The Golden Parachute

The Federal Reserve swooped in and stopped the bleeding in the markets by cutting the discount rate (it probably leked out late yesterday that they would do so, which may explain the 300-point comeback at the end). But this is just keeping a fantasy propped up and bailing out the investors at the expense of homeowners and taxpayers. It also weakens the dollar.

The blame here should entirely rest on the financial markets. Lenders like Countrywide were handing out mortgages to anyone who wanted one, then selling those loans to central banks, who would bundle them into mortgage-backed securities. The more mortgages sold, the more the markets became flush. So there was no incentive to check on loan applicants' claims, and indeed nobody did so. So most stated income applicants were lying, companies sprang up that would give applicants fake pay stubs for a fake job to convince lenders that they were employed, and everybody played this look-the-other-way game, which made banks rich for a while. Now that it's crashing, the Fed will just bail out the markets. So there's STILL no incentive to be responsible.

However, this will impact the economy due to the massive increase in foreclosures. Property tax revenue will spiral downwards, draining government treasuries. Construction and home industry jobs will hemhorrage, and Countrywide, a massive company that owns 1 out of every 6 mortgages in the United States, will lose public confidence.

Anxious customers jammed the phone lines and website 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 nation, 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.

The mortgage lender said it would further tighten its loan standards and make fewer large mortgages. Those moves could make it harder to get a home loan and further depress the housing market in California and other states.

The rush to withdraw money -- by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company -- came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown.

This is a problem brought on completely by near-criminal mistakes from the lending industry, but Countrywide is literally too big a company to bear the brunt of their own errors. And so banks have no reason to act with anything but greed. The problem is that the rest of us suffer