From Bonddad:
"Thursday, August 9, 2007

Countrywide Financial Reports Major Disruptions

From the WSJ:

Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing)

......

Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier.

.....

On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.

In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.

Translation.

Countrywide is the largest home lender in terms of loan volume. If they can't et a deal done -- no one can.

Countrywide couldn't sell $1 billion of loans at a decent price. They cut the value
of these loans by 20% when they transferred those loans to their investment portfolio.

Countrywide couldn't sell $700 billion of prime loans, and devalued those by 14%.

That means the going price on both of these investments is probably lower than the devaluation on the balance sheet. Subprime loans are going for less than 80% of face value and prime loans are going for less than 14% of face value.

Simply put -- liquidity just isn't there in the market right now. And the crunch is getting worse because Countrywide couldn't sell prime loans."

We need several amendments. I'm not a finance guy, I'm a contract specialist in the oil and gas industry, this isn't my area of expertise, but here goes:

1. I'd like to see the weird accounting go away that allows a company to book profits before the money is received. The counting your chickens before the egg is even laid-What's it called, Mark to Market?

2. Pensions and other funds where the money is managed by a fiduciary should have to disclose fully to the regulators and the beneficiaries

a. The name of any hedge funds and their country of registration. In other words, if they are operating under Panamanian registration to dodge taxes, or Bahamian so they can have bank secrecy, I want to know it

b.The principles in any hedge fund and their compensation from the fiduciary's funds.

c. their general type of business-oil and gas comodity speculation, investments in loan tranches, investments in any illiquid investment like working interests in oil and gas wells exploration funds, or loan products that are new and have never sold in a market

d. any commissions paid to the trustees, including things like golf vacations in Scotland or investment conferences at somebody's Alaskan hunting lodge

e. other involvements of the trustees with any of the principles of the fund-were they given a personal opportunity to get in on somebody's commercial real estate deal with 100% financing in exchange for using the trust fund's money in another commercial real estate deal with a big back in after payout?

3.participants in a company operated 401K, or a union pension fund should be offered easily transferred at no cost options like a mutual fund or inflation indexed treasury bond fund

4.. Boards of Directors or Fiduciaries should be liable for their mistakes, including liability that uses the assets things like their inhertited Testamentary Trusts to repay victims of malfeasance

5. a death penalty for corporations and people's careers. If a person uses a corporation to defraud others, the person should never be allowed to work in any financial capacity again. For example, any director of a company like Enron or Reliant or Duke should be prohibited from being an officer or director of any corporation. When a company like Reliant is found guilty of fraud like the California natural gas manipulation, all the officer's should be prohibited from being the officer or director of any other company, and the company sold to an honest company in the field, or the assets broken up and distributed to the victims, the creditors and the stock and bond holders, in that order.

That ought to be a pretty good start. The general principle is that the deals should be transparent, and Trustees and Boards shouldn't be allowed to shelter any assets from repaying injured parties. Let's allow people to know what their fiduciaries are really up to, and give them a no cost way of opting out.There's a lot of difference between a Bond fund in Treasury Inflation Indexed Securities, and a Bond fund in outlandish products that nobody can understand and are illiquid, like all the Tranches in the subprime loans. And last but not least by any means, why are corporations allowed to continue after they have engaged in criminal fraud? Why are multimillionaires on a board allowed to shelter any of their assets from the victims of fraud or gross stupidity? Why are corporate bondholders and lenders given preference in bankruptcys over victims of fraud?

Sonic: You didn't respond to Bob's post at all. What you did write was another of your long winded posts detailing your impressive resume. Obviously Bob is clueless as he didn't do "stat-arb". We are very impressed that you made money from LTCM. Congrats.

Sonic -
What's your take on the dollar right now?

hi racinginflation - you say ..

Peak Oil (or the day it becomes widely acknowledged) is a huge uncertainty

I'd say quite the opposite- when Peak Oil is understood for what it is - It will open the eyes to the fact of certainty, certainty for a less energitic future that is...

Right now the world economy has a “bad peak-oil disease” - and very few are aware – When the rest of the pack realizes this fact, world economy is rushed to the hospital for an overhaul and respirator – the big Question is when, and whether it’s spread to much ?!?!?
This ongoing Credit Crunch is to be seen as a minor flu...

The super Question though is - what's next ?

Rationing, restrictions, priorities, necessities- curb uprisings, ensure food supplies ....
ethanol for food, ban private cars - crash programs in speedy bus-constructions, work from home ...

EROEI scrutiny-programs -like have the WTurbine- and PV-manufacturers produce their products FROM "own energy", how does that play out, and so forth, bla, bla ?

Can the free liberal market-mechanisms actually handle expencive power at all ?

financial markets hate uncertainty

Actually, I'd say that financial markets love uncertainty - it gives them great opportunity to sell hedging instruments at inflated prices, trade them and play with volatility. The pros can more easily skim off the amateurs in such environments.

I would like to add to that speech a couple of snippets from the 30 July 2007 Newsweek review of Dick Cheney's authorized biography:

"Dick Cheney may be a taciturn man, writes author Stephen F. Hayes, but the vice president can become animated discussing doomsday scenarios."

"Cheney first embraced his belief in asserting executive power - the need for a strong president to rescue the country during crisis."

"In a revealing interview, Secretary of State Condoleezza Rice (at the time Bush's national-security advisor), told Hayes '[Cheney] read every intelligence report. I mean every intelligence report no matter how minor. So I remeber thinking he had an extraordinary memory...for all of these things.' "

Add all this up, and I think it's reasonable to believe:

Dick Cheney is fully PO aware, and is in the "doomer" camp.

If TSHTF during his watch, he will go for the "strong man" model to deal with the crisis.

God help us

Errol in Miami

Cheney spent a lot of time talking about GTL (gas to liquids). I assume the liquids are (or could be) propane? I haven't heard much about this -- is it moving forward, or was that just one of those flash in the pan ideas that didn't work out?