The New York Times is featuring a great opinion article that highlights some of the things going on at Countrywide Financial, now that they’re treading water in the wake of a mess in the mortgage markets supposedly caused by subprime problems.
Last year Mr. Mozilo’s [Countrywide CEO] huge compensation drew a protest from a group of shareholders including the American Federation of State, County and Municipal Employees Pension Plan. But the worst was yet to come.
In late 2006, even as Countrywide began using shareholders’ money to buy back its own stock at more than $40 a share — it’s now worth only $19 — Mr. Mozilo was selling. Between November 2006 and August 2007 — that is, during the months before investors fully realized the extent to which his company would be hurt by the subprime mortgage crisis — he unloaded $138 million worth of Countrywide’s stock.
It appears that some people aren’t too happy with them. Haven’t we seen something like this before? Has history been forgotten so quickly?
It’s true that we haven’t seen the full effect of the sub-prime mess at hand. In the coming months and years we will begin to realize the full effect of this financial crisis. Let’s see… major lending institutions involved in shady underwriting practices that are borderline fraudulent; personal credit stretched very far; minimum wages, fuel prices, and the cost of imported goods are all rising; consumer saving is low and spending is high. It seems as if a breaking point is near. The stock market is soaring, but a downturn is certain. Oh, did I forget to mention the crumbling Dollar and decline in foreign investment, further enlarging our trade deficit.
Soon, as history consistently shows, significant declines are inevitable (buy low sell high right? That Countrywide guy knows what he’s doing). When it is harder to get money to buy something of significant value (i.e. a house), less buyers will be present. Price adjustments should follow. The real estate giants love high property values; it’s great for business. Combine that drive for profit along with a growing trend of sub-prime lending or interest only balloon loans, and the result is a bubble. Houses people can’t afford. As the number of foreclosures has been rising, it’s harder to get the cash needed for expensive homes. When house prices finally decline, things will be a little easier. Easier to pay for that $3.00/gal gas to fuel your H2 anyway.
Trying to straighten out this mess under current conditions is hard enough, but imagine what a natural disaster, another major war, or numerous corporate scandals would do to our speculative financial markets. The only advice I can give is to either keep drinking the Kool-aid or wise up and BUY WAR BONDS. UNCLE SAM NEEDS YOU