“Countrywide Financial Corp. Chief Executive Angelo Mozilo said Thursday the housing market is showing no signs of improvement and could lead the U.S. into a recession.” (Countrywide CEO: economic outlook grim)

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Comments from “Plugged-In” Readers

  1. Posted by [Larry]

    Angelo Mozilo was asked today point blank whether he believed that housing declines would lead us into recession. His answer: “I think so.”
    Bear in mind that this was AFTER his company got the $2 billion investment from Banc of America.
    Perhaps his predictive ability can be questioned because he suggested in the spring that things looked pretty contained, only to turn around months later in the summer and say that nobody could’ve seen how badly things could deteriorate so quickly.
    On the other hand, if an industry veteran who has always been pretty optimistic has suddenly turned pessimistic, either (a) he doesn’t get it and people who know better will take the contrarian bet and use this fear as a buying opportunity, or (b) he does get it because he’s spending every day working on this stuff up close and personal, and people who disagree with him are natural optimists who won’t believe a recession can happen unless it actually does.

  2. Posted by ex SF-er

    Mozillo should go to prison.
    Over the last few years, he has cashed out $500 MILLION of his stock in Countrywide, all the while telling people that there was no bubble, then that it wouldn’t affect CountryWide, and so on. (if it wasn’t affecting Countrywide, then why sell???)
    Don’t listen to what he says… look at what he DOES. He’s cashed out at least $11 Million in the first half of August alone.
    http://finance.yahoo.com/q/it?s=CFC

  3. Posted by tipster

    Having worked in corporate communications during a prior lifetime, I can tell you that very few executives speak off the cuff. We rehearse the questions with them and come up with answers for the executives that disseminate information to try to influence things to happen the way we want them to.
    Now lets say, hypothetically, that the entire financial services industry would like to go back to lending exactly the way they were so that they can make piles of cash. There’s one problem with that today: the investors will demand higher risk premiums than they had been.
    You can do one of two things to get there. One, you can raise the mortgage rates. But that will lower home prices and people will balk at buying homes as prices decline. So that would be bad.
    Hmmm, what to do to get the spreads between safe investments and your lousy, risky mortgages to be higher without raising your rates?
    I know! I know! Get everyone else to lower their interest rates for every OTHER investment! That way, you can hold your rates where they are and the spread will increase to the point where you can get investors to again take risky loans without raising the interest rates much above where they had been.
    So now that Countrywide has some breathing room, at least for now, that guy’s next objective is to get interest rates dropped. So he will now be Mr. doom and gloom. That’s what his handlers in Marketing Communications are telling him and so that’s what his message will be for the next few weeks.
    BTW, interest rates on other consumer loans have spiked up, such as auto loans. And the head of the largest car dealership chain is pretty much singing the same tune. He said consumer sales of autos were terrible.
    Everyone is piling on Uncle Ben’s back right now trying to get him to drop real interest rates on September 18, not the phony drop of last week.

  4. Posted by Monkey In Chief

    This is self-severing dribble from Mozilo. He probably is angling for a combination of a rate cut and government bailout of underwater borrowers. He’s probably already used the decline in Countrywide’s share price to grant himself a huge new pool of stock options.
    A government intervention through cutting interest rate or a bailout will probably make him 100s of millions even richer. I would not believe a damn thing he says.
    Additionally, a recession is probably inevitable. Consumer spending has been driven by HELOs and cash out refis. Even just flat housing prices are going to dry up this easy source of debt and thus reduce consumer spending.

  5. Posted by badlydrawnbear

    and the pile on goes global as the World wakes up to the lack of US lending standards
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/20/bcnswiss20.xml

    Switzerland’s top banker has warned of massive losses from the unfolding credit crisis, describing the collapse in US lending standards as “unbelievable”.

    Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.

    “We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,” he said. “Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,” he said.

    http://www.iht.com/articles/ap/2007/08/23/business/EU-FIN-COM-Germany-SachsenLB-CEO-Resigns.php

    FRANKFURT, Germany: The chief executive of Landesbank Sachsen, which last week sought a billions of euros in credit to help protect it from losses in the U.S. subprime mortgage market, said Thursday he is resigning.

    Landesbank Sachsen, a state-owned wholesale bank, said Friday it would need a €17.3 billion (US$23.48 billion) credit line from other banks to help it counter risk from exposure to the U.S. subprime credit business.

  6. Posted by Trip

    I certainly do not want to see a recession and hope that whatever Fed action is spurred by these developments will prevent it (or ease the length or depth). But relevant to this board’s topic, given that SF prices have been trending down for a year in a strong economy (or have been flat at best for those who wish to see things through rose-colored glasses), it is pretty easy to see how the trend will progress if the economy does indeed weaken.
    Lower housing prices are better in the long run. But I hope that the pain of getting there does not hurt too many people. Unfortunately, I don’t think that is possible — too many people who could not afford to do so bought or refied at the peak.

  7. Posted by SerialJingleMailer

    Tipster, you offer an interesting take on “real” vs. “phony” rate controls on the part of Uncle Ben. I understand why you use those labels, given the relative market influence of the discount rate vs. the Federal Funds target.
    But the labels are backwards, in literal terms. The discount rate is a real interest rate, and it’s the one the Fed really can directly control. The one you’re calling “real” is a target, it’s not a real interest rate at all.

