A Stealth Bailout of Countrywide Financial

Posted by urbandigs

Tue Nov 27th, 2007 02:56 PM

A: Interesting story developing here. As I discussed yesterday, Senator Schumer publicly announced his intentions to request a investigation into Countrywide's use of $51 Billion from the Federal Home Loan Bank system. Today, Professor Nouriel Roubini writes a hard core article about what Countrywide did and calls it "...a massive stealth public bailout that has put at severe risk taxpayers' money" while increasing the likelihood that Countrywide is "...likely insolvent rather than illiquid". I have a feeling there is more to this story that will make it to the public ears soon!

According to Professor Nouriel Roubini's post, "The Steal Public Bailout of Reckless 'Countrywide': Privatizing Profits & Socializing Losses":

The letter by Senator Schumer questioning the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret - that was known only to a few insiders and was noticed on this blog a month ago - that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers' money. Here is Countrywide - the premier poster child financial institution of the reckless and predatory lending practices of the last few years - getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages - and whose CEO Mozilo is under SEC investigation for potentially illegal activities - now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending.

As the Schumer letter correctly points out the collateral against this $51 billion loan is mostly toxic waste subprime garbage whose market value is now much lower than the face value of such mortgages; so $51 billion dollar of taxpayers’ money has been put at risk with garbage as collateral for it.
A must read! Roubini discusses that the right thing to do would have been to take over the bank and put it formally under public control; like what happened with Northern Rock, the Countrywide Financial of the UK and who's had their own problems recently.

Instead, "...the US Treasury, the FHFB, the Fed and the banking regulators have been tacit and/or explicit accomplices of the stealth public bailout of most egregious example of reckless and predatory lending, the core institution at the center of a subprime and mortgage disaster that is now taking the entire US economy into a recession."

Personally, I'm a paranoid guy when it comes to deals and actions going on behind the scenes with some of these major troubled institutions. All we need is a Countrywide Financial to become insolvent and file for bankruptcy to spark a major selloff on wall street ultimately hurting everybody! Efforts are most likely underway, in hush hush mode, to avoid or delay major problems to major institutions that will serious disrupt the tradable markets, confidence, and the US economy.

From the blogosphere:

Countrywide's FHLB Bailout (Portfolio.com)

Countrywide Waves Off Call For Probe (TheStreet.com)

Countrywide: No Blow From Freddie Loss (CNN Money)

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