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)
How does a lower Fed Funds rate stop the foreclosures that will happen soon?
He’s dumping his stock options like they were the ebola virus... CW is done, and he knows it. He’s talking one thing in public and doing another behind closed doors.
Frankly I’m amazed the press is ignoring his cashing out, its publicly avaialable data.
http://finance.yahoo.com/q/it?s=CFC
He’s dumping his stock options like they were the ebola virus... CW is done, and he knows it. He’s talking one thing in public and doing another behind closed doors.
Frankly I’m amazed the press is ignoring his cashing out, its publicly avaialable data.
http://finance.yahoo.com/q/it?s=CFC
What is a free credit card? If you consider a 5.75% Discount Rate to be subsidized when you only get 80% on your collateral and have to pay back the loan in 30 days, that's your prerogative. Doesn't mean you're right.
I'm going to be adding some intriguing information there from time to time.
I'm all a quiver.
Can I ask you one question, you obviously do not share our concerns for teh way the economy is going. What makes you think things are going different?
You're correct, I don't think we're doomed. I don't think the sub prime crisis will necessarily lead to a recession.
What makes you think things are going different?
Different than what?
I think we are headed to a recession, why do you think different?
All capitalist economies are always “headed to a recession” in the long run.
When?
Within the next year if not 6 months.
I’d be surprised if we had a recession in the next year.
Why?
Strong employment, rising wages, record corporate earnings, low interest rates, rising productivity, strong consumer demand, record levels of corporate cash.
Mozilo’s ineptness at running his own business is evidence of his ignorance about the nation’s economy in general.
I think there will be on because of high real inflation, grown foreclosures, mortgages not being sold at any price onthe secondary markets, rising consumer debt, rising govenrmental debt, 2 trillion in ARM’s set to reset, numerous major cities in this country have started to lose value in the home market, record low savings rates, boomers are starting to pull their money out off the markets. I see the markets as getting very stormy. And as a case in point the almost frantic calls to lower rate, inflation be hanged, to keep it propped up for a while longer. As I see it a recession is coming, the only questions is how long, deep, and bad.
How are you measuring inflation?
grown foreclosures,
How high are foreclosures?
mortgages not being sold at any price on the secondary markets
Why would that cause a recession?
rising consumer debt,
Rising compared to what?
rising govenrmental debt
The deficit is shrinking.
2 trillion in ARM’s set to reset
Causes a recession how?
numerous major cities in this country have started to lose value in the home market
Causes a recession how?
record low savings rates,
Corporations have record cash levels.
boomers are starting to pull their money out off the markets.
If that's true, I doubt it is, causes a recession how?
I see the markets as getting very stormy.
Stormy markets cause recessions? Is that why we had a depression in 1987? In 1989? In 1994? In 1998?
And as a case in point the almost frantic calls to lower rate, inflation be hanged, to keep it propped up for a while longer.
How does a lower Fed Funds rate stop Ma & Pa Kettle from defaulting on their no doc, subprime mortgage?
As I see it a recession is coming, the only questions is how long, deep, and bad.
If we have no recession by 4Q 2008, will you shut up and take ex-Texan with you?
It's like Willie Green never left us.
They’re still making money. Bank of America was willing to bet $2 billion that they will continue making money. The next 2 or 3 quarters will be interesting.
I think most of this will be worked out by next year. It is becoming very clear that the downturn in the real estate market is highly regionalized.
Why ? Because on that day the stock markets crashed. In a single day stock market lost 22% of its value. In one day. Real estate is not like that. The housing market train wreck of the late 1980's took several years to bottom out. It began, for a few regions in the U.S. about 1985. By 1992, the crash was still going on. It continued for another five years in some regions of the U.S.
That is a period of at least 12 years. We are about to go through it all over again.
From Fortune / CNN back in 1992:
Excerpt (my paragraphing)
NOT MANY PEOPLE realize just how stunningly big the commercial real estate debacle really is or how savagely it will continue to sweep through the U.S. economy.Does that sound familiar to anyone ?For a frame of reference, imagine that the stock market -- now worth around $3.8 trillion -- was to fall in value by 30%, a loss of about $1.1 trillion. Assume also that many of the market's most visible and active participants were on, say, 80% margin.
And finally, consider that the economics of the market after the fall suggested strongly that values would stay depressed for years.
Would these facts grab your attention?
Substitute ''commercial real estate'' for ''stock market,'' deflate the dollar figures by just a bit, and you've got the gist of today's drama.
There is nothing hypothetical about it. By one estimate the total value of all U.S. commercial real estate was around $3.5 trillion in 1989.
It is now perhaps 30% less. Just a diminution of a trifling $1 trillion or so, about twice what the U.S. stock market gave up on October 19, 1987, in the crash heard around the world. * * *
This time it may be even worse.
136 mortgage lenders have failed since late in 2006.
That did not happen back back in 1985 or 1987 or 1992 or 1995.
Californians know it even though the MSM will not report the truth. Already, prices for houses are down between 15% - 25% all across the state. Foreclosed houses are getting bids at 50% of value. Many empty houses sold at auction are not getting any bids. None. Nada. Nichts. Zilch.
But the Russian Mob has an active scam going. They tell their organized crime associates to move into vacant houses and squat. The squatters are filing bogus homestead papers. They sabotage the foreclosure. Demand ransom to move out.
Everybody has a new scam going these days. Organized crime. The local police are helpless. The fibbies dither and delay. This crisis was planned and engineered by the experts. 'Nuff said.
Time to wake up and smell the coffee. History is repeating itself. Again.
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