We continue to receive signals that the U.S. is an emerging market.
One of the hallmarks of emerging markets, particularly banana republics, is that politically connected businesses are treated like royalty while everyone else gets screwed over.
This theme was on full display last week when JP Morgan reported its “outstanding” results. JPM reported record Net Interest Income that was boosted by the fact that the bank was given First Republic’s profitable assets for pennies on the dollar.
But who picked up the losses? After all, First Republic failed!
You did. So did I and the rest of the public.
The Federal Deposit Insurance Corporation (FDIC), which is part of the government that taxpayers fund, absorbed most of First Republic’s losses. Oh, and the FDIC also gave JP Morgan a $50 BILLION line of credit as part of the deal.
How sweet was this deal?
JP Morgan immediately reported a one time gain of $2.6 billion as soon as the deal closed. And it is expected to make $500 million per year from the assets it bought for pennies on the dollar.
These kinds of sweetheart deals that benefit the connected while burdening everyone else are common in emerging markets. To be clear, the U.S. has had them for a long time as well. But they only reached “3rd world banana republic” levels after 2008 once the Wall Street bailouts went from being the exception to the rule.
Indeed, things have become so egregious as far as fraud, waste, and abuse are concerned that the head of the Small Business Administration (SBA) didn’t even bother showing up to a hearing on fraud related to COVID-19 loans.
By the way, the fraud in question is $200 BILLION.
Sweetheart deals that favor the connected and screw everyone else? Administration officials who don’t even bother showing up for meetings concerning hundreds of billions of dollars in government funded fraud?
These are 3rd world, banana republic type issues. The fact that the U.S. can’t go a week without some new example of this stuff tells us just how far down the toilet the system has gotten.
aving said that, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.