Many of you are already aware that Bank of America is acquiring Countrywide for a fraction of it's value. I took some time to think about the ramifications of this, and here's my take:
The obvious
Bank of America is trying to salvage the recent $2 billion equity investment they made in Countrywide, whose stock has recently suffered as a result of the sub-prime fallout. For more detailed specifics, look here.
The tragedy
Many of the residents of the city of Simi Valley (where Countrywide's presence is dominant) are employed by Countrywide. Thus, if Bank of America closes down those facilities (and they likely will), we could be looking at a devastating blow to that local economy. First, home prices are likely to drop, as residents preemptively try to get out before the effects are fully felt. Next, current residents (those who are Countrywide employees) will experience difficulty finding new employment, as job growth has been negative, and they will be competing against colleagues who share their plight. Finally, foreclosures may follow as the unemployed residents are unable to make their mortgage payments.
The disclaimer
It is total speculation [on my part] that the city of Simi Valley may suffer a financial hardship as a result of the acquisition of Countrywide by Bank of America. Please take the time to investigate and determine for yourselves if your investments there are in jeopardy.
1 comment:
This is a very real possibility. The only thing that could help prevent Simi's prices from falling are its proximity to Los Angeles, and a realitvly short commute to high paying jobs.
Post a Comment