Did the Fed move to save Countrywide and Goldman Sachs?

Did the Fed by lowering the discount rate move to save Countrywide Financial, (NYSE:CFC)? Well let's see.

CFC was on credit watch and its credit rating had been lowered by both Moody's and S&P and CFC could not borrow in the commercial paper market.

On Thurs. CFC had to tap out its credit lines for its last $11.5 billion arranged by 40 "banks".

In essence CFC had a 30 day death notice.

Also because CFC has a bank with "deposits" the LA times reported that customers had jammed the phone lines at CFC branches to withdraw their money.

Because CFC could not fund other than agency loans, the residential mortgage market was about to shut down.

For some unexplained reason as reported here Goldman Sachs and CFC were trading in lockstep point by point up and down.

The $11.5 billion line of credit arranged by the 40 "banks" was unsecured, i.e., the banks that arranged the line of credit had no security and would have been wiped out had CFC gone under.


So we can possibly conclude that the move was arranged to save CFC which in turned saved GS and the 40 "banks" that arranged the line of credit were spared $11.5 billion in loses for the time being.

However, GOIH Global Economics section have concluded that further action will be necessary by the Fed. This is only a short term fix for CFC. CFC still cannot package and securitize the new loans it originates and must hold them on its books.


We see opportunities in the mortgage lending sector for an investor wishing to make over size returns.