"Countrywide is too large to fail."
Isn't this what was said of LTCM?
"It has been one year since the Federal Reserve had to orchestrate a rescue to keep a hedge fund from collapsing. Although no taxpayer money was used in the bailout of the huge fund that some worried was too big for the country to allow to fail, the Fed did have to knock heads at Wall Street's biggest firms to get them to come up with cash to pull Long Term Capital Management back from the brink."
marketplace.publicradio.org
"Speech by the Financial Secretary
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On the other hand, the costs of self-fulfilling speculation against emerging markets have proven enormous for the developed markets too. Large derivative positions undertaken by hedge funds such as LTCM are now getting "too large to fail". In other words, the balance of risks has shifted towards having some reporting or regulatory net over the behavior of large institutional investors, including private funds."
info.gov.hk
" Remarks by
Julie L. Williams
Acting Comptroller of the Currency
............................................................
Questions continue to come from many quarters about the
consequences of a mega-bank failure. Are they "too big to fail," or -- as Federal Reserve Board chairman Alan Greenspan recently described the hedge fund Long Term Capital Management -- too big to liquidate immediately?"
occ.treas.gov
Sound familiar? Where is LTCM now? It was eventually bailed out by its CREDITORS tossing in more cash to make the derivatives it lived on worth something and its employees and management walked the plank. Ironically, after the bailout by the other investors, the panic abated, and the positions formerly held by LTCM were eventually liquidated at a small profit to the bailers
The company does have 1/5 of the nation's mortgages and accounts for ¼ of Fannie's outstanding business and 1/3 of its new business, he said. He also says Countrywide is no worse off than the mortgage industry overall (which I'd have to add is pretty bad), and that its trouble has nothing to do with the performance of its loans, but on the capital markets.
Countrywide could be sliced up into manageable pieces, the lost causes allowed to die, and the system goes on without Countrywide. The stockholders loose all, of course. Remember, a bankruptcy judge is the only legal dictator we have in this country.
"80% of Countrywide's subprimes are aaa rated, nobody's lost a dime," he says. It's all about panic in the market, he says. Investors are terrified of anything that says mortgage, and companies are being penalized because they can't sell the loans. <<
These companies do their very best to keep their operations as secret as possible. It is this secrecy that creates the fear that leads to panic. If people know the real situation, they can analyze it or get other trusted souls to do so, throw away the junk, and save the jewels. But a lack of information spreads suspicion on all. The financial industry will never learn that its own secrecy is its worst enemy.
Who had heard of CDOs before the last several weeks? I had read of them, but the explanation was such that the connection to mortgages and hedge funds could not be guessed. Supposedly , by combining many low-grade credit ratings into one big ball, a higher rating was deserved because all those low-grades would not get in trouble at the same time. Hmmm. NOW it comes out that they are highly leveraged, highly dangerous pieces of toilet paper. |
