Wednesday, July 30, 2008

Meredith Whitney speaks the truth on CNBC

from mr. mortgage,com:

I have stated many times, I do not care whether stocks go up or down but I do care when free markets are not free to trade under their own devices and moral hazard litters the landscape. I also care when the press, on a minutely basis, paints a rosier picture than reality.

Enter Meredith Whitney to set everyone straight and perhaps save some gamblers some hard earned money over the next ‘couple of months’. -Best Mr Mortgage

Video source CNBC:

Whitney says (loosely transcribed):

  • Fed knows there is no quick fix. Every time they open window they lose fire power for next crisis. There is not much capital out there that wants to rescue brokers.
  • I keep saying we are less than 50% done with this crisis and are still there.
  • All capital raised by banks so far ($450 billion) was only to plug holes and not to grow business.
  • All banks ‘assets’ marked at unrealistic levels
  • Creditors have cut mortgages and credit lines to the areas with the worst house prices depreciation. That will hurt consumers even more.
  • Corporate loan market will get hit soon as well.
  • Maria was prodding to find out how quickly the stock prices going back to the highs. Pump Pump Pump! Whitney says: There is no way the bank stocks will return to the highs in next 3-years. No comment on 5-years out. (Whitney seemed frustrated with the question being so shallow)
  • The brokers are not growing capital and diluting the share holder. They can’t grow earnings that way.
  • Merrill raised tremendous amount of capital just to plug holes. They still have to shed asset and are not out of woods yet.
  • Most every bank has to write down assets like Merrill and raise capital.
  • Banks who got in bed with housing assets such as C, UBS, MER, BAC, WB will be in the market ’soon’ to do another capital raise.
  • Everyone was involved in mortgages. All of these banks are in trouble now.
  • 25 institutions will have to raise capital in next two months.
  • Banks will cut dividend’s. I don’t understand why banks raise capital and then still pay a dividend. It is not prudent for board members to keep paying when they are so capital restrained.
  • Fannie Freddie in same situation as every other institution. All banks are betting on house price assumptions that are far too optimistic. No banks are close to Case-Shiller.
  • Due to bank’s bath math, losses will apply to everyone across the board.
  • In 2006-07 $2.5 trillion was securitized. Nobody can replace this mortgage money and housing prices will continue to suffer as a result.
  • When Maria asked if Lehman will survive, she said “huh huh huh huh huh huh I don’t know.”
  • I am very opinionated on the short selling rule. If you want to have faith in the capital market there has to be two sides to every trade and people have to be able to hedge. Restricting free trade will have the opposite effect and endanger the markets.
  • Jamie Dimon and Goldman are ‘pros’ and very cautious and aware of risks.

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