Poor Washington Mutual … on any other day, its government-brokered takeover by JPMorgan Chase would have been the lead story, as opposed to Henry Paulson begging Nancy Pelosi on bended knee to save his bailout plan. At first glance, the purchase raises a glimmer of hope: is it really as simple as having the healthy banks buy up the unhealthy banks? But there is still a clear loser here, besides WaMu’s shareholders, who must have seen this coming: anyone holding non-secured debt is not covered by the transaction, since that liability remains with the WaMu holding company and was not transferred to JPMorgan along with the assets and the banking operations. According to Bloomberg, WaMu had $28.4 billion in outstanding bonds, which have just gone up (mostly) in smoke, triggering an unknown volume of credit-default swaps. (Remember AIG? Those are now the taxpayers’ credit-default swaps).

The transaction raises another worrying issue. Before yesterday, Washington Mutual had taken $19 billion in losses on mortgage loans. In the acquisition, JPMorgan acquired $176 billion in mortgage-related assets and immediately wrote them down by $31 billion, or 18%. This seems to be more evidence that some banks have these assets on their books at inflated prices, which is the problem that everyone is working so hard to solve.

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