Countrywide Home Loans Going Bankrupt-Possible, But Not Likely

Merrill Lynch yesterday downgraded the stock of Countrywide Home Loans (CFC ticker symbol) and speculated on the analyst call just how they could go bankrupt. First this was irresponsible and reckless on the part of Merrill…or was it?

Since the call yesterday a lot has happened:

1. The stock has fallen about 10 points.

2. A class action stock holder lawsuit was filed claiming the stock holders were mislead about Countrywide’s strength.

3. Countrywide was forced to tap $11.5 Billion from their credit lines with every bank they know to put liquidity into their coffers and stay afloat.

Now you’ve got to ask yourself, “Who benefits if Countrywide stock drops?”

To answer that question you must remember a few months back when Jim Cramer of Mad Money fame admitted in an interview for TheStreet.com, the use of the media to manipulate stock prices. There once was a YouTube video of the interview which was quickly removed. The MyMoneyBlog said this when it posted the video,

“Cramer described how he would make bets that gave the impression knowledgeable investors were predicting a stock’s future. Cramer said everything he did was legal but added that illegal activity is common in the hedge fund industry, where regulation is lax.

Cramer said some hedge fund managers spread false rumors about a company to large trading desks and the media to drive a stock price lower. He said this practice is illegal, but easy to do “because the SEC doesn’t understand it.”

He also said Research In Motion and Apple are easy targets.

Mr. Cramer said he had used some of the tactics himself, including lying to “bozo” reporters to get them to report misinformation on particular stocks. He singled out CNBC’s Bob Pisani. He separated legal activities from illegal ones (such as “fomenting”), and never quite says he ever took part in the latter.”

So knowing this, could it be that Wall Street was shorting Countrywide and needed it to drop?

I don’t know…you be the judge.

According to Jim Cramer, it’s easy and common…

I do know this.

The fundamentals of Countrywide are not a safe bet with the market ahead. As I’ve written before, it’s why I shorted it a year ago at $32 and change. I don’t believe rumors or analysts and I certainly don’t believe any remarks that calls for a bankruptcy…that was just too outrageous. I do believe the stock will go lower, but it’s more likely that Countrywide will survive than not.

My opinion of course, not trading advice.

Please seek actually trading advice before investing or you get what you deserve…my disclaimer.

From a consumer standpoint, read my Countrywide Home Loans Review before called them for a mortgage!

Good Luck

Author: Rob K. Blake
Published August 16, 2007
Modified January 18, 2008

• Previous post in Mortgage News:
  Subprime Mortgage Meltdown Goes Global- Dow Plummets

• Next post in Mortgage News:
  The Mortgage Meltdown Has Only Just Begun