Five Dumbest Things on Wall Street: April 11

2. JPMorgan Gets Favored Accounting Status

Conventional wisdom on Wall Street holds that JPMorgan Chase JPM got a bargain with its acquisition of Bear Stearns, even at the renegotiated price of $10 a share. But that 89% discount to where shares of Bear Stearns began the year might not be the best part of this deal.

Reports came out this week that for being a good child, the Fed is now easing the regulatory burdens on JPMorgan in the wake of the deal. To be sure, there are legitimate and practical reasons to cut JPMorgan some temporary slack after it was strong-armed by the Fed into buying an investment bank teetering on the brink of bankruptcy during a credit crisis that has shell-shocked the financial markets.

However, 10 out of nine observers agree that Wall Street is in dire need of stronger, not weaker, oversight after Bear's collapse supposedly brought the financial system to the brink of disaster. And it's not the easy stuff that Morgan's getting the pass on.

According to a letter posted recently on the Fed's Web site, the Fed will allow the bank to exclude certain Bear assets. (Hmm, perhaps the giant portfolio of credit default swaps and other mysterious derivative securities it inherited from Bear?) when it calculates risk-based capital for the bank holding company for 18 months. The amount of Bear assets excluded from the calculation can't exceed a modest $220 billion, and the amount of the exemption will be reduced by one-sixth every quarter until it expires on Oct. 1, 2009.

JPMorgan also will be temporarily exempted from rules that limit the amount of "covered transactions" between a bank and any single affiliate to 10% of the bank's capital stock and 20% for transactions with all affiliates.

Bear Stearns CEO Alan Schwartz told lawmakers on Capitol Hill last week that his firm was brought down by shadowy networks of rumor-mongers and short-sellers. His critics say it was the firm's toxic investment portfolio and high debt levels that brought on its demise.

How JPMorgan performs after it subsumes Bear Stearns may shed some light on who is telling the truth. In the meantime, the investing public has little understanding of exactly what JPMorgan bought, and for the Fed's talk of tough rules on these issues, clarity isn't coming to these doors anytime soon.

Dumb-o-meter score: 91. Investors better watch out for those rumors; they'll have as much info as JPM's financials.