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“What Has Meredith Whitney Got to Say…?”

By Larry Doyle on December 11, 2008 at 6:20 AM in Current Affairs

For the loyal readers here at No Quarter, you have heard me sing the praises of those whom I consider to be some of the wisest minds in the financial markets. Included in this group are Nouriel Roubini, Laszlo Birinyi, Sheila Bair, and Meredith Whitney. It is not often that we have the opportunity to hear timely, insightful, and extensive analysis from these individuals. This morning we have one of those opportunities as Meredith Whitney, the TOP bank and financial services analyst on Wall St., is interviewed.

This attached video clip of her interview runs 12 minutes but it is extremely insightful on the current state and future outlook for the following:

1. Consumer Credit….it is going to get MUCH tighter, which is the very reason why we are STRONGLY encouraging people to pay down debt.

2. Outlook for large money center banks….”on life support for the next 18-36 months”

3. AIG….needs more money as they have incurred ANOTHER 10bln loss.

4. Housing prices are expected to decline another 20-25% as the percentage of families owning homes reverts back to the 60-65% range from the app 70% range which resulted from the aggressive and irresponsible mortgage lending.

5. Solutions: Meredith recommends that the government stop allocating capital to the large banks who dominate the consumer credit business and redirect it to the regional banks that are not handicapped by bad positions and can reposition themselves to gain market share in the consumer finance space.

For those who have a credit card, I strongly encourage you to take the 12 minutes and watch this clip.

She is the BEST in the business…..and likely an avid reader of NQ!!

SEE VIDEO.

  • fiscalliberal

    AIG is known to be heavy in Credit Default Swaps (CDS). There is a lot of talk abou setting up a clearing agency to provide some transparency and possibly regulation.

    Since CDS are essentially insurance policies against events, how would that system work. Is it possible that we should treat them like insurace policies.

    It seems that the real issues are forcing the participants to carry adequate reserves and participate in asset backed entities.

    This is area we do not know much about, but the big banks and AIG typs play and they are run by people who have no sense of risk. We are bailing them out for thier incompetence.

    I guess I must say I do not understand how the clearing concept would solve the problem. Any comment would be appreciated

    • LD

      Fiscal…CDS are very much like insurance policies. The buyer of the CDS is gaining protection while the seller of the CDS is being paid a premium to give protection and thus effectively gains exposure to that sector (such as housing) or to an individual corporate credit. The concept of the exchange is to “net” a lot of buyers and sellers thus significantly diminishing a lot of the “systemic” risk that is in the market.

      Does that make sense??

    • tek

      The CEOs at AIG are just gamblers, now we’re supposed to pay off their debts. These same managers are still in charge of the company and the government gave them bail out money even though they have not provided the government with transparency.

  • Cathy6224

    I don’t think the government should be bailing out any big corporations (financial, auto or otherwise). I am sorry for those who may lose their jobs, but the government isn’t helping the little companies struggling to stay in business. No company should be bailed out especially when their situation is due to incompetence and greed.

    Besides, none of these bailouts help the economy. It doesn’t matter if you bail out the auto industry if banks won’t make car loans.

    I am sick of spending taxpayer money for greedy corporations and ceo’s. besides didn’t we help out the auto industry about 8 or 9 years ago? And here we are again. What makes the government think that another industry won’t be next wanting money to keep afloat.

    • wodiej

      I agree w you and unfortunately at least part of this problem is due to greedy unions and union workers. Our local GM workers went on strike a few years ago because the company asked them to help pay some of their health insurance premiums. How many companies don’t ask employees to do that? Every place I have worked I had to pay something. They have outlandish benefits that come nowhere near what the average worker makes. No bailout. When everyone is asked to take a pay cut and trim other expenses I can bet you they would not need a bailout. The CEO bonuses and pay alone would keep them afloat.

  • wodiej

    the video is not coming up

    • bert

      I had the same problem.

      • http://americanpumainitaly.blogspot.com/ American Girl in Italy

        didn’t work for me, either.

    • LD

      Wodiej…There is a 15 second ad for some outfit prior to the video clip. I tried to double check on my computer and it did work. I am not sure if it is not compatible with your computer.

      I will talk with our tech support person. You may want to double check to see if the clip comes up after the ad.

      I hope we can make this work as it is definitely worth it.

      LD

      • bert

        I get nothing. And I just retried. I only get a blank, black screen. The button that should start the video does not click or move at all.

        I do have fairly high security settings on my computer. But when I went directly to CNBC I could play other videos found there. Just not this one.

        Strange.

  • fiscalliberal

    I really like her comment regarding stopping bailout of big banks and spending more time on regional’s.

    Some how we need to recognise that small business employs 2/3 of the work force and we need to get in the mode of supporting them along with the smaller banks who seem to be solvent. Could this be that this is because smaller banks are in much closer touch with the end customer.

