THIS ISN'T WHAT ADAM SMITH HAD IN MIND ...

In the previous post we learned the following about Countrywide:

1. The company’s stock price went into free fall in 2007 while its 3rd and 4th quarter performance saw losses in excess of $1.6 billion.

2. To soften the blow of increasingly unstable subprime loans on their books, Countrywide turned to the federal government for over $50 billion in loans.

3. As collateral for these loans, the federal government accepted Countrywide’s toxic subprime waste as collateral, in the process sticking the American taxpayer with Countrywide’s garbage.

4. At the same time, Countrywide’s board members and executives cashed out enough millions of dollars in options to be investigated by the Securities & Exchange Commission.

Well, brace yourselves. It looks like more Countrywide ugliness is around the corner.

Countrywide has billions in loans that allow(ed) borrowers to pay a lower amount on their monthly mortgage than they actually owed (with the unpaid balance added to the principal). The result? Countrywide is now warning of defaults in these once highly-touted “pay-option” loan programs. Not surprisingly, they’re laying all the blame on the homeowners, claiming:

“Our borrowers’ ability to defer portions of the interest accruing on their loans may expose us to increased credit risk …”

This makes so much sense.

I mean, who can blame the creditors and brokers who made stupid decisions by selling home loans to deadbeats and the unemployed, and then saying “I don’t need documentation”? Why should Countrywide be blamed for their part in the industry stampede to underwrite irresponsible loans to people with “no income, no job, and no assets” (so called “ninja” loans), right? That would be like blaming drug dealers for selling … Oh, wait, never mind …

Seriously, if we accept Countrywide’s claim that home owners alone are at fault for the financial mess around the corner – while the federal government continues to bail out only the investors – all notions of accountability in America's capitalist markets fly out the window.

Adam Smith, the intellectual godfather of capitalism, is no doubt turning in his grave.

- Mark