Subprime fallout

Californians rush to pull money from Countrywide Bank

Anxious customers jammed the phone lines and Web site of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

Countrywide Financial Corp., the biggest home-loan company in the United States, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank.

Comment: Folk are getting nervous! Countrywide Financial Corp. (CFC)

Money Ball: What works, and what doesn't, in a credit crisis.

Excerpt:

On that score, the feds went one for two this week. On the plus side, Countrywide Financial was able to call on an $11.5 billion bank credit line when that giant mortgage lender couldn't sell its commercial paper. It also said it would move its mortgage business under its bank unit, which will give it a further liquidity cushion. Countrywide is at the center of the subprime storm, and its stock price has taken a huge hit. But it retains significant earning capacity and a solid business in safer mortgages.

The last thing anyone should want is for an otherwise solvent business to go bust because it can't meet its short-term borrowing needs. The bank credit line will be expensive for Countrywide. But as the 19th-century journalist Walter Bagehot advised, in a financial crisis lend freely at a penalty rate. To the extent that Treasury and the New York Fed played an indirect role in creating this private financial cushion for Countrywide, this was effective crisis management.

Comment: This smells so much like the Savings and Loan crisis of the 1980s!