Tuesday, July 1, 2008

Tough Times Force Tough Decisions

Well I am on a mini vacation for the 4th of July Holiday. No work until next Monday for me. Hopefully the crazy afternoon thunderstorms will stop occurring here in Massachusetts. Makes it tough to cook on the grill if you are worried about dodging lightning!

Bank of America Closes the Countrywide Deal Too Quietly?
Now one has to wonder how active the FED may indeed be behind closed doors when looking at the Bank of America buyout of Countrywide Financial. Since the shotgun wedding was announced, there has been nothing but highly damaging news regarding CFC in regards to:
-Nefarious Lending Practices
-Rapidly Deteriorating Loan Performance
-Obscenely High Volume of REO's
-Sweetheart Deals with Plenty of Members of Congress
-Lawsuits by Several States
Even last night the NBC nightly news had another (this makes like 4 stories this month) former CFC official type go on record with how corrupt and wild the lending criteria was. Given all of this, BAC never even blinked, and more than that often came out with reassurance the deal would go through. This leaves us with only a few possibilities.

One: BAC thinks that the massive size of their new mortgage unit will be able to pay for whatever issues CFC may bring to the table. 5 years out, perhaps BAC will be mortgage king. Maybe, maybe not. I would hope that BAC is using a model of transaction volume that more closely mirrors the 1991-1995 time frame for housing than the 2001-2005 model. They are not so foolish as to think a return to the go go days of the boom are coming back? Maybe, maybe not.

Two: The FED had identified this deal as a lynch pin, along with the BSC bailout, to keeping the system functioning. Thus they strong armed and agreed to cover any issues that BAC may face with the deal. With this backstop, BAC went full bore into the deal.

I am just speculating, but I seriously think the FED had a big hand in this thing. I also believe BAC thinks (I repeat THINKS) they are going to be better off down the road for this purchase. I think they will be wrong. Again.

Auto Sales Running on Bald Tires
Howard: Dong. Where is my automobile?
Long Duk Dong: [Laughs] Oto-mo-biiile? -from the film "Sixteen Candles"

I do not have much to add to today's auto sales numbers. Piss poor and scary about sums it up. Quick review:
-Ford down 28%
-GM down 18%
-Toyota down 21%
-Chrysler the big winner with a down 36%
Without ready access to credit and ever expanding debt, new cars are a tough sell. What do we call the collapse of credit and shrinking of lending? DEFLATION. What compounds it is that consumers may actually be at a point where they are reluctant to take on a new big car loan. Imagine the pickle we are in if that sentiment takes hold! Whoa Nellie!

My favorite cars of all time are all either Plymouth or GM products. The awesome DZ-302 engine for the 1967 Chevy Camaro which became the legendary Z-28 option. The 1963 split window Chevy Corvette may still be the sexiest car ever made. The mighty 1969 Plymouth GTX, a scary car on many levels. It is sad to see these companies face oblivion, but really the US auto makers never really made it out of the early 1980's. How long they remain will depend on fresh ideas and a probable US government stake. Sad.

Tough Times Force Tough Decisions
There is a chance, however small, that the average US citizen is waking up and seeing the mess that is the basic structure of our country. The serious economic issues are easy to see now, but they are part of a sickness that has pervaded too long. The US has for to long been too complacent. We are used to patting ourselves on the back and telling anyone that will listen how great we are. In reality we have become slow, dumb, and out of shape in a new global competition.

You can see it in our elected officials. Has there ever been a more ineffectual leadership? Both houses of Congress and the presidential Administration have proven to be useless as a guide. Both parties are to blame so don't start with blame games. In the end of course the voters that reelect bad officials are really to blame, but hey, marking a ballot is hard work so I understand how these things happen.

If a protracted credit bust occurs, as I think it will, times are going to get tough for what is left of the middle class. Already exhausted by college costs, health care costs, stagnant wages, high taxes, poor services, and other stresses this group is about fed up. Fed up with farm subsidies, section 8 housing, welfare, rewarding 13 year old moms with cash support for life, endless lawsuits for hot coffee spills and the like. They may actually want to go out and do something about it.

A rough patch is what is needed for America to set itself aright. We are still blessed with a beautiful country. We still have plenty of the most talented people across many fields. We are still the only nation that expects good things to happen to them, and use that optimism to grow. I am a believer in America, but we need to get hungry. We need to get lean. We have to get our edge back.

Can it happen? Of course it can. Maybe this flushing (a real flushing not this baby "bottom" we are seeing right now) can get us to that point. I am hopeful. Things cannot keep going as is. It will soon be time to choose America, which way you wanna go?

Have a good night.


Anonymous said...

Bank of America Closes the Countrywide Deal in expectations of having huge tax write offs for many years in the future. Taxpayers are going to pay for this deal me thinks if it gets structured right. On the other hand if it doesn't B of A is toast.


David said...

Good to read your posts again.

Yes, a lot did happen last week.
The extent of decline in markets worldwide is alarming, even as central bankers say everything is undercontrol


Anonymous said...

I got a bad feeling about the coming months. Anyone else share in my concerns? AU and AG did rather well and oils not budging. Bear territory in the stocks now..... any bets if the ECB cuts in a few hours?


PS: Welcome back getyourselfconnected!