A Stealth Bailout of Countrywide Financial
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.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.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.
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)
Add to Newsvine
Comments (6)
OK, seriously people, does anyone actually read anymore? Or better yet, you didn't have to read they said it during their last conference call. All this supposed "behind the scenes" bs you are so paranoid about has been documented in written and verbal form if anyone cared to look. Having a stable source of funding is a plus for everyone -- would you rather they just ceased operating when the credit markets froze up? Uh, that would have been GREAT for the economy, not. This isn't a bailout not even close, but all this paranoid behavior sure keeps bloggers and supposed "news" organizations in business.
Posted by seriously? | November 27, 2007 4:51 PM
OK, seriously people, does anyone actually read anymore? Or better yet, you didn't have to read they said it during their last conference call. All this supposed "behind the scenes" bs you are so paranoid about has been documented in written and verbal form if anyone cared to look. Having a stable source of funding is a plus for everyone -- would you rather they just ceased operating when the credit markets froze up? Uh, that would have been GREAT for the economy, not. This isn't a bailout not even close, but all this paranoid behavior sure keeps bloggers and supposed "news" organizations in business.
Posted by seriously? | November 27, 2007 4:53 PM
well I read the earnings reports of Enron, Worldcom, and Tyco too! Except the problem was it was all lies.
Why dont you explain yourself in detail instead of just saying its "not a bailout, not even close".
If they did backup the loan using $62B in assets (CDO's), why wouldn't you question the actual market value of this collateral?
Posted by Noah | November 27, 2007 4:58 PM
The advances from FHLB are not backed up with CDO's. CDO's are an entirely different type of vehicle -- one which is very hard to value and extremely hard to unwind. Countrywide has made loss provisions fully under GAAP standards to account for reduction in overall value of assets held based on the continued climate of the housing market -- they appear to be well aware of the state of the market and don't expect it to improve shortly. I am sure your next question would be, "then how could they possibly make money?" Understanding the Macro-hedge of their business (in short when the servicing revenues increase significantly when pre-payment speeds slow down -- as in now with less refinancing, slower purchases, etc) is very important to understanding how they weather downturns. But I know, it isn't nearly as exciting as saying the "sky is falling."
The company has a 25 year history of valid reporting and profitable earnings, and most importantly, comparing it to Enron or Worldcom is ridiculous since if you will recall it was what was NOT on the balance sheet that was the problem there.
Posted by seriously? | November 28, 2007 10:53 AM
OK Mr. Rosenblatt I'll bite. Let's see the proof you have for your assertions. Let's review the facts.......I'm sure you reviewed the collateral before you made these judgements........we're waiting.....
Posted by Waiting | November 30, 2007 2:50 PM
waiting - what are you waiting for?
Posted by Noah | December 6, 2007 8:05 AM