Fed Rate Cut By 0.5 pt, Federal Reserve Meeting Lowers Interest Rate to 4.75 pct
Today the Federal Reserve announced a Fed rate cut of half a point to 4.75 pct.
The announcement by Ben Bernanke after the Fed meeting has come after increasing pressure caused by the recent credit crunch.
This financial turmoil has caused considerable damage to the markets and major companies are in serious trouble with mortgage and home loan stocks such as Northern Rock and Countrywide Financial losing billions in market value from severe decline in their stock prices.
The Fed rate cut should offer some relief to the financial markets but will it solve the financial crisis longer term?
Market analyst Sam Kirtley of The Gold Prices Newsletter doesn’t think that the Fed rate cut is enough, “Cutting interest rates will not stop the coming major recession and continuing credit crisis. Even this Fed rate cut, will only buy Bernanke some time. We see this turmoil getting much worse before it gets better and so we are urging our subscribers to invest in gold and gold stocks to protect their wealth and profit from this coming crash.”
Do you think this Fed rate cut of half a point is enough?
If no what can Bernanke and the Fed do to stop this crisis?
Or is a crisis even coming? Do you think these financial and credit worries will blow away?
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FOLLOW THE MONEY!!!!!
The Secretary of the Treasury Henry Merritt “Hank” Paulson Jr (the former CEO Goldman Sachs) puts together a meeting with his pal Angelo Mozilo of Countrywide, and the folks over at Wells Fargo, CitiMortgage and JP Morgan Chase. Shortly after that meeting Countrywide announces it has lined up $12 billion in additional financing. Could it be anything other than a coincidence?
Speaking of coincidences.
In 2006 industry insiders were pointing out that subprime was beginning to show signs of serious problems. One of the big losers in the subprime mess is none other than Goldman Sachs. Is it just a coincident that around the same time this administration appointed Henry Merritt “Hank” Paulson Jr the CEO of Goldman Sachs to the position of Secretary of the Treasury? FYI Goldman Sachs Global Equity fund, with $7.5 billion in assets, fell 23 percent in August
Show me the money.
This liquidity fairy tale could be short lived. Countrywide claims they have raised over $23 billion. Given Countrywide’s lack of disclosure about this latest 12 billion in new found credit, one must wonder about the lenders, the costs, and the level of collateral. What if the “additional funding” and liquidity is less about outside credit sources and more about migration of funding its originations through the (Countrywide Bank) thrift and the increased pressure on regulators to allow further easing of the rules on what is and what is not a non performing loan and the corresponding treatment of reserves.Countrywide claims they have already done some type of restructuring for over 35,000 borrowers. Given that Countrywide is no longer under the more rigorous scrutiny of the Comptroller of the Currency but rather under the somewhat more liberal OFFICE OF THRIFT SUPERVISION I wonder what percent of borrowers in trouble are actually accounted for in their loan loss reserves. And what are the accounting methods being used for the projected losses on the more than 12,000 houses that Countrywide acquired through foreclosure that are currently for sale?
What’s Countrywide going to do with all that bailout credit?
Rumor has it that Countrywide has been forced to buy back some devalued mortgage-backed securities (MBS) from hedge funds, investment banks at full price, According to Fitch Rating Services up to 80% of all option ARM borrowers make only the minimum payment each month so the worst could be yet to come as housing prices further deteriorate and borrowers with negative equity quit paying and walk away! Those ARM loans originated in 2006 won’t begin to reset until 2008. Countrywide was the nation’s No. 3 subprime mortgage lender in 2006, making $40.6 billion of those loans, and the No. 2 Alt-A lender with $68 billion. I do not pretend to know what their buy back agreements were when they securitized and sold these mortgages, but with these potentially larger losses looming on the horizon you have to wonder what kind of financial condition they will be in 12 months from now.
Countrywide spent over $700,000 in the first six months of 2007 on lobbying.
It is no surprise that Countrywide has their lobbyists out in front of the story. And to be fair it is a bipartisan effort. Guess that is why Sen. Charles E. Schumer (D-N.Y.) of the Senate Banking Committee is calling on Countrywide to refinance the bad mortgages they made. Schumer is in effect suggesting that we put the borrower in a government insured loan which in effect means that when the mortgage finally goes belly up we all end up paying for it all over again. What a great idea…. Countrywide already sold the loan and made a fat profit and now they want to double up at our expense. Countrywide redeems itself in the investment community by helping the investors get rid of their non performing loans by refinancing the defaulting borrowers into government insured mortgages. Best of all Countrywide earns huge fees all over again. Countrywide Mortgage,
Prediction: 12 Months from now Congress holds hearings on the role Countrywide, Wells Fargo, CitiMortgage and JP Morgan Chase had in the biggest loss of equity the world has ever seen. A key witness will take the fifth. Will that witness be Henry Merritt “Hank” Paulson Jr. ??