Dark Clouds on the Financial Horizon
Subprime mortgage disaster may cost $460 billion: four times early estimates.
by Charles Coughlin
A recent Bloomberg news article reports “Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc. Profits will continue to wane, other analysts said. ‘There is light at the end of the tunnel, but it is still rather dim,’ (according to) Goldman analysts.” Or maybe the dim light in the tunnel is an oncoming train.
Countrywide, the nation’s largest mortgage lender has collapsed. Somehow, Bank of America was persuaded into buying up Countrywide even though many people wondered why they would pay anything for a company headed for bankruptcy with a ton of debt. It seems as though the Bush administration or the Fed must have pressured Bank of America into “a shotgun marriage” to avoid a total bankruptcy of Countrywide, which might tend to panic people.
Will the Countrywide acquisition eventually destroy Bank of America? The Bloomberg article notes “Bank of America Corp., the second-biggest U.S. bank by assets, was downgraded to `sell’ from `neutral’ at Merrill Lynch. The company, based in Charlotte, North Carolina, also had its earnings-per-share estimate lowered to $3.30 from $3.50 in 2008 and to $4.00 from $4.40 in 2009, analysts including New York-based Edward Najarian wrote in a note to clients today.” (more…)
