Tax Reform in This Election Year: It's Not Likely
Which Credit Card Rewards Does the IRS Care About?Reuters reported that Countrywide Financial Corp. (NYSE: CFC), the nation's largest mortgage lender, received $12 billion in secured financing -- prompting the stock to rise 8%.
This reminds me of an old banking adage. If you owe a bank $100,000 and you can't repay the money, it's your problem. But if you owe the bank $50 billion and can't come up with the money, it's the bank's problem. In this case, the bank is the U.S. economy and Treasury Secretary Hank Paulson seems to have concluded that the U.S. cannot afford the problem of its biggest mortgage lender failing.
Is there less here than meets the eye? Countrywide stated that the $12 billion comes from new or existing credit lines. A credit line is the the option to borrow -- but it's not clear who the lenders are or the terms under which those credit lines can be drawn down. These questions matter because whoever is doing the lending had better have a clear idea of how they'll get paid back if Countrywide gets into further trouble.
The question for investors is whether the power behind the funding is the U.S. government -- because if it is, Countrywide is getting a stealth government bailout. And that might make Countrywide stock a buy.
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Countrywide.
More Countrywide Financial news
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Eric Buscemi: Countrywide (CFC) showing some class and good business sense
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Peter Cohan: Is Bank of America's (BAC) purchase of Countrywide Financial (CFC) a good bet?
Joseph Lazzaro: The (still) foggy subprime mortgage sector
Peter Cohan: What the mortgage meltdown means to you
Eric Buscemi: George Bailey, meet Angelo Mozilo
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?
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Reader Comments (Page 1 of 1)
9-14-2007 @ 1:01PM
Carlton Brown said...
Yes, Country Wide is too big. The bigger a company gets, the more they become complacaint
greed sets in and bad investments start happening because they think they can do no wrong.
They forget about coustomer loyality and service to coustomers and about employee loyality.
This is another Enron. No one saw this coming!!!!
9-15-2007 @ 7:49AM
Bill T said...
Damn conspiracy theories. The company has solid fundamentals in their origination business today and margins on new loans are up considerably, why not lend to them now?
I know all the writers in this country want another Enron, it sells and maybe your the first to break the story so you'll get a promotion.
MOVE ON, this story is over. Do your research, there are plenty of companies that will go under in the next 12 months and this isn't one of them.
9-15-2007 @ 1:59PM
kris said...
I dont understand if S&P rates it as sell, $16 target, why are investors sucked into this stock?
9-15-2007 @ 7:51PM
m.pinto said...
countrywide will not fail.Like what was said.I IS TO BIG
9-15-2007 @ 7:55PM
manny said...
country is not going to fail.To big
9-17-2007 @ 4:07PM
Zakia said...
Check out the recently updated www.eyeoncountrywide.info, an independent consumer resource examining sub-prime lending and Countrywide Financial Corporation