The Economy: Up The Down Staircase

August 23, 2007 by Douglas A. McIntyre

The CEO of CountryWide Financial (CFC), Angelo Mozilo, could not just take the $2 billion his company got from Bank of America (BAC) and have a nice day. He had to mention that he thought there would be a recession. His reasoning is sound enough.  Falling home prices make people feel uneasy. That make them spend less. The economy gets hurt.

BAC execs must be miffed. Their investment in CFC was a clear winner this morning as the stock spiked up. The doom and gloom has the shares closer to flat now.

According to The Associated Press “Mozilo also called on the U.S. Federal Reserve to cut the discount rate it charges banks to borrow to the benchmark federal funds rate for banks to borrow from each other, saying it would promote liquidity.”

But the damage may be done. GM (GM) said it was cutting production on it trucks and SUVs blaming the housing downturn. Home Depot (HD) said the home market was the cause of its problems.

Down on Wall St. there is word that bonuses will be down for the first time in five years. Mortgage woes and the disappearance of LBO and private equity deals have driven the stake into investment banking’s heart.

All of this does not leave much to drive the economy. Google (GOOG), VMWare (VMW), and AT&T (T) cannot carry the economy all by themselves.

But, it seems that they are all we have got.

Douglas A. McIntyre