Ring Ring…

“Hi BofA, it’s your father the FDIC. Yes, I know its early, by OTS and I were talking and we think you and Countrywide have been having enough fun living together – it’s time that you made things more formal and tied the knot…. Yes, I know, but don’t worry, we can get around that silly ‘no more than 10% of the deposits in the U.S.’ rule – don’t you guys have a different charter? Anyway, you two can figure out some drastic personnel cost-cost cutting measures later, but right now, but you’ve spent enough money. Besides, don’t you want to pick up $1.3 trillion of servicing on the cheap? Think of all that free credit card junk mail you can send out to the new addresses…”

The BofA-Countrywide rumor turned into an official press release last night (soon followed by rumors of either Chase or Citi buying WaMu). There are also rumors about, since Moody’s downgraded over 30 Countrywide tranches of mortgage debt in addition to the company being near bankruptcy, that the Federal government will stand behind any Countrywide losses. Bank of America Corp., the biggest U.S. bank by market value, agreed to buy Countrywide Financial for about $4 billion in stock, five months after making their money-losing $2 billion investment. Countrywide shareholders will receive 0.1822 share of Bank of America stock, or roughly $7-something a share. (Not good for anyone who bought any above $7, but better than a bankruptcy!)

Shares of Countrywide shot up almost 50% yesterday on the rumors. The press had the usual “A Bank of America spokesperson said the company did not comment on market rumors or speculation. Calls to Countrywide were not immediately returned.” As we all saw, earlier this week, shares of CW dropped to their lowest level since early 2000 following speculation it was planning to file for bankruptcy itself. We will see what happens, as Countrywide’s loan portfolio is “troubled.” Changes in personnel, corporate structure, etc., were not immediately announced.

What else is going on?

• ComUnity Lending of San Jose filed for bankruptcy protection last Friday. Gone.
• Fed Chairman Bernanke's comments yesterday implied a 50 basis point cut is on the table for the Fed's meeting at the end of the month.
• Goldman Sachs came out with their forecast for the US economy. “We expect... the US housing and credit market downturn would trigger not just a growth slowdown and substantial Fed easing -- our long-standing view -- but also an outright recession. The latest data suggest that recession has now arrived, or will very shortly. The unemployment rate has now risen by more than 1/3 percentage point from the cycle trough. Historically, this has invariably been associated with recession, typically starting immediately and almost always within three months…The recession is likely to last 2-3 quarters and should be relatively mild by historical standards, with a cumulative decline in real GDP of only about ½% (not annualized). There are three reasons to anticipate a relatively mild downturn. First, we expect Fed officials to set aside their residual inflation concerns and cut the fed funds rate aggressively to 2½% by late 2008, with a 50-basis-point cut at the January 29-30 FOMC meeting. Likewise, 10-year Treasury note yields are likely to decline a bit further to 3½% by late summer. Second, with influential economists on both side of the aisle calling for fiscal stimulus, there is a decent chance that Congress and the Bush administration will agree on a temporary tax cut to take effect later this year, especially if the economic data remain weak. Third, although global growth is slowing somewhat, the weak dollar and the shrinking trade deficit are likely to continue to support activity in export-oriented sectors.”

"This is a good time for homeowners to refinance themselves out of ARM's way, some experts believe, since many homeowners are due for a rate reset on their adjustable-rate mortgage and that acting quickly will allow them to lock in a solid, low rate for the foreseeable future. Although conforming rates have reached a two-year low, jumbos are holding fast near the 7% mark. Speaking of rates, this morning we find ourselves at 3.88% on the 10-yr and mortgage prices slightly better – again! There is little scheduled news – the rumor mill seems to be generating enough.

A plane is on its way to Houston when a blonde in Economy Class gets up and moves to the First Class section and sits down. The flight attendant watches her do this and asks to see her ticket. She then tells the blonde that she paid for Economy Class and that she will have to sit in the back. The blonde replies, “I am blonde, I am beautiful, I’m going to Houston, and I am staying right here.”

The flight attendant goes into the cockpit and tells the pilot and the co-pilot that there is a blonde sitting in First Class that belongs in Economy and won’t move back to her seat.

The co-pilot goes back to the blonde and tries to explain that because she only paid for Economy that she will have to leave and return to her seat. The blonde replies, “I am blonde, I am beautiful, I’m going to Houston, and I am staying right here.”

The co-pilot tells the pilot that he probably should have the police waiting when they land to arrest this blonde woman who won’t listen to reason. The pilot says, “You say she is a blonde? I’ll handle this – I am married to a blonde. I speak blonde!”

He goes back to the blonde and whispers in her ear, and she says, “Oh, I’m sorry.” And she gets up and goes back to her seat in economy.

The flight attendant and co-pilot are amazed and ask him what he said to make her move without any fuss.

“I told her, ‘First Class isn’t going to Houston.””

Rob