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When a 'Rescue' Is Not: Bank of America Buys Countrywide

When Will 'Rescue Me' Become A New National Anthem?

Danny Schechter

rescue |ˈreskyoÃ…Â|verb ( -cues , -cued, -cuing ) [ trans. ]

save (someone) from a dangerous or distressing situation

an act of saving or being saved from danger or distress

New York, New York: Who doesn't love the idea of a dramatic rescue--like saving a child who fell in a well, bringing miners out of danger from a hazardous hellhole, or the courage of that hero who jumped on the subway tracks to safeguard a passenger in the way of a speeding train?

We appreciate rescue helicopters, rescue squads in fire departments---New York has a big fully equipped van called "Rescue One,"-- or the daily bravery of the Coast Guard plucking unskilled seafarers from turbulent waters. The more risky the rescue, the more we like it.

But now even a self-interested maneuver by America's biggest consumer bank (net work $175 Billion) is being cast in a heroic light as in the "rescue" of America's biggest mortgage company, Countrywide Financial, by the Bank of America. (NY Times headline: "Bank is Seen as Rescuing Giant Lender.")

When the four billion dollar deal was leaked to the media, the markets were ecstatic and the share price went up. The acquisition crazed BOA which, thanks to new bank-friendly laws and deregulation, went from being a Western institution to a national one, was said to be acting to prevent the collapse of a company vital to saving the national economy.

"My hero?"

Actually, the Bank had invested two billion in Countrywide last August which was then seen as a great deal. They had paid only $18 dollars a share for 16% of the company. But the value of that investment fell by nearly half in just a few months. As the housing market went into free fall, Countrywide did as well with 7.2 percent of the loans they were servicing in serious arrears. Foreclosures on their properties had doubled. Their $11.5 billion dollar credit line was just about gone. Wall Street turned off the money pump. The company had $15.5 billion in debt maturing this year.

The vultures were overhead. Lawsuits were flying and investigators were at the front door with subpoenas charging predatory and discriminatory practices. They were already laying off thousands of their 51,000 people. This was forcing the Bank of America to do the same.

What should BOA do? Write it off, or throw "good money after bad"? They had a better idea-prey on their weakness, and take over their business. They knew that when one of BOA's large investments got into deep trouble, BOA could also get into trouble. So, if Countrywide went down, as many feared and some predicted, that could dent the Bank's other ambitious and often avaricious strategies.

BOA smelled a firesale.

Countrywide was going down. The LA Times reported: "the market in the first three days of this week marked down the value of the business by an average of 15% a day. The stock reached an 11-year low of $4.43 at one point on Wednesday."

"You can't have too many 15% down days before a company's market value nears zero. That message had to be coming over loud and clear at Countrywide's Calabasas headquarters."

BOA played the calvary over the hill, swooping in to make an all-stock deal, offering less than $10 a share. And just for making the offer, their own stock price went up 56 cents a share, thank you very much. The deal will close after the Federal Reserve Bank's next rounds of expected rate cuts so money will be even cheaper then. Brilliant. The bank also knew from one of its own studies that the housing slump will persist well into 2010. But when it ends, they will emerge as king of the housing hill.

In fact, the SEIU union has opposed the deal arguing it leads to more economic concentration, which is bad for consumers. And it could lead to more mergers, says Jim O'Shaughnessy of O'Shaughnessy Asset Management: "I would not be at all surprised to see another half-a-dozen (similar transactions), I would not be at all surprised to see more (subprime) write-down."

Nevertheless, according to our laudatory press, Countrywide had been "rescued." CEO Anglelo R. Mozilo kept his job for the rest of the year and will walk away with more than half a billion bucks when you factor in his generous compensation, options, and $72 million "exit package."

Mozilo who has been called snake and snake oil salesman, was branded a "rogue" lender by the Center for Responsible Lending, an advocacy organization. Unfortunately, most of the news reports did not report on the dismal experience of many of his customers See this website for some:

A week ago, I was on a panel on subprime lending with New York Senator Chuck Schumer who said he wanted to see Mozilo "boiled in oil-figuratively." He added, "if he doesn't like it, 'TFB'." Translation for those not from Brooklyn: "Too F*cking Bad."

Them is fighting words.

But Mozilo is likely to be boiling instead on some beach in the Caribbean.

Unlike millions of families facing foreclosure nationwide, he has been "rescued."

For the rest of us, rescue is not in sight.

A day later when it was clear that this one transaction could not turn around a failing economy in recession, the stock market dropped by over 200 points. The housing crunch, the credit crunch, and the debt burden are still with us as legitimate worries about the economy become the top concern for voters.

Last week, the Wall Street Journal reported that consumer borrowing and credit card balances are at record highs. Consumer spending now represents two thirds of all economic activity. Driving this is all the debt we are shackling ourselves with.

In the days before its bubble burst, Countrywide was a paragon of optimism projecting ever rising housing prices. As long as everyone was making money, few questions were raised. Now everyone is asking questions that have so far have produced few answers.

Last week, at his annual Wall Street Project, Jesse Jackson was demanding the formation of new government financing mechanisms like the ones that helped end the depression and bail out the S & Ls. He wants lenders to "restructure loans, not foreclose on homes."

In this election cycle, and with Bush still in office, it seems unlikely that a rescue plan for America is in the offing unless people push for one. Remember: the finance industry, along with real estate interests are the two leading financiers of politicians.

It is the banks that are getting the bailouts, not victimized homeowners. They now even want relief from consumer-protection regulations they consider too costly or cumbersome to enforce. More billion-dollar write-downs are in the offing as joblessness rises along with the cost of home eating oil and just about everything else.

When media outlets were hyping the holiday shopping season with upbeat coverage to help advertisers, consumers were staying home. Commented macroeconomist Ellen Zentner on the final sales report: "It shows that the US economy absolutely tanked in December."

So much for believing what you read in the press!

BOA branches and ATM machines have spread like acne across the country with one storefront opening in my neighborhood two weeks ago. In the last two years, eight banks have opened for business in an eight block shopping avenue as the financialization of our society continues unchecked.

New Year's prediction: you will see more protests against financial predators in the year ahead. Does anyone remember the Santa Barbara insurrection against the Bank of America back in 1970. A poster celebrating those times cames in the form of a colorful BOA check. Only this one had the news photo of the local branch burning.

That symbolic act did not change bank practices. In those days, the slogan was "Don't Bank on Amerikkka." In a metaphorical sense, it is the country's economy that is burning now. Don't bank on easy fix. It's time for musicians to do a new anthem a la "We Are The World." Only this time, it should be aimed at Americans. How about a remake of that old Fontella Bass tune, "Rescue Me?"

News Dissector Danny Schechter directed the documentary In Debt We Trust ( and wrote the e-book SQUEEZED ( Comments to

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