by Anonymous on 1/11/2008 09:55:00 AM

I'd have enjoyed "Disorderly Conduct," but maybe that's the suit that follows against the servicing operations. From the Cleveland Plain Dealer (thanks, W.H.!):

Cleveland Mayor Frank Jackson took aim at Wall Street on Thursday with a lawsuit against 21 major investment banks that he said have enabled the subprime lending and foreclosure crisis here.

The one-of-a-kind suit, filed in Cuyahoga County Common Pleas Court, accuses venerable institutions such as Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo of creating a public nuisance.

Jackson contends the companies irresponsibly bought and sold high-interest home loans. The result: widespread defaults that depleted the city's tax base and left entire neighborhoods in ruins.

City officials hope to recover hundreds of millions of dollars in damages, including lost taxes from devalued property and money spent demolishing and boarding up thousands of abandoned houses.

"To me, this is no different than organized crime or drugs," Jackson said in an interview with Plain Dealer reporters and editors. "It has the same effect as drug activity in neighborhoods. It's a form of organized crime that happens to be legal in many respects."

by Anonymous on 1/11/2008 07:58:00 AM

LONDON (MarketWatch) -- Bank of America said on Friday it's buying Countrywide Financial for $4 billion, confirming rumors that first emerged Thursday, in a move that will make it the top mortgage lender and loan servicer in the U.S. . . .

Terms of the deal call for shareholders of Countrywide to receive 0.1822 of a share of Bank of America stock in exchange for each share they own.

At Thursday's close, that values Countrywide at $7.16 per share -- lower than the $7.75 closing price after news leaked of a possible deal.

Countrywide shares fell 15%, or $1.22 in pre-open trading Friday, to $6.53.

The purchase is expected to close in the third quarter. It's expected to be neutral to Bank of America earnings per share in 2008 and lift EPS in 2009, excluding merger and restructuring costs.

Bank of America expects $670 million in after-tax cost savings in the transaction, fully realized by 2011.

by Calculated Risk on 1/11/2008 12:52:00 AM

From the NY Times: Giant Write-Down Is Seen for Merrill

Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

The whisper number just keeps getting bigger. Merrill reports next week.

by Calculated Risk on 1/10/2008 07:31:00 PM

Here is a graph of the Fed Funds rate, inflation (as measured by Cleveland Fed median CPI), and the unemployment rate since 1990.

Click on graph for larger image.

The inflation rate is the Cleveland Fed median CPI and is a year-over-year rate - so it is a lagged series.

It's not unusual for the YoY inflation rate to be rising as the Fed cuts rates. Usually, as the economy weakens, the inflation rate will fall. That is the current expectation of the Fed.

Note: The graphs shows the Fed Funds rate at 3.75% at the end of January; that is what the market expects following Chairman Bernanke's speech this morning.


Source: Cleveland Fed, Fed Funds Rate Predictions

The market expectations are now solidly for a 50 bps rate cut on January 30th.

by Calculated Risk on 1/10/2008 05:22:00 PM

Herb Greenberg writes: The Real Story on Countrywide...

We’ll know it soon enough, but ... several things would appear apparent ...:

1. The Fed is behind the deal.
2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
3. As part of the deal, the Fed likely agrees to guarantee BofA against Countrywide-related losses.

Read his eight points. Interesting speculation.

by Calculated Risk on 1/10/2008 04:37:00 PM

From MarketWatch: American Express To Take 4th Quarter Charge Of $275M Charge

American Express said it will take a fourth-quarter charge of $275 million, due to slower spending and higher delinquencies and loan write-offs in December.

by Calculated Risk on 1/10/2008 02:24:00 PM

From the WSJ by Damian Paletta, Valerie Bauerlein and James R. Hagerty: Bofa In Talks to Buy Countrywide

Bank of America Corp. is in advanced talks to acquire struggling Countrywide Financial Corp., according to people familiar with the situation.

... two people familiar with the matter said it could occur very soon. It also is possible that an agreement could be delayed or fall apart altogether.

by Calculated Risk on 1/10/2008 12:26:00 PM

From Chairman Bernanke: Financial Markets, the Economic Outlook, and Monetary Policy

Although the TAF and other liquidity-related actions appear to have had some positive effects, such measures alone cannot fully address fundamental concerns about credit quality and valuation, nor do these actions relax the balance sheet constraints on financial institutions. Hence, they cannot eliminate the financial restraints affecting the broader economy. Monetary policy (that is, the management of the short-term interest rate) is the Fed’s best tool for pursuing our macroeconomic objectives, namely to promote maximum sustainable employment and price stability.

Although economic growth slowed in the fourth quarter of last year from the third quarter’s rapid clip, it seems nonetheless, as best we can tell, to have continued at a moderate pace. Recently, however, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced. Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets. In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008.

Financial conditions continue to pose a downside risk to the outlook for growth.
emphasis added

Sounds like more rate cuts (no surprise, the market is pricing in a 50bp cut later this month).

by Anonymous on 1/10/2008 10:31:00 AM

I'm a bit busy this morning disabling my telephone and hiding my mutual fund and retirement accounts, but I can get one post up.

From the CS Monitor:

A former computer developer, Thomas Banecke of Sandy Springs, Ga., spent most of the summer baby-sitting a new condo development – usually a plum assignment. But when the Atlanta condo market tanked, foot traffic dwindled to almost zero.

Mr. Banecke is now back in the computer business and is putting his real estate career on hold. In some ways, he says, the cold housing market forced real estate agents, especially rookies, to confront their own abilities, schemes, and dreams. Upfront costs, marketing, association fees, and the crucial contacts are either more costly or harder to procure than an aspiring real estate agent usually expects, Banecke says.

"This kind of thing will wipe up a whole bunch of people who thought they could do this to make a living," he says.

As for McMahon, the Atlanta agent, she still had a nice listing book and plenty of leads when she called it quits. In the end, unreliable buyers, surly sellers, and a lack of office camaraderie contributed to a decision that solidified when home sales and prices dipped. "I was waiting for a time to kind of swing out," she says. She's planning to become a high school science teacher.

One problem for out-of-work agents is that their skills may not transfer easily to other careers. California is waiting to hear on a $9 million federal retraining grant after 6,000 people lost their jobs in the housing industry since September.

But Dr. Baen of the University of North Texas is optimistic about their futures. "These people are hustlers, hard workers. They're used to getting on the phone," he says. "They'll end up in insurance, in mutual funds, in retirement planning, and commodities."

by Calculated Risk on 1/10/2008 09:16:00 AM

From AP: Capital One Cuts 2007 Earnings Forecast