When Herb Greenberg Guesses, It's Time to Worry

On his blog yesterday after the market closed, Herb carried on about the now-announced Countrywide(CFC Quote)-Bank of America(BAC Quote) merger. That itself is fine. Scour the reports from The Wall Street Journal and The New York Times, which led the coverage, and you will see sources that, although anonymous, were defined and appeared close to the action, which turned out to be definitive.

But what does Herb weigh in with yesterday?

A theory, which might very well be true but could also be cockamamie, that the Fed is behind the deal, because the Countywide impending bankruptcy rumors were true. But -- and this part made me dab at my eyes with a hankie -- he wrote, "as part of the deal, the government likely agrees to guarantee BofA against Countywide-related losses."

Okaaaaaaaaaaay. The government is giving Bank of America a free pass as a thank-you for not letting Countrywide go soft-white-underbelly-up. Even when reading Herb, I have to ask: Sez who?

He doesn't say, only remarking that "it appears apparent," though he does make clear, in fairness, that he is playing a "guessing game."

Still, when Herb, generally the class of the field, starts getting all jiggy with conspiracies -- whoa!

But please, please, please don't get caught up in it. Review the process of source analysis so you are not likely to be taken by rampant, thinly-sourced speculation, stories often planted by money managers taking advantage of gullible journalists in need of material and aching for that elusive scoop.

And remember that even when a rumor (like Countrywide-Bank of America) does appear to be true, there is plenty to be careful about. Look at this passage from a Forbes story, trying to peg a price on the then-potential deal:

Even if Bank of America pays a huge premium (let's say 40%) to Countrywide's current share price (which is around $8), the deal would still be far below the lender's book value, which is about $26 a share.

They actually accept Countrywide's book value matter-of-factly at $26. After all that is going on with these write-offs and lack of reliability in subprime -- including talk of a more colossal expected write-off by Merrill -- how, how, how can Countrywide's book value be written with a straight face?

So the moral of today's story is that when The Business Press Maven's "Herb Index" flashes red, be doubly cautious.