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Bear Stearns pulls a "Countrywide"?

Written By Brian Hicks

Posted March 14, 2008

It was 2007 when Countrywide Financial (CFC) had us believing that it had ample capital and liquidity to stay in business. They disclosed $35.4 billion in reliable liquidity. And they disclosed “sufficient liquidity available to meet projected operating and growth needs and significant accumulated contingent liquidity in response to evolving market conditions.”

But who were they fooling? They burned through the $2 billion Bank of America cash infusion, burned through the $11.5 billion credit line used to ease liquidity issues. They burned through Fed cash infusions. And they burned through that $50 billion cushion they said they had.

They said they had ample capital and liquidity in August 2007 when they stated, “Our mortgage company has significant short-term funding liquidity cushions and is supplemented by the ample liquidity sources of our bank. In fact, we have almost $50 billion of highly reliable short-term funding liquidity available as a cushion today. It is important to note that the company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper.”

Seven days later, the company announced that it faced “unprecedented disruptions” in debt and mortgage markets.

Now, take a look at what Bear Stearns did.

On March 12, Bear Stearns’ CEO appeared on CNBC and said (per their “liquidity position has not changed and their balance sheet has not weakened at all. Says their liquidity cushion has not changed. Don’t see any pressure on their liquidity, let alone a liquidity crisis. As they close the books, they are comfortable with the range estimates that are out there currently.”

He even denied threats to liquidity and said the company had a $17 billion cushion. Investors actually cheered the news and sent BSC up.

Too bad the rumors were true.

But wait, it gets odder… 

A day after S&P said the credit crisis end was nigh, they submitted this:

“Standard & Poor’s cut some of its credit ratings on investment bank Bear Stearns Friday following news of the bank’s cash crisis and emergency bailout.

S&P cut its long-term counterparty rating on Bear Stearns to “BBB” from “A” and its short-term rating to “A-3” from “A-1.”

S&P said Bear Stearns’ need for temporary financing to continue operating normally led to the downgrade. Earlier Friday, Bear Stearns said it is receiving a financing line from JPMorgan Chase that is secured by the Federal Reserve Bank of New York.

The agency also placed the bank’s long- and short-term ratings on negative watch, meaning they could be downgraded in the next three months.”

I’m so happy to see that Wall Street credibility is alive and well.

Oh, and before bidding you a good day, you have to read this.  It’s from the NAR “genius” Lawrence Yun.  You’ll love this.

“Way Too Many REALTORS®?
By NAR Chief Economist Lawrence Yun

NAR membership figures have finally begun to fall.  Whew!!! 

The number of REALTORS® grew from 750,000 at the turn of this decade to close to 1,370,000 as recently as August 2007.  That is an addition of 83 percent in short seven years.  From 1980 to 2000, membership figures bounced around in the narrow band of 620,000 to 820,000. 

Such a rapid increase in membership is not necessarily healthy.  How many of the new members have ever seen a down market aside from the last two years?   How many understand the importance of repeat and referral business and not just a single transaction?

Given that about ½ million REALTORS® have less than 5 years of experience, sloppiness in some transactions no doubt exists.  A complaint I hear quite frequently from REALTORS® is about the second-rate conduct of some of their fellow new members. 

Every attempt by state and local REALTOR® associations to further raise professional standards gets knocked down by government regulators as hindering competition.  NAR has made efforts to strengthen professional standards and the code of ethics but has been careful, knowing that the Department of Justice and Federal Trade Commission will be breathing down our neck.  

Fortunately though, consumers are smart and can navigate through in finding the right REALTOR®.  When asked, 68 percent of recent homebuyers said they would definitely use their REALTOR® again or recommend their REALTOR® to others.  An additional 19 percent said probably use again.   For home sellers, the figures were 62 percent definitely and 19 percent probably.  The vast majority of REALTORS® are, therefore, serving their clients in the most professional way, and understands that consumer interest is their interest.

Business seems brutally competitive at times.  With sales activity trending at 10-year lows in recent months, that is all the more accurate.  Still, business is entrepreneurial and that means there are a multitude of business models and widely varying levels of professionalism among members.  Entrepreneurial businesses tend to follow the 80-20 rule of 80 percent of the business activity being conducted by 20 percent of the people.  In real estate, a similar type of figures show that top 20 percent of REALTORS® earned a median income of $175,000 while the bottom 20 percent earned less than $10,000.  The figures are from NAR’s survey of members and reflect business activity in 2006. 

With home sales having fallen 13 percent in 2007, the competition is no doubt more intense.  The membership figure is now turning sharply lower.  Perhaps this is what is needed to boost the overall professionalism of members.  Fewer REALTORS® also mean more business opportunities for the remaining REALTORS®.”

Have a good weekend, my friends.  So nice to see that Wall Street banking and housing credibility is alive and well, isn’t it?