  8. Posted by Jamie

    I’m with Tipster on this one – he’s trying to fan the flames of rate cuts. No rate cut on September 18th.

  9. Posted by Dave

    I’ll bet anyone on here $$$$ that the fed cuts the rate by at least .25 {possibly .50} in September. I will also put up more $$ that we will see total cuts of at least .75 by the end of this year.
    Too many factors here to list….. Anyone that thinks otherwise doesnt see or understand the full picture

  10. Posted by Jamie

    Why would the Fed subsidize the risk premiums for asset-backed securities that do not provide value transparency? Is the price of milk going down because mortgage rates have increased? Unemployment remains under 5% – not too shabby. The stock market seems to have stabilized – at least it isn’t dropping sharply on a daily basis like last week. I think the Fed will continue pumping money into the market to keep Fed Funds unofficially below 5.25%, but my armchair hunches don’t indicate rates should be going down – quite the contrary.

  11. Posted by JJ

    Jamie…sounds like you and Dave disagree. Why not take his bet and make some $$$ off this!?!?!

  12. Posted by missionite

    OK Dave, I’ll take your bet. $10 says we don’t see a rate cut in September. Another $25 says we won’t see total cuts of .75 by the end of the year.
    Game? If so, just say so, and we’ll figure out some way to get this done.

  13. Posted by developer

    Our economy survived the dot com bubble even after being attacked by terrorists. It’s remarkably resilient system. There will be fall out, it will likely be contained to the home owners who were truly lent too much, the institutions who lent that money, and subsequent funds that bought that debt. Unfortunately our favored asset class is cyclical and these developments are only putting further downward pressure on our business. However, remember, this whole real estate cycle was really only a result of the markets being flooded with capital after Greenspan dropped rates to almost 0 post 9/11. Now that the capital is drying up, it will have an inverse affect. Our business was only in a bubble because the money was available to consumers inflate it.

  14. Posted by vox

    The market for Treasuries is already forecasting a cut in the fed funds target.
    Mozilo is a [fool] to suggest the discount window rate needs to match the fed funds rate. What’s his plan? Borrow really really short to lend really really long? LOL! Good luck with that.

  15. Posted by anono

    the Fed no longer needs to be concerned about the lack of transparency in the value of mortgage backed securities because no one wants them anymore anyway. A rate cut is all but certain in order to head off a recession. If you’re a believer in conspiracy theories however, the fed could not cut rates and watch the economy fall into a recession and hand the whitehouse to a democrat just like in 1992.

  16. Posted by Dave

    Missionite..
    DONE AND SOLD…You have my absolute word that if we do not see a rate cut in September that I will paypal you $10…{virtual handshake}
    This should be interesting…

  17. Posted by james

    you guys would go buy or sell some treasuries if you really had any balls…
    ;)

  18. Posted by Jamie

    No money to gamble here … :)
    As far as Fed Funds futures go, they have been baking in a target rate cut since last July more or less – and the Fed has left the target at 5.25% the entire time. It was only mid-June that the market swallowed hard and seemed to accept the Fed wasn’t going to move anytime soon, and rates on Treasuries started picking up (2-year got up to around 5.15%).
    If unemployment jumps above 5% and consumer spending declines significantly, maybe we’ll see a rate cut in 2007. Otherwise, I wouldn’t count on it – and the Democrats should win the White House regardless. ;)

  19. Posted by gladisold

    what a mess – no doubt the results of this fallout will mean housing prices going down – sf included. great buying opportunity in next 18 mos.
    how about that tan on angelo? lol.

  20. Posted by Julian Hebron

    I have to say, I don’t have a problem with Mozilo and his stock sales. he came up organically unlike many execs, and so be it if he sells (especially when compared to [Removed by Editor] like Terry Semel who ran yahoo into the ground and took 72m before he was fired). As for Mozilo’s comments, he’s right to advocate for the Fed to cut the Discount Rate further before cutting the Fed Funds Rate. Lower Discount funds would bring the liquidity banks need right now. This option needs to be exhausted before Fed Funds Rate cuts. Cutting Fed Funds too soon is inflationary, and also helps bail out high-risk hedge funds and lenders that should go down.

  21. Posted by missionite

    Dave, you have my absolute word as well. This will make waiting for Sept 15th fun indeed. I love goofy bets.
    The way I see it, I got the better end of the deal, since if the fed starts dropping the rate then thanks to the subsequent inflation my $10 will be worth less. ;)

  22. Posted by Ron

    FYI, Discount rate historically have been 1% higher than the Fed fund rate (it was 6.25% unitl last friday and fed fund 5.25%, now Discount rate is 5.75% and fed fund will go to 4.75%)….i mean fed will cut the rate for sure….not all the way to 4.75% at once but during next few months…
    /R

  23. Posted by Dave

    See you back here on 9/18
    Dave

  24. Posted by Ron

    okay…
    /R

  25. Posted by missionite

    It’s far too early to get excited, but this certainly bodes well for my end of the wager:
    http://www.breitbart.com/article.php?id=D8RA7N3G0&show_article=1

  26. Posted by Dave

    Followed by a day of record gains on the 29th based on just the opposite..
    Don’t worry about the “news media” …they never get it right because it is always mainstream info

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