BofA Plagued By Portfolio Of Mortgages


Mergers and acquisitions… are they good for the economy? If you look at Bank of America, the acquisition of Countrywide’s portfolio of mortgages will force the trusted lender of many Americans to cut over 30,000 jobs! With the onset of global outsourcing of American jobs, American job loss now seems to be the norm. Are we destined to be stuck at 10% unemployment?

Everyday possible takeovers are advertised in the WSJ deal book, but the mergers are not always peaceful and deals can take years to complete. Sometimes the combination of business synergies creates new innovative ideas or services never before available. Other times, like in the case of BofA, mergers can cause a business to grow too quickly and become unmanageable (BofA plans to sell of parts of the non core businesses i.e. data centers, Merrill Lynch). I’d like to limit the growth or expansion of businesses to prevent the mismanagement of millions sometimes billions of dollars, but that wouldn’t be true to my capitalist spirit. The all powerful hand of the market, I believe, in the case of mergers, is allowing capitalists to revive struggling businesses, even in the case of BofA and Countrywide. Bank of America valiantly took on the losses of Countrywide without really knowing the full extent of possible litigation and is now paying the price. Even though the outcome of this merger wasn’t successful, without it, the housing market would lay in ruin and the economy may be worse than post depression. Although the smaller fish rarely eat the big fish, big fish should rule the pond, at least until they become imperative to the food chain.

 

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One Response to BofA Plagued By Portfolio Of Mortgages

  1. jwhite17 says:

    A couple things. Firstly, America is actually insourced more than we outsource. This is because we still have far and away the most talented and competent service, design, and technology industries. I think that the outsourcing of American jobs is detrimental to our economy right now, smarter value creation will in the long run help American business. Secondly, I think that the failure of a lot of M&A lies in the lack of due diligence. This goes along with the short-termism we discussed in class. A lot of companies seek growth, and are so blinded by it that they ignore negative aspects of the deal. This can clearly be seen in the Countrywide deal. If used correctly M&A can be a smart way to grow a company, but if it’s used incorrectly it can destroy it.

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