Vultures circling over Wachovia

Potential investors are waiting to see if they can get the same sweetheart deal JPMorgan got to buy Washington Mutual:

Wachovia Corp.’s suitors may use a template honed by JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon last week: Wait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest, according to analysts.

Citigroup Inc., Wells Fargo & Co. and Banco Santander SA are in talks with Wachovia, the Wall Street Journal reported yesterday. They’re part of the same group that passed on a chance to buy Washington Mutual Inc., which the U.S. closed two days ago, leaving JPMorgan to buy WaMu for $1.9 billion, a fraction of its previous offer in March.

The bidders may try that tactic again at Charlotte, North Carolina-based Wachovia following its 27 percent plunge in New York trading yesterday, according to analysts at Goldman Sachs Group Inc. and Egan-Jones Ratings Co. They may get help from regulators, who said the U.S. benefited from seizing and selling WaMu because the Federal Deposit Insurance Corp. didn’t have to tap its $45 billion insurance fund.

So the plan is to wait for the government to jump in, kick the snot out of the equity holders and bondholders, and dispose of the assets at a fire sale price.

This is why the government should stay out of the market and let the market sort itself out: the unintended consequence of helping the rich get richer. That is, if it is unintended.

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