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Train Wreck of the Week
By Bob Chapman

August 25 2007

Lehman Bros. will shut its subprime-mortgage unit BNC Mortgage, a top 20 lender in 2006, originating more than $14 billion worth of home loans. It will keep offering mortgages through Aurora Loan Services, which focuses on ALT-A loans. 1,200 workers will be fired.

Citigroup, JPMorgan Chase, Bank of America and Wachovia in a highly unusual move borrowed $2 billion directly from the Fed Wednesday. This is a profound sign of weakness normally but the banks said they have ample funds and made the move for the sake of the financial system.

Accredited Home Lenders will close substantially all of its retail lending businesses. Nationwide 480 will be fired. No new loan applications will be accepted, although the company will honor commitments. 1,600 workers will be fired leaving 1,000.

We will have more about this later, but bans are now able to use Level 3 gains since new FASB rules passed last September. This rule 157 allows banks to define fair value using “unobservable inputs,” whatever that may be. As an example, in “Wells Fargo Gorges” on mark to model make believe gains by Jonathon Weil the whole $2.4 billion that Wells Fargo supposedly earned in the second quarter was Level 3 gains from “unobservable inputs” or smoke and mirrors.

When Countrywide re-charted itself, so it is no longer held to the highest standard of reporting non-performing assets, it can now wait significantly longer. The idea was that Countrywide was giving itself a less demanding regulatory environment to report bankruptcies and foreclosures. That means that Countrywide may be in some problems we do not even know about.

The US Mortgage unit of HSBC Holdings said it will close an office in Indiana, a move that will affect about 600 workers, amid a severe downturn in US credit and housing markets. The US operation will be restricted by Europe’s biggest bank and to set aside $1.7 billion in loan losses in just the first quarter. Already the housing sector has seen 88,000 job cuts if you include the financial service sector.

The US government has paid a wanted international criminal about $60 million to fly supplies into Iraq in support of the President’s war for profit. Intelligence officials have considered arms merchant and international trafficker Viktor Bout one of the greatest threats to US interests, in the same league as Osama bin Laden. Interpol has issued a warrant for his arrest and the UN Security Council has restricted his travel. Bout has as well been supplying arms to the Taliban at the same time.

Bout worked as a subcontractor for Fluor & Kellogg, Brown & Root, and military flight records prove this. This has been known for more than three years and the business continued even after Bush signed an order banning Americans from doing business and his associates. Obviously that was for show. Criminals have a commonality of interest.

Bout was the inspiration for the 2005 film, “Lord of War,” starring Nicolas Cage as an international arms dealer who will sell to all sides of any conflict. Bout reportedly rented his planes to the movie’s producers for use in the film. Bout lives in Moscow and travels on false passports.

Nearly two-dozen gas station owners in California sued Shell Oil, Chevron & Saudi Refining claiming the companies conspired to fix prices for 23,000 franchise owners nationwide. The case seeks class-action status. They sued before and the US Supreme Court threw out the case. As pointed out in the previous suit, the plaintiffs say the chairman of the three oil companies met privately nearly every month starting in March 1996, for the purpose of forming and organizing a combination. This violates anti-trust laws. We hope they are successful.