of turning on the lending spigot.
I've said it before, and I'll say it again: the audacity of these companies is astonishing. Just four days after receiving very politically sensitive bailout money aimed at helping Main Street, these guys admit pretty freely that they're going to use taxpayer money to acquire more companies.
The NYT puts it very well, when speaking about JP Morgan Chase's CEO Jamie Dimond:
Nobody is saying it should make loans that people can’t repay. What I am saying is that Mr. Dimon took the $25 billion on the condition that his institution would start making loans. There are plenty of small and medium-size businesses that are choking because they have no access to capital — and are perfectly capable of repaying the money. How about a loan program for them, Mr. Dimon?
Senator Chris Dodd was asked about this situation, and he responded thusly:
If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.
We'll see.