Countrywide bailout
Submitted by R. Neal on Fri, 2008/01/11 - 11:46am

BofA to pay $4.1B to buy Countrywide

Bank of America said Friday it will buy Countrywide Financial for $4.1 billion in stock, a deal that rescues the country's biggest mortgage lender and expands the financial services empire of the nation's largest consumer bank.

At least the government didn't bail them out. Yet. BofA just bought a huge boatload of debt, plus more than half a million delinquent loans, of which more than 100,000 are facing foreclosure.

P.S. Is the "too large to fail" doctrine still in effect? Bank of America has over $1.5 trillion (yes, that's "trillion" with a "t") in assets. And that was before the Countrywide acquisition (approx. $210 billion in assets). Could the FDIC or even the U.S. Government as a whole afford to bail them out?

(In banking lingo, "assets" are mostly loans, and "liabilities" are mostly your deposits. Although it seems like loans are increasingly becoming liabilities.)

Just wondering. Our bank (which is also quite large but nowhere near BofA) is a little wobbly right now. It's troubling.

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Average Guy's picture

As one of the major

Submitted by Average Guy on Fri, 2008/01/11 - 12:03pm.

As one of the major principals of VISA http://en.wikipedia.org/wiki/Visa_%28company%29#Corporate_structure , BOA knows the debt business.

If you are a Visa card holder and have a Countrywide mortgage, hold on to your wallet. Or at least fix your rates.

Could the FDIC or even the U.S. Government as a whole afford to bail them out?

Don't you mean China?

Anonymous's picture

Countrywide is losing money

Submitted by Anonymous (not verified) on Sat, 2008/01/12 - 10:08am.

Countrywide is losing money now, but it originated $408 billion in new mortgages last year. And despite all the bellyaching about the subprime mortgage crisis, try to think about it from a fatcat banker's perspective. Bank of America just can't wait to get its hands on the 93% of Countrywide's mortgage portfolio that is still being paid on time.

R. Neal's picture

That's true. If the credit

Submitted by R. Neal on Sat, 2008/01/12 - 10:15am.

That's true. If the credit crunch turns around they are instantly a huge player in the mortgage business and got in at fire sale prices. An interesting gamble, and maybe a good one for the long term. I guess it also helps to have the resources to weather whatever storms still lie ahead. There probably aren't many others able or willing to take the risk.

metulj's picture

And now, instead of dealing

Submitted by metulj on Sat, 2008/01/12 - 12:11pm.

And now, instead of dealing with a bankruptcy court and the disposition of their loans, these folks, paying on time or not, are facing BoA, which has a miserable track record on everything from customer service to human rights.

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Average Guy's picture

Monetary Standards?

Submitted by Average Guy on Sun, 2008/01/13 - 1:17pm.

If the economic world is now flat (or if that's the goal), should we not have a monetary standard? What would the re-introduction of the gold standard do to the U.S. and/or global economy?

metulj's picture

Things like this would

Submitted by metulj on Sun, 2008/01/13 - 4:05pm.

Things like this would control global monetary policy instead of central banks. It currently holds more gold in reserve than China. Good thing? Nope. You would have eliminate non-governmental hoarding of gold. FDR tried that. It wasn't popular in a Fordist style economy and it would be political dynamite in the era of globalization.

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Average Guy's picture

Printing more can't always be the answer

Submitted by Average Guy on Sun, 2008/01/13 - 4:47pm.

The example you gave is what I see the oil industry is bilking now. It used to be the case oil needed OPEC and speculators because of all the different factions. Now, Exxon/BP/Shell/others own the equipment and process at the site, pump and transport in between.

So now when speculators say China, India or Mid-East issues spike the cost, big oil ups the price, shrugs their shoulders and say there is nothing they can do - even though their process doesn't change.

Do you think central banks are the answer or do you see another? It seems to me, a central bank with a closed board room would at least be a bit easier to manipulate than a tangible commodity on the open market.

metulj's picture

"Do you think central banks

Submitted by metulj on Sun, 2008/01/13 - 6:46pm.

"Do you think central banks are the answer or do you see another? It seems to me, a central bank with a closed board room would at least be a bit easier to manipulate than a tangible commodity on the open market"

Gold is a fictitious commodity in the first place especially when it is called "money." It has industrial uses but it basically is valued because it is shiny. If the first societies to have valued gold had chosen something else, people would insist on valuing money on that something else. I give an example to prove my point.

http://economistsview.typepad.com/economistsview/2005/09/yapping_about_m...

Now, this guy wants to diminish the case for rai as money because, well, it makes the dollar look damn made up, and he ignores all of the research done on gift giving and value by anthropologists, but clearly the "value" of the rai had nothing to do with what they were made of. It was just decided upon. Gold isn't much different other than its industrial uses (some of which are overkill when cheaper metals can be used, but specs call for gold just cuz -- see NASA). It symbolizes wealth and power not because of some intrinsic characteristic, but because of a narrative associated with it by people. We could have chosen platinum, but we didn't. Hell, we could have chosen horse shit, but talk about inflationary pressures....

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Average Guy's picture

Gold is a fictitious

Submitted by Average Guy on Sun, 2008/01/13 - 7:11pm.

Gold is a fictitious commodity in the first place especially when it is called "money."

I feel the same about most commodities. Their only as valuable as they are needed. Obviously, beyond floating flakes of it in vodka, it's not all that useful.

But, that brings me back to asking; is there anything else/better than a central bank?

metulj's picture

They are sort of like

Submitted by metulj on Sun, 2008/01/13 - 8:37pm.

They are sort of like democracy. They're the best thing going for now.

True happiness is knowing you are a hypocrite. -- Ivor Cutler

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