Countrywide Bankruptcy

Imagine if you will what would happen to the US economy if you woke up one morning and Chrysler, the car making company, went out of business.  Maybe one of the big airlines had gone belly up.  All of those jobs would be lost and the economies that those jobs had held up for years would collapse.  The government was so intimidated by this possibility that when Chrysler and several of the big airlines announced they may go bankrupt the government stepped in a propped them up with grants and other forms of free, or practically free, government money.  Since then the government has learned that bailing out American business is not nearly as effective as creating legislation that may help companies survive.  But what if there was a company that the government couldn't help?

Countrywide is the largest single lender of home mortgages in the United States.  In 2006 they accounted for almost 20% of all mortgages written in the United States for the year and that is a startling number.  Countrywide alone is responsible for over 3% of the American Gross Domestic Product which is the economic indicator for how the domestic economy is doing in the United States.  One company controls 3% of the entire US economy and 20% of the people that bought homes in 2006, and even more people than that from the previous years, are tied to Countrywide.  Wouldn't it be terrible if we suffered a Countrywide bankruptcy?  The really scary thing is Countrywide bankruptcy is not out of the question.

Writing Bad Checks

Countrywide is being accused of less than honest loan writing techniques and now a large percentage of the mortgages they wrote in the past 5 years or so are starting to go bad.  People were defaulting on their mortgages and Countrywide was foreclosing.  But with all of the loans going bad that meant that other banks were hesitant to loan money and that meant loaning money to Countrywide as well. A Countrywide bankruptcy would come about if the secondary mortgage market collapsed, which it did, and Countrywide cannot secure funding for its day to day operation.  Many people say that a Countrywide bankruptcy would be the company's fault and they should suffer with it.  If only it were that easy.

Home building and home buying is one of the biggest movers of our domestic economy and a Countrywide bankruptcy means that the housing market could collapse and the economy with it.  A Countrywide bankruptcy means nervous Wall Street investors and a crashing stock market.  It is all very ugly and a Countrywide bankruptcy is now on everyone's mind.  We can only hope that they can right the ship before it is too late.