Countrywide's complete 180

It's worth remembering in the early stages of a credit crunch that the first estimates of the likely fallout are always the kindest.

It seems on a daily basis now that we are inundated with reassurances from government officials and corporate executives that there is nothing to worry about.

However reality has a habit of intruding on the Alice in Wonderland scenarios of such people thus calling into question their credibility. You might think such instances are an opportune time for reflection and admission of a few home truths.

Not so, the vested interests retreat further into their shell of denial and delusion repeating the same mindless platitudes and in the process make themselves look even sillier.

Thus you have the Federal Reserve androids of Bernanke and Paulson robotically repeating that the sub-prime issue is largely contained. The chorus of lemmings on Wall Street give credence to the Fed's nonsense by nodding there heads in unison.

You know things are getting bad when the semi-literate, bible beating chimp that inhabits the white house gets up in public and starts touting the strength of the US economy.


Therefore when we heard the largest mortgage provider in the US, Countrywide Financial Corp. (CFC) announce on August 2nd that:

"Countrywide has long standing and time-tested funding liquidity contingency planning," said Eric P. Sieracki, Chief Financial Officer. "These planning protocols were designed to encompass a wide variety of conditions, including recent secondary market volatility. Our liquidity planning proved highly effective earlier during 2007 when market concerns first arose about subprime lending, and remains so today. We place major emphasis on the adequacy, reliability and diversity of our funding sources. It is important to note that short-term liquidity is used exclusively to fund our highest credit quality, most liquid assets.

"Our mortgage company has significant short-term funding liquidity cushions and is supplemented by the ample liquidity sources of our bank," Sieracki continued. "In fact, we have almost $50 billion of highly-reliable short-term funding liquidity available as a cushion today. It is important to note that the Company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper.

"Countrywide's financial condition remains strong, as evidenced by over $14 billion of net worth, significant excess capital and our strong investment grade credit ratings," Sieracki concluded. "Two independent credit rating agencies, Moody's Investors Service and Standard & Poor's Rating Service, this week re-affirmed their ratings and stable outlook for Countrywide, its bank and its mortgage company."

we may have had cause to be a little skeptical. Then on August 9th our skepticism would have been justified as Countrywide announced:

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.

Mmm something doesn't quite add up here. Also of interest was an SEC filing showing that Countrywide CEO Angelo Mozilo exercised options for 92,000 shares of common stock on Wednesday for $14.69 each and then sold all of them the same day for $28.74 each - pocketing a cool $1.29 million. Coincidence? I think not.

Acknowledgement should go to Michael Shedlock for his post on this topic at MGETA. Click here for Michael's full article.