It's time for central banks to stop bailing out markets

The global credit bubble is bursting. This bubble is primarily leverage financing for owning risky assets. The people who were responsible for what happened played with other people's money, marketed arcane financial products with false promises of fat profits, but stuffed their own pockets with big bonuses. Neither these masters of the universe nor their greedy but naïve investors deserve to be bailed out. They deserve what is coming to them. The central banks bear equal responsibility in the current debacle. After 9/11, central banks cut interest rates dramatically and provided the cheap money for this leverage bubble. They must not flood the world with liquidity again to sustain this bubble or create another.

Ameriquest Closing Its Doors

The last assets of its parent ACC were sold to Citi today. This is largely a formality, since the company had ceased origination at the end of last year.

Lousy business model (lending to subprime borrowers) but great Super Bowl commercials.

Earthlink Lays Off Half Its Workforce

EarthLink, one of the few survivors of Atlanta's tech wave of the 1990s, said it will slash its work force nearly in half in an effort to stabilize its business after a string of losses. The company will focus on providing Internet access while cutting 900 jobs -- 562 of them in Atlanta. EarthLink last quarter reported a $16.3 million loss, following losses of $30 million, $24.8 million and $3.2 million in the previous quarters. Perhaps more ominous, revenues stagnated. EarthLink reported revenues of $312 million in the most recent quarter -- a third consecutive quarter of decreasing sales.

The company will close its Orlando FL, Knoxville TN, Harrisburg PA and San Francisco CA offices and substantially reduce its presence in Pasadena CA and Atlanta GA.

Krispy Kreme posts loss

KKD posted a net loss of $27M for the quarter ending 7/29/2007. That comes on the heels of loss of $7.4M and $24.4 in the prior two quarters.

Countrywide

Some interesting discussion on the MarketBeat blog (emphasis mine).

Investors jumped for joy on news of Countrywide Financial’s $2 billion gift, er, investment from Bank of America, which got a nice deal by investing in convertible preferred shares, and gets the platitudes for putting down money to help assuage those worried about the going health of one of the nation’s biggest mortgage lenders. Bank of America gets a $2 billion stake that pays them 7.25% annually in interest, and converts to shares at $18 each.

Rob Cox of Breakingviews.com notes: “If Countrywide’s recent woes are primarily liquidity driven — that is, they are simply a consequence of the bank’s inability to fund itself – then BofA boss Ken Lewis’ investment will prove masterful.” But Doug Kass of Seabreeze Partners Management, who is shorting Countrywide, notes that “the discounted strike price of its non-voting preferred security speaks volumes about Bank of America’s financial and operating concerns facing Countrywide Financial.” After all, the housing shakeout isn’t over, and Countrywide holds nearly $30 billion of option ARM mortgages, where defaults are rising, according to Breakingviews.

John Succo, in Minyanville, agrees, saying the terms of the deal were “struck at egregious terms for CFC,” and it will dilute earnings. It’s hard to know whether to take comfort from CEO Angelo Mozilo’s interview on CNBC, either — within the span of a few minutes he’s blamed the current problems on the Federal Reserve, frightened investors, and worried sell-side analysts (Merrill Lynch in particular). “The problem at Countrywide Financial is that it originated crappy loans — thats how it got into the problem in the first place,” Mr. Kass writes in an email.

Note that Countrywide common shares have fallen 38% in one month, from $34 to $21.

Capital One to close mortgage unit

Capital One Financial said Monday it will cut 1,900 jobs and shutter its wholesale mortgage banking business, a move that comes as lenders continue to struggle in the nation's housing and mortgage markets. Capital One said it will shut down GreenPoint Mortgage and eliminate most of the jobs by the end of year. The company will close 31 GreenPoint locations in 19 states and "cease residential mortgage origination" effective immediately.

HomeBanc Files for Chapter 11 Bankruptcy

HomeBanc today announced that, after careful consideration, its Board of Directors has authorized the Company's management team to seek protection for the Company through the bankruptcy process in order to best preserve the value of the Company's remaining assets. Accordingly, HomeBanc Corp., together with certain of its subsidiaries, has today filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. HomeBanc believes that, under the protection of Chapter 11, it will have the time and opportunity that it needs to achieve the best possible value for the creditors and other constituencies of its assets and operations, and to effect an orderly wind down of the Company.

Blackstone Down To $24.90

It is now down an amazing 29% from its IPO price.

Wells Fargo Jumbo Rate Jumps to 8%

Wells Fargo, one of the nation's biggest mortgage lenders, raised the interest rates on it 30-year, fixed-rate, non-conforming (AKA jumbo) loan to 8 percent last week, up from 6.875 percent. Other lenders are likely to join Wells Fargo.

The reason is apparently the collapse of the secondary mortgage market.

HomeBanc exiting the mortgage business

HomeBanc today announced that it intends to exit the mortgage loan origination business. The Company at present is unable to borrow on its credit facilities and was unable to fund its mortgage loan funding obligations. Accordingly, the Company does not anticipate funding any future mortgage loans and is no longer accepting any mortgage loan applications or funding any mortgage loans previously originated and not yet funded. The Company is seeking the most appropriate course of action to preserve the value of its remaining assets. Kevin Race, HomeBanc's President and CEO, stated, "In light of the extraordinary difficulties that HomeBanc continues to face in the mortgage loan origination market, we feel that it is in the best interests of the Company to exit this business so that we can focus on preserving the value of our investment portfolio assets and loan servicing operations."

HomeBanc also announced that it has reached agreement with Countrywide Financial Corporation whereby Countrywide will acquire certain assets related to HomeBanc's retail loan origination operations, including up to five branches located in Georgia, Florida and North Carolina, and will assume the leases related to those branches. In addition, Countrywide expects to make offers of employment to substantially all of HomeBanc's retail loan originators. Countrywide will pay no cash premium in this transaction and will not acquire any other assets or assume any other liabilities related to HomeBanc. This transaction, which is subject to certain conditions, is expected to close by Friday.

There's that phrase again.

Also, I found this really good website which tracks the mortgage lenders that have imploded recently (112 in the last 15 months). I see tough times ahead for the real estate market.

Bear Stearns President/co-COO Resigns

Bear Stearns President and co-COO Warren Spector resigned, becoming a casualty of a credit risk crisis at the investment bank.

American Home Mortgage Closing

American Home Mortgage Investment Corporation will shutter most of its operations and lay off more than 6250 workers. "Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative," chief executive Michael Strauss said in a statement. The company will maintain 750 employees in its thrift and servicing businesses "as it seeks the most appropriate course of resolution to preserve the value of its remaining assets."

Chrysler Taken Private

Private equity firm Cerberus Capital Management took control of Chrysler Group on Friday in a $7.4 billion deal designed to set the beleaguered 82-year-old automaker on a path to recovery as a private company. Daimler AG will retain a 19.9% interest in the company.

Daimler paid $33 billion for Chrysler in 1998. Now the company is apparently worth $9.2 billion. That's almost $24 billion gone with the wind. In other terms it's a compounded 13% loss every year for nine years, without even counting the losses that Chrysler accumulated over those 9 years. What a bonehead move.