Professor Elam

In  the current Business Week Maria Bartiromo interviews Ken Lewis, CEO of Bank of America BAC.  BAC had just bought Countrywide CFC mortgage. BAC had previously invested $2 B in CFC via preferred stock. He said no they were not worried about their $2 B as it was in preferred but thought they strategically ought to be in that market.  And he assured Maria that they had done extensive analysis about the real state of CFC.

Now we find out that while they were analyzing CFC BAC net profit dropped 95% from a year ago. This makes me wonder, just how sharp are those pencils at BAC?  Surely they realized their own loses, why jump into an even deep pit?  As world markets melt last and this week it raises even more questions about their intuition. Again, this is why I am having you make classroom presentations on such companies in the news. Most class cases have rosy scenarios and happy endings.  As Lehman LEH, C, and BAC and CFC are learning, not all endings are happy.

Yahoo YHOO  is rolling out plans to cut 1,000 employees.  I post this article to show you just how quickly a recession can start from a seeming distant part of the economy, sub prime mortgages to everyone else.  India and China markets are melting because investors fear a shrinking economy in the US will shrink the market for the goods they make like stereos and services they provide like call centers. Here is an example that  YHOO stock has fallen from $32.50 to currently about $20. The pressure is on management to get the stock price back up, the easiest thing to do is, cut the employees just hired as the markets zoomed to DOW 13,500.  It is oh so typical for companies to ever expand into the very top of a boom, and then reverse all their decisions as the economy contracts. Banks and brokerage firms are the very worst, alway s believing their own pres releases. Look for lots of layoffs this year on Wall Street.

The Economist, A british publication, weighs in on the market woes.It is always a good idea to have your reading list include articles written outside the USA, it provides a different perspective about us instead of written by us.