Countrywide Mortgage failed last year. Now a major investment company has gone under.

by Jeff Davis

The Federal Reserve has stepped in for the second time to rescue a major corporation swirling around the bowl. The first victim of our ongoing Housing Crash was the nation’s largest mortgage lender, Countrywide. Some sort of shotgun marriage was arranged with Bank of America to save Countrywide from outright bankruptcy. I doubt if Bank of America would take over a failing mortgage lender without some secret government guarantee that they won’t get pulled to the bottom like a row boat attached to a battleship anchor.

Now the investment firm Bear Stearns had to be rescued (although the ordinary investors saw their stock sink from $170 per share to $2 per share). Bear Stearns invested a little too much in home mortgages and that was enough to destroy a company that existed since 1923 with almost 14,000 employees. One wonders how many other firms will fail and how quickly the next dominoes will fall. (The Brits have already had to bail out one of their major banks that went bust, with taxpayer’s money, of course.)

The Wall Street Journal reports “Credit turmoil spread to the heart of the U.S. financial system as Bear Stearns Cos., an 85-year-old institution that has survived the Depression and World War II, sought and received emergency funding backed by the federal government. In an extraordinary move, the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep Bear afloat following a severe cash crunch.” Some of these companies can no longer pay the interest on the money they borrowed from the bigger lending sharks. This is leading to the kind of domino effect that may send the whole bunch of them crashing down.

The Journal continues “The maneuver signaled that the Fed was trying to move aggressively to prevent Bear’s crisis from spreading to the broader economy. But it seemed to do little to soothe fears. Bear’s shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading at 4 p.m. (last Friday) The Bear crisis, coming on the heels of this week’s implosion of a publicly held affiliate of Carlyle Group, further rattled Wall Street. The Dow Jones Industrial Average fell nearly 195 points. The lifeline gives Bear access to cash for an initial period of 28 days. J.P. Morgan will borrow the money from the Fed and re-lend it to Bear. Exact terms weren’t disclosed, but the amount is limited only by how much collateral Bear can provide, Fed officials said.”

JP Morgan apparently got some assurance that the Feds would insure loans sufficiently so that the Bear-Stearns takeover won’t destroy them too. Most of these Wall Street companies couldn’t care less if a rival was heading for complete ruin. Most would stand around like psychotic gang members as their rival bleeds to death on the street.

The Journal notes “The Fed, not J.P. Morgan, is bearing the risk of the loan. It is the first time since the Great Depression that the Fed has lent in this fashion to any entity other than a bank.”

It’s interesting that the analysts and media pundits are no longer waffling on comparing 2008 and 1929; even a few months ago, they put the Kibosh on any mention of the Great Depression.

OK, let’s run this down much more quickly and simply than the next 20 paragraphs of waffling verbiage from the Wall Street Journal. For the past eight to ten years, as the last remaining manufacturing base in America was shipped overseas to the Third World, the US made up for the loss of manufacturing capability through an artificially inflated housing market and through construction of millions of often poorly-built vinyl-boarded homes in tacky subdivisions, and poorly-renovated homes in reclaimed slum neighborhoods. Here in America we can do that because we still have effectively limitless space; our British cousins can’t because they’re on a rather small island and they’ve more or less run out of places to build new luxury suburbs –far from the blighted inner cities with their huge Third World populations.

All of this building was financed with BORROWED MONEY, which most people know, but what they don’t know is that the banks who lent them their mortgage money also borrowed it from bigger banks and so on creating a nice neat line of dominoes.

For a while housing prices soared into the stratosphere because people were buying homes not to live in, but as speculative investments to try and “flip” for huge profits in the ever-rising market. This amounted to another attempt to get rich quick without actually making or producing anything, and to make up for the fact that it’s no longer possible to get a real job at a living wage in America since we shipped all our real jobs overseas.

Now, for some reason I have never understood, Americans have never been able to wrap their minds around the simple fact of life that what goes up must eventually come down. It has always been as easy as pie to convince Americans that happy days are here forever and that a market, be it the 2008 housing bubble or 1980s junk bonds or the 1929 stock market will always rise and never collapse. But they do collapse, eventually. That’s what bubbles do.

The housing market has now collapsed because banks were lending money hand over fist to people whom the most rudimentary background check would have revealed could not pay their mortgages: mostly blacks and illegal aliens of various kinds. That’s how they kept the money flowing, by lending to every Tyrone, Deepak and Jose who walked in the door. Don’t ask me how anyone can possibly be so stupid as to sign one of those adjustable rate mortgages. But these sub-prime borrowers did, by the millions.

Izzy’s Mortgage Bank will soon go down because Jamal and Jose quit paying their mortgages. When Izzy finally forecloses, he will find the house has been trashed by the crackhead losers who lived there and will cost him $100,000 just to repair the house. But no one is buying because the flow of borrowed money has been choked off by all the defaults and also because no one has a decent job any more. The young married couples, who normally would be buying houses to raise families, are all renting, because they’re flipping burgers and doing temp jobs in cubicles in white-collar serfdom (actual high-paying cubicle jobs are quickly being undercut by Indian immigrants who work cheap and are mostly incompetent.)

Izzy accordingly can’t pay his own borrowing debt to Goldstein Mega Bank. Goldstein can’t pay his bank’s borrowed debt to Rothschild International Bank of Switzerland. You see how the domino theory works?

What Federal Reserve head Bernard Bernanke is now doing is simple: He is starting up those printing presses and printing more money, billions of dollars of it, which he is then “selling” to the merchant banks and mortgage outlets for “bonds” (worthless IOUs). Meanwhile what little money we have in the bank is badly devalued, as inflation takes off.

Soon we may need a wheelbarrow full of money just to buy groceries at the local market, like they did in Weimar Germany in the 1920s and like they do in Zimbabwe today. But don’t worry, we’ll soon have President Obama so that we can have a matching Third World economy and Third World president all at the same time.