what to think? Countrywide Financial gets 2 billion from Bank of America and draws down 11 billion from lines of credit. Yet now they lay off 20% of their work force, and are negotiating with other banks and hedge funds (!) What’s next, a loan from the Teamsters’ Trust Fund? or the Mafia? Does this sound like a company that’s going to be around next month?
Unlike traditional bank lenders, Countrywide had relied to a great extent on Wall Street for short-term funding by selling commercial paper, or short-term IOUs — the market for which has evaporated along with investors’ hunger for many of the company’s mortgages.
A related piece describes the role of hedge funds in this meltdown:
… H&R Block Inc. said it would lay off 545 workers at its Irvine-based sub-prime unit, Option One Mortgage Corp., on top of 615 jobs it cut in May. Block is trying to complete the sale of Option One’s remains to a hedge fund.
Countrywide is the country’s largest mortgage company.
And this crisis won’t peak for another 8 months.
I’d say Countrywide is on life support.
The employees are suing, because their 401-k plan was made up of about 1/3 Countrywide stock, which has fallen 60%. The suit claims the company knowingly engaged in risky behavior and did not exercise due care to protect the employees interest.