Posts Tagged real estate
On the eve of the merger by Bank of America to bail out the shareholders of Countrywide, even more evidence of greed, self-serving, and morally bankrupt behavior from the nation’s largest lender reared its head. In the following NBC video, a Countrywide employee pretty much confirms the worst fears of borrowers across the country; that their mortgage institution could not have cared less about them. Closing deals was the only thing that mattered, regardless of who was placed in financial jeopardy to accomplish this. For the record, Countrywide founder and Chief Executive Angelo Mozilo is being sued from every direction he turns. From borrowers in California and Illinois looking for restitution, to the US Government looking for answers on how he had the “foresight” to sell millions of dollars in shares just before the bottom fell out and their value plummetted.
HUD Chief Resigns
Mar 31
The Bush administration’s top housing official is under a criminal investigation and announced Monday he is quitting. Housing and Urban Development Secretary Alphonso Jackson said his resignation will take effect on April 18. For a couple of years now, Jackson has been fending off allegations of cronyism and favoritism involving HUD contractors. The FBI has been examining the ties between Jackson and a friend who was paid $392,000 by Jackson’s department as a construction manager in New Orleans after Hurricane Katrina. He did not mention these allegations in his speech, instead citing there is a time to “attend more diligently to personal and family matters. Now is such a time for me.”
The Federal Reserve took dramatic measures this past week to try to inject a little calm amidst the concern over not only the housing market, but Wall Street and the credit crunch as well. To begin with, the Fed assisted in the sale of Bear Stearns, one of Wall Street’s biggest and most storied banks. The Fed extended a $30 billion (yes that’s a B) credit line to JP Morgan, their rival. Bear Stearns was about to collapse due to major losses in the mortgage market. To put this into perspective of how serious this situation was, let’s look at Bear Stearns for a minute. 85 years on Wall Street. Yep. JP Morgan buys them for about $2.00 per share. Yep. Bear Stearns stock was trading near $30 a share on Friday and their building is worth about $1 billion alone. Huh? Exactly! Bear Stearns was running so low on cash, facing major press about their mortgage losses, and clients were pulling their cash out like it was bobble head day at the ATM. They had no choice. To stay in business they needed a cash flow injection and fast.
In addition, the Fed lowered the discount-lending rate — that’s the rate which it charges banks for very short-term loans by a quarter-point, to 3.25, on Sunday. It followed that on Tuesday with a cut of three-quarters of a percentage point to another key interest rate, the federal funds rate. See the cause and effect on this rate drop from an earlier post.
All of our financial markets right now are very unsteady. What people are concerned with, and rightfully so, is that if a historic giant can tumble like Bear Stearns, are other institutions at risk? The worst thing that could happen would be a run on the other banks, further worsening their liquidity and essentially stopping all of the financial markets dead in their tracks.
It is hard for me as a layman to put this in terms that exactly point out how critical this is for our economy. Simply stated, with out these investment banks like Bear Stearns, JP Morgan, Lehman, etc. our cash flow dries up. if you or I were to miss a paycheck for a few months you can see the effect that would have on your household. Multiply that times by billions and that is the effect the country will feel.
So, with these banks feeling this significant crunch, they are hesitant to lend each other money. No one can really say how much bad debt these banks actually have. One would guess that those who have the most exposure to sub prime mortgages and other risky products would be on the list. Wall Steet whispers mention UBS and Lehman Brothers beacause of their exposure to these mortgage related securities.
