On Today's Testimony by Uncle Ben and All Things Countrywide

Am I obsessed with Countrywide or what? In what may quite possibly be the most sensational corporate story of our time, rivaling Enron, well not quite, I don't think anything can top Enron. But pretty close. More on that later.

I have been harping on the fact that Ben Bernake has become too dovish lately. I questioned whether or not he was too politically motivated to do the economy good. Ben Bernake is a respected academic who has authoried many of the text books that are being read by many of the would be future MBA and corporate leaders. Naturally, I thought that Ben Bernake's first allegiance isn't to George Bush, Wall Street, but to the economic forces governing our country and the world. That force is the subject of inflation and monetary fiscal policies. When Ben Bernake began to be known amongst the main stream media (and those of you who have been reading this blog know how I feel about them) as the "soothing" Ben or "Gentle" Ben or worse Ben "Dove" er. I made that last part up, but I couldn't resist. Today's congressional testimony today by Ben Bernake has eased some of my concerns.

Now I know that Ben Bernake is not only a great academic but is soundly dedicated to the chief job position of a Federal Reserve Chief. That is to fight inflation and to shepard this country's great economy into the next phase of economic expansion. That was abundantly clear in his tone and delivery. Nothing could be mistaken or construed as anything else. Now, I have been saying for a while that hope is a dangerous thing and that the most recent rally was founded on that irrational hope- the hope for a rate cut in May. Bernake knows full too well the tough challenges that he inherited from Alan Greenspan. "Easy Al" has created two devastating bubbles in his wake, and I do feel bad for Ben for the compromises that he must make to renavigate through the mess that Mr. Greenspan has created. It won't be easy. Ben has the choice of sustaining the go go days of the stock market, as Mr. Greenspan has done while at the helm, or face the tough decisions to fight inflation. Inflation has the effect of continued devaluation of the US currency to the European and Asian currencies. To the extent that devaluation can have devastating consequences to US currency, our future economic growth depends on keeping our currency the global standard. Because the American manufacturing segment has been on the decline for well over 20 years, it is even more important to protect our currency value. If we continue to devalue our currency it will have the net effect of undermining our economy because we are increasingly dependent on emerging markets for our manufactured goods, raw materials, and consumer goods. No one ever mentions about this important consequence of US dollar devaluation.

Inflation is an economy killer and it must be realized that it is not relegated to just devaluation of the dollar. Inflation will have the net effect of diluting the American middle class. Middle class has acted as a buffer between the have's and the have nots of our economy. It is not surprising that the American middle class has been on the decline since the early 1990's. If you disagree with me, just look around you, even in some affluent communities, and you will see people in the fringes that are barely squeaking by despite making honest respectable wages. Why is this true and if true, how did it get this way?

Well, I could probably blame most of this issue with three things. One is that we live in an increasingly litigious society. Second is the artificial fiscal stimulus presented by the FED from 2000 to present. The third is the housing bubble. I knew I would somehow wind to the housing issue. Litigious society has the effect of creating the "lottery" mentality by its citizens. It could be suing your doctor, suing the grocery store for a slip and fall accident, or suing anything that exists in the commercial community that has any monetary value for stupidity. Just think about that McDonald's law suit over hot coffee. Need I say more? What has this done? It has had the net effect of raising health costs because health care providers and institutions are too busy protecting themselves from being a litigious target. It has had the net effect of rising disclosures and safeguards to prevent law suits for situations that are common sensical and avoided by anyone with an IQ slightly higher than a Chimpanzee. The ability to sue for just about anything has made the cost of doing business in the american commerce that much more expensive. Just look at any of the message boards for stocks, for example, Countrwide message board at Yahoo, there is more often than not chatter of class action law suits. You don't think that drives up prices? Who benefits? Not the middle class, in fact, the only people that really stand to benefit are the attornies and allied court industries. But it does have the net effect of raising prices for everyone on everything. I believe that this very effect has contributed much to destroying the American middle class. Law stands to protect, not inflate, but that is exactly what has happened.

The cause of inflation then has the net effect of the degradation of the moral fiber of the individual citizens. From the elite all the way to the vagrant on the street. And this is the effect that must be fought. Indirectly, the FED is responsible for containing inflation, and that alone must be the prime modus operandi for the FED. With runaway inflation over the past 10 years, I am sure you can see many scandals that took place in the government, in corporate environment, and even amongst your local communities. Inflation has that effect. It is slow, gradual, and certain. Thus fighting inflation is noble.

Now, Countrywide has benefited from and contributed to the very mechanism of inflation. By pushing increasingly large number of mortgage loans from subprime to prime Alt A loans, they have contributed to the very economic crisis that we face today. Unlike Ben Bernake, who is still on the fence about the effect of subprime crisis on the general economy, I see further expansion into mainstream life and commerce. Countrywide likes to play the guardian of the American dream. But all they have done was to create false hopes, dreams, and INFLATION. They have pushed millions of loans on Americans any way they can. They have partnered with various homebuilders both directly (KB Homes) and indirectly (buying loan packages from lender's gimimicky finance packages). They further fueled this inflation inferno by becoming the second largest subprime originator within the past 3 months. Yet they say that they are not at fault, and that they stopped doing "risky" subprime loans. Mr. Mozilo, I am sorry, but all subprime are risky. If you include the ALT-A option ARMS and negative amortizing loans or 50 year amortizing loans, you have single handedly created yourselves to be the riskiest lenders. Countrywide can hide behind their good name. But there is an old saying that the upstream river must be clean in order for the downstream river to be clean. Countrywide has gone on an impressive PR campaign of trying to distance themselves from the subprime fungus (Doug Kass). Yet, all roads will lead to the biggest mortgage lender in the United States. As I see that every argument of Mr. Mozilo's on why Countrywide will be stronger turn against him, so I am patiently waiting for the very act of inflationary pressure creation eventually back fire against him.

Lest anyone forgot to see that the insiders sold more today even as the stock price continued on a downward spiral, despite continued affirmations by their analyst buddies and Jim Cramer. Yes, one of the main culprit of inflation is Countrywide. They have created this inflation mess and Ben Bernake must find a way to clean it up. One way I see out of this mess is to garner short term extreme pain and raise the interest rate to flush out excess subprime, prime, and mortgage excess and clean the slate blank, so that inflation will deflate, and the good citizens of the United States can once again learn the virtues of hardwork, community, and integrity.

Ben Bernake has won my confidence for now. But he must go further and make tough choices. He is not in this position as a Fed chief to make friends, to become a celebrity (like "Easy Al"), or become a political power house. His job is more important than that. He has the chance to make American economy whole again and bring back the value of American dream and hard work. Inflation is the fungus that kills. And it must be fought.

I will continue to see Countrywide unravel. I think this may end up being the most sensational story of our generation, yes, possibly beating out Enron.