JP Morgan Chase's decision to modify the terms of $70 billion in mortgages, represents as much a political calculation as an economic one, so says economist Richard Felson.
"One can interpret the action as JP Morgan thinking two steps ahead," Felson said. "From a strictly economic standpoint, it looks premature and costly. From a political standpoint, however, it looks quite prudent." JP Morgan's (NYSE: JPM) shares fell 97 cents to $40.85 in Monday morning trading.
That's because Democrats in Tuesday's U.S. election are likely to rack-up seat gains in the House and Senate. U.S. Sen. Barack Obama, D-Illinois, also leads U.S. Sen. John McCain, R-Arizona, in the U.S. Presidential race. Felson said the small chance that Democrats could achieve large majorities in the House and Senate may have prompted JP Morgan "to leave before the crack of bat," from a mortgage issue standpoint.
"They probably sense, like the rest of us, and quite plausibly, that there's a shift in the political wind ahead," Felson said. "If they refinance at-risk mortgages now, they can offer that as a defense, in the event the new Congress shifts from a refinance subsidization tone to a more-punitive tone against the banks."
Political / Economic Analysis: Should Congressional Democrats gain more than 30 seats in the House and achieve a filibuster-proof 60-40 majority in the Senate, and Obama wins, Democrats may feel the time is right to not only pass a major fiscal stimulus package, but also 'encourage and compel' banks to refinance those preventable foreclosures that banks have not already provided relief to. Given the event risk associated with that scenario, JP Morgan's refinance program decision is a smart move.
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Reader Comments (Page 1 of 1)
11-03-2008 @ 2:55PM
Mortgages said...
Mortgages are complicated sometimes. It's good to have articles and sites that are helpful in understanding them.