Posted on 08/25/2007 5:59:22 AM PDT by Hydroshock
Edited on 08/25/2007 11:43:24 AM PDT by Admin Moderator. [history]
NEW YORK (Reuters) - Countrywide Financial Corp Chief Executive Angelo Mozilo said on Thursday the U.S. housing downturn is likely to lead the country into recession, but that the largest U.S. mortgage lender will survive.
In an interview, Mozilo also said that to promote liquidity, the U.S. Federal Reserve should cut the rate it charges banks to borrow.
Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On August 16, it announced an unexpected drawdown of an entire $11.5 billion credit line because it had trouble selling short-term debt.
But on Wednesday, Bank of America Corp said it would invest $2 billion in Countrywide, buying preferred securities convertible into common stock.
This eased fears about Countrywide's fate, which at least two analysts this month had said could include bankruptcy.
Mozilo called the investment a "vote of confidence" and a "priceless endorsement," but said housing and the economy were not out of the woods.
Falling home prices hurt homeowners psychologically and cause them to spend less, he said. The 68-year-old executive has worked in financial services for more than a half century.
"I've seen this movie before, and the ending of the movie always ends up in some form of recession," he said. "I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what's going to happen next."
Mozilo called on the Bush Administration and Fed Chairman Ben Bernanke to state that they will not allow the housing environment to get out of control.
Last Friday, the Fed cut the discount rate at which it lends to banks to 5.75 percent. Mozilo said it should be reduced so that it is the same as the federal funds rate, now 5.25 percent.
Others agree that more is needed.
"The Fed has cut the discount rate and added liquidity to the markets but those things aren't enough to turn the fundamental market around," said Phil Orlando, chief equity market strategist at Federated Investors in New York. He said the funds rate should be cut to 4.25 percent by year end.
GOING IT ALONE
Analysts have said Countrywide might lose mortgage market share to well-diversified commercial banks with deeper balance sheets, including Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wachovia Corp.
Countrywide held a 17.4 percent market share from January to June, according to the Inside Mortgage Finance newsletter.
The Bank of America investment also raised speculation that the Charlotte, North Carolina-based company might eventually buy Countrywide, which Mozilo helped launch in 1969.
Mozilo said that was not happening. "We've gone it alone for 40 years and can go it alone for another 40 years," he said.
In an interview with CNBC television, Mozilo said markets are in "one of the greatest panics I've ever seen in 55 years in financial services."
Still, he rejected as "irresponsible and baseless" an August 15 report by Merrill Lynch & Co analyst Kenneth Bruce that downgraded Countrywide to "sell" from "buy" and said the company might face bankruptcy if market conditions worsen.
"There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said on CNBC. "We're a very solid company."
Merrill spokeswoman Carrie Gray declined to respond to Mozilo's comments, and said Bruce wasn't granting interviews.
Countrywide shares closed up 20 cents at $22.02. They have fallen 48 percent this year.
(Additional reporting by Joseph A. Giannone, Ellis Mnyandu and Dan Wilchins)
He did. I guess hydro’s reputation is spreading far and wide.
As if carried far and wide on feathered wing!
This crisis was planned and engineered by the experts. ‘Nuff said.
Uh, no.
This is what happened to Japan.
Ex-Texan has been right and is right about a lot of things, but the conspiracy angle is a little off base.
The book, Short History of Financial Euphoria by Galbraith is a good primer on what happened.
One could make a case that the biggest economic story of the last 10 years -- bigger than the dot-com or housing booms, bigger than their busts, perhaps even bigger than the extraordinary growth of the Chinese and Indian economies -- has been the astonishing growth of what is obscurely referred to as "structured finance," a crazy quilt of arcane derivatives and other "financial instruments" that have become the lifeblood of markets everywhere. * * *Hint: Bet rigging, like the creation of mortgage derivatives, requires careful planning.The betting economy is the unreal economy. All those sports bets, no matter how kooky, are financial exercises whose value and meaning are derived from what happens on the field. Theoretically speaking, the betting economy exists in a separate dimension from the actual game, but we all know that's not true. There's so much money involved in gambling that the temptation to fix the results becomes irresistible. Players and referees, for instance, can be bribed.
We can call a bribed NBA official an example of "spillover" from the betting economy into the sports economy.
The very same thing happens in the real and unreal economies. So much money is riding on all the derivative bets connected to the housing sector that Wall Street speculators essentially rigged the housing sector to make their bets pay off. * * *
That's the beauty of the scheme. You take a bunch of bad loans and turn some of them into high-rated gold and some into lower-rated bronze. You sell the gold to the cautious and the bronze to the bold. If a few loans go kaput, the bronze investors suffer. If all the loans go kaput, everybody gets hurt. Unless there's a total financial meltdown, everyone is happily making money. Source Here
This crisis did not happen by accident. Just like all those mortgage servicing scams. Just like abusive credit card billing practices. The illegal foreclosures that were taking place in 2003 were being planned as far back as 1995.
Working the system to make money regardless of long term consequences and planning a financial meltdown are still two different things.
Also consider this twist: All those mortgages sold on WS. Hundreds of thousands of them. How many were packaged and sold, then repackaged and resold, then resold, then resold again? There is a simple explanation for the mortgage servicing scam. Otherwise, it just doesn't make sense. Why else prepare bogus records of 'late payments.' That is all I'm going to say here. Except Congress knows everything I know.
Like the economist who predicted thirteen of the last two recessions...
Not to him. I heard the Russian mob did it.
Uh, folks wanted to make money and didn’t care about long term consequences. This is not a new phenom in human history. No doubt some people crossed the line from unethical to illegal, but there was no wide spread conspiracy.
Greed is what people do. And they’re very good at it.
He knows all about that.
The ones who plan financial meltdowns are the vultures like George Soros. They set out to screw the little guy by knocking markets off their feet in liquidity crises (hello!).
Blaming this on a favorite bogeyman like mortgage brokers (Boo!) is a leap into a deeper inner circle of insanity that moves most Christian souls to pity.
We wouldn't want to interfere with the plans of Soros......wouldn't be conservative.
Blaming this on a favorite bogeyman like mortgage brokers (Boo!) is a leap into a deeper inner circle of insanity that moves most Christian souls to pity.
I imagine someone drinking alone in a dark room mumbling to himself while posting on FR.
Someone who could be lifted up and redeemed by the destruction of those who destroyed him.
I wonder what a real estate agent or mortgage broker ever did to him? Cut him off in traffic? Ran over his dog? Stole his wife?
It beggars the imagination and rends the soul.
If you’re agreeing with me, please stop. It makes me extremely nervous.
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