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The shares were rising for Countrywide as reports that the Bank of America was in talks to take over the financially unstable lending company. No release has been reported as to when this acquisition might take place. The true story is that Countrywide is in deep financial trouble, almost to the verge of bankruptcy.

With Countrywide holding mortgages for one in every five homeowners, bankruptcy would have a devastating affect on the economy. The possible bankruptcy of Countrywide could have a huge risk financially for Freddie Mac and Fannie Mae. However, the Treasury department did not encourage Bank of America to buy the almost bankrupted Countrywide.

With the federal government lowering the interest rates to 4.75%, Countrywide would surely be impacted by the decision that would only add to their already financially troubled company. The federal government lowered the interest rate in order to help a declining economy that resulted with the most recent banking liquidity disaster.

The liquidity disaster started with the subprime mortgage mess. In recent years, people who had less than perfect credit were given mortgages. The mortgages were then resold to other financial lenders to hedge funds and other banks. When the subprime borrowers started defaulting on their loans, the hedge funds and banks started going bankrupt.

By lowering the Fed Fund rate, the government has an impact on the value of the dollar. This however will be counteracted by the stability of the interest rate of the Treasury bond. In all, the lowering of the federal interest rate will have an impact on the affects of defaults of all subprime mortgages. This move of course is not going to improve conditions enough to save Countrywide from bankruptcy.

The only way for Countrywide to stay away from bankruptcy is to sell to Bank of America. The sale will also protect against the huge impact a bankruptcy of Countrywide would have on Freddie Mac and Fannie Mae. However, the extent of the subprime mortgage mess is not clearly known. It may go farther than one realizes. This could affect more lending companies besides Countrywide.

One can only wait and see how the overall affect of the subprime mess will affect the mortgage industry. If Bank of America does buy the failing Countrywide that will only leave other mortgage lenders on the sidelines wondering what is going to happen now and how will it affect the economy. The sale of Countrywide and the Fed Fund lowering the interest rate may only be a short-term fix.

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