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November 29, 2007

Professor Roubini on Country Wide Financial

From Nouriel Roubini's Global EconoMonitor:

"The letter by Senator Schumer questioning the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret - that was known only to a few insiders and was noticed on this blog a month ago – that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers’ money. Here is Countrywide - the premier poster child financial institution of the reckless and predatory lending practices of the last few years – getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages – and whose CEO Mozilo is under SEC investigation for potentially illegal activities – now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending. Mozilo is under investigation for his accelerated sales of Countrywide stock under a 10b5-1 plan. Mozilo has made more than $100 million on stock sales this year, while Countrywide shares collapsed more than 50%...

...The lesson of this sad and sleazy episode is that when profits are privatized and losses are socialized we get sleaze capitalism and corporate welfare that becomes public bailout of reckless lenders. All this from a US administration that hypocritically praises every other day the virtues of private markets capitalism. For all of us who do truly believe in free market economies where a variety of public goods are provided by governments and the financial sector is properly supervised and regulate this is not a capitalist system but rather socialism for the rich."

There it is in a nutshell - this situation is a microcosm of what is wrong in the US right now. News about Schumer's letter here.


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