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Meredith Whitney & I Agree, Bail Out or No Bailout

by: Trader Mark September 24, 2008    
Trader Mark

Trader Mark

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I've been on the same bandwagon (the anti Kool Aid bus) with Meredith for a long while now [Aug 4: Meredith Whitney Continues to be Negative on Financials (and Housing)] [Mar 26: I'm on Meredith Whitney's Side]

She continues to be negative, I continue to be. And away we go. Remember 2009 will be the year of the wave of US consumer personal bankruptcies as the juggling debt game ends, as credit card limits are hit and there is no place left to stuff the toxic waste (unlike our corporations, we do not bail out individuals). But never mind that - buy bank stocks (corporate socialism works for them). It's the American thing to do.

  • The credit crisis that began last summer has intensified so much that any U.S. government bailout plan has "little hope" of improving core fundamentals over the near and medium term, said analyst Meredith Whitney. "Since the onset of the credit crisis, over $2 trillion less liquidity has flown through the U.S. domestic capital markets than during...a year prior," Whitney said.
  • The Oppenheimer & Co analyst cut her outlook for U.S. banks and forecast further dividend cuts and capital raises at banks.
  • "With that much less available capital, both consumers and corporations have and will spend less," she added. As the consumer comes under more pressure in the difficult economy, credit card debt may grow, Whitney wrote in a note to clients. Whitney, however, noted that tighter credit standards and credit line reductions have already strained more consumers into defaulting across the spectrum of lending products.
  • Oppenheimer's Whitney expects the country's GDP to take a hit from likely moves by state governments to cut costs. (That's another one of our themes for 09). [Jul 25: States Slammed by Tax Shortfalls] [Apr 25: Shoes Beginning to Fall in the States] [Dec 16 2007: California in a State of Emergency - Coming to a Theater Near You]
  • Given that over 12 percent of the U.S. GDP is driven by state and local government spending, and with many key states' 2009 budgets being under-funded, governments will be forced to cut costs and this will weigh significantly on GDP, she said. (The United States of Subprime - government spending, healthcare spending, defense spending, home building and going to restaurants - now that's a healthy economy.)
  • Whitney said home prices were not close to bottoming and expects prices to ultimately be at least 25 percent lower from current levels. She also sees further declines in homeownership rate. (Nods head sadly in agreement.)
  • The unemployment rate, which is up over 40 percent year-on-year in key states, is "headed materially higher," Whitney said.

I think Meredith has been reading the blog, much of this could of been lifted from my comments a year ago. (In Jest)

Wall Street participants continue to live in denial of the "rebound in 6 months". For long time readers you will remember the

incessant

calls for "2

nd

half 2008 rebound", right? Where are those people now? Ah, still on

CNBC

touting how this is yet another bottom and yet another solution (bailout) that will take away all our pain.

It is interesting to hear the cries of anguish when what has been happening in Ohio, Indiana, and Michigan for the past half decade finally hits Wall Street. Now all the sudden job losses are a national emergency and every resource in America must be brought to bear to solve their pain (because their pain is all our pain) - when it's Midwest manufacturing jobs on the other hand... well it's just "free markets doing their thing".

The "Great Cleansing" continues....

p.s. The mother of all bailouts continues to get new fans wanting to attach their pet projects to it - now the FDIC's

Sheila Blair would like to attach bad mortgages directly

to it.

  • ...restructuring of troubled mortgages should be part of the final package, the head of the Federal Deposit Insurance Corp. said Tuesday.
  • ...the government could acquire troubled mortgage assets or provide a guarantee for delinquent loans, buying them and removing them from the overall pool of mortgages, Blair suggested.

Sure, why not? Our pockets are limitless. Hopefully we can get this Frankenstein up to maybe $1 trillion, or if we're really good, $1.5 trillion by the time we revisit it in 2 years once it "ends". Can I send my credit card balances in as well so Tom in Nebraska, Lori in Oregon, or Frank in Arizona can take care of it? Sign me up. Please invoice Tom, Lori, and Frank directly - I'm going to Maui to celebrate my newfound financial "freedom".

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This article has 8 comments:

  •  
    Sep 24 09:09 AM
    excellant piece, thank you
    Reply
  •  
    Sep 24 09:45 AM
    Finally, a good post. I'm tired of the cheerleaders with their heads in the sand. At some point this market will turn, but how can it turn when the people with all this debt are slowly losing their jobs?
    Reply
  •  
    Sep 24 09:48 AM
    Looks like 2009 may be worse and for the good reasons given in Mark's article.

    The consensus in 1h08 was that 2h08 will be nirvana when all the problems disappear and the boom resumes. Now the "consensus" even among many prominent analysts and fund managers [just read internet articles!] is a great 2009 when again they expect all problems to disappear and the boom resumes. Countless fortunes have been lost and more may be lost with the 2009 nirvana vision simply because 2009 is six months out when it must boom.

    There is always the possibility that the next six months may boom but we have to review current conditions in financial markets as Trader Mark and Meredith Whitney has done. The logic would point to a worse 2009 rather than nirvana and we must prepare our mindset accordingly if it happens.
    Reply
  •  
    Sep 24 09:58 AM
    Great post. I am so disgusted with the inbred bank/DC/Fed/Goldman bunch. Let the market forces go to work on Wall Street; let Goldman burn. The "we've gotta do something in days" panic started when GS went under a hundred bucks. Let the banksters get offshored just like mid American manufacturing.
    Reply
  •  
    Sep 24 11:21 AM
    Excellent points, all. One thing that needs focus is the probability that the bailouts and a socialized financial system will only prolong the "Great Cleansing"--or, to bend the metaphor, instead of the dirtiest getting clean we'll all be more or less covered in muck.
    (Btw, if you had to pick between socialized medical and socialized banking, which you pick?)

    Reply
  •  
    Sep 24 03:19 PM
    I am sure she is relieved that you agree with her!

    Your disclosure??? Let me guess.

    Has she been right lately? (Hint: Nope!)
    Reply
  •  
    Sep 24 08:36 PM
    LOL, f**k goldman..., I like that sentiment!But it ain't gonna happen, not in the near term anyway. Everything and I mean everything will be done for it not to happen to GS and JPM. So ride 'em up and down to your advantage.
    Reply
  •  
    Sep 25 12:53 AM
    Unfortunately, we are the f**kees not the f**kors when it comes to Goldman and their former CEO Paulson.
    Reply
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