It was a roller-coaster week in subprime land. The economic news was good early in the week, when solid retail sales numbers came out. Then it was bad at the end of the week, as unemployment posted the largest increase since 1986. Lehman (NYSE: LEH ) was down, then up. And the Fed indicated that it is now an inflation-fighter, and no longer a recession-fighter. Here are a few highlights.
- Fed chief Ben Bernanke indicated in a speech this week that the Fed is actively pursuing a stronger dollar. He said a weaker dollar has caused an "unwelcome rise in import prices and consumer-price inflation." Bernanke also indicated that the Fed is done cutting interest rates. The speech marks a reversal in the Fed's strategy, from fighting slow growth to fighting inflation. Bernanke spent the better part of the last year weakening the dollar by cutting interest rates. Now, he wants to strengthen the dollar by talking it higher.
- Washington Mutual (NYSE: WM ) CEO Kerry Killinger was stripped of his chairmanship, and Wachovia (NYSE: WB ) CEO Ken Thompson was outright fired. The dismissals continue an executive shakeup at large financial companies in response to the subprime crisis, and put Killinger and Thompson in the company of other axed CEOs, including Merrill Lynch's (NYSE: MER ) Stanley O'Neal and Citigroup's (NYSE: C ) Chuck Prince. The shakeups continue because these executives, while gorging themselves on easy subprime profits, crippled their companies and ruined the economy. The problem is that chairmen and CEOs have so much power that it's difficult to blame others when things fall apart. Don't feel too bad, though. They can ponder the world's inability to appreciate their magnificence while living on obscene fortunes they don't deserve.
- The Fed approved Bank of America's (NYSE: BAC ) offer to buy out Countrywide (NYSE: CFC ) for $4 billion. The deal still has to be approved by shareholders. This news comes the same week that Merrill reiterated its underperform rating of Bank of America and cut its earnings estimates on the expectation that Countrywide's cumulative losses could rise to $10 billion-$12 billion. Merrill also said that the Countrywide acquisition could put BofA's dividend at risk. As of now, BofA is standing by its commitment to buy Countrywide at the agreed upon price. Granted Countrywide is, or was, the nation's largest mortgage lender, but you still have to wonder whether BofA really knows what it's doing. Talk about a deal coming with baggage. Geez.
- Lehman has been trying to differentiate itself from Bear Stearns all week. There is an unceasing perception the Lehman will be the next shoe to drop. Early in the week, its stock tanked amid rumors of the firm's financial weakness. Later in the week, the investment bank moved up its earnings release date, as many realized that Fed actions would prevent another Bear Stearns.
You can't make this stuff up. There is an ancient Chinese curse that says, "May you live in interesting times." Stay tuned next week.