    The big banks have these automaed loan qualifyint software which does not seem to analyse fraud and risk.That was part of the problem with Fannie and Freddie software. They analyzed credit score. As soon as it got into something like pulling the last 2 year IRS returns, they did not want to do it. Hence “no doc” loans. They slapped on higher interest and the investors loved it despite the bogus rating agency AAA classification.

  • fiscalliberal

    I got the video to work

    • bert

      How did you do it? I even went to the CNBC web site and I still cannot get the video to play.

  • C.S.

    I suppose that those of us who can’t follow the advice to “pay down debt” because of no raises and over 6% inflation rate and staggering medical costs can request a government bailout like Wall Street and the auto industry because the only economic movement seems to be coming from companies located in China.

    And I can just see the greedy guy who “raised” 750 million tax free dollars worrying about us little people while he’s busy throwing his third big celebration. (1. The Greek Temple, 2. The World Tour, 3. The Coronation.)

    The government can play paper games all they want; but the bottom line is that our economy is no more solid than any 3rd world country with a thick line drawn between the very rich and…everyone else. We are beginning to break Depression records for poverty, unemployment,and homelessness. We’ve read the statistics (1 in 10 behind in mortgage payments, 6.7% unemployment rate, over 6% inflation), We are the statistics. We the People have no rabbits to pull out of our hats. Our country’s in deep trouble and government bailouts come from our tax money, which, according to the government’s figures are about to take a big tumble.

    The one thing most economists don’t seem to realize is that the “economy” is no better than your personal economy. Mr. Soertoro/Obama is setting on a huge pile of money, buying $30,000 pieces of jewelry for “the wife” and will soon be moving into a rent free home maintained by We the Taxpayers who are having a difficult time coming up with money to pay the utilities in our homes this winter. You can’t get blood out of a turnip and we can’t produce money we don’t have. In the 1980s when we lost company pensions our government set up all these new versions of “saving for retirement”. Well, those 401k statements just arrived a short time ago and don’t expect us to fuel the economy with what we have left there!

    A two tiered economy of the Haves and the Have Nots will not succeed unless the Haves pay their own way – and the guy just selected by the Democrats has no more clue about what will have to be done than George W. Bush had when he took over. We the People are scared and we want to believe, but Soertoro/Obama says he admired Reagan’s trickle down economic solution, which tells you he knows nothing – but then, he’s now joined one of the biggest group of Haves and is about to receive lots of tax money without ever having worked for it. Not exactly an unbiased choice for reform.

    • tek

      C. S. how right you are about everything. The U. S. does feel like a third world country. So far, I haven’t heard anything from Obama or his surrogates that sounds well-informed and knowlegable. I think the Gov. Blago thing highlights that Obama was hand-picked to be in the WH and he’s just as corrupt and inept as the rest of the Chicago machine.

    • LD

      C.S. Thanks for sharing. You are correct the economy is ultimately all about our personal finances. Hopefully through this forum we can help people understand the dynamics at work in the economy as a whole so that they can manage their finances prudently.

      Thanks again for your color/thoughts.

      LD

  • http://www.insightanalytical.wordpress.com Grail Guardian

    Interestingly enough I have my auto insurance through AIG. When it was up for renewal last month I had planned on switching to a more stable insurer, but I found their rates were about $300 a year cheaper than the next closest competitor.

    Any chance this problem is just due to gross incompetence? Nah. They’re too big to do something as daft as undercharging for insurance, right? I know they were probably trying to compensate for the image problems caused by their bailouts, but I found the gap between AIG and other cut-rate insurers to be a bit too large for that. In case you’re wondering, I stayed with them (at least for 6 months) and plan on driving very carefully…

  • benny

    wodiej and bert, whats the prob? the video works fine for me. You still not getting video?

    • wodiej

      website came up but video is blank….

      • benny

        strange. I had no probs at all.

      • lark

        what I did was hit it twice on the play button

      • LD

        Wodiej…any luck? Please let me know. If need be perhaps I can send it to you directly.

  • Linda C.

    We are paying for the greed at both ends. Our tax dollars are keeping these financial monoliths afloat to lend us our money at an ever higher interest rate.

    We have been practicing Wiemar Republic economic mode for the last 6 years.

    If anyone has the capacity to start paying off their credit card debt..do so. I hope the feds will do something about bringing down the usury interest rates, but don’t hold your breathe when it comes to giving us a break. Join a credit union. They don’t screw you with a fee every time you blink.

    If there is any possibility of taking a loan out on your pension to pay off high interest rate debt and repay that loan to yourself..look at the financial advantages/disadvantages of doing so. I am only familiar with the federal pension system where one can take out a loan and repay all before taxes. The interest rate actually gets paid back to you at about 4 percent. Inflation is about 6 percent and your credit card rates could be as high as 21 percent if not more. The kicker here as long as you remain employed and pay it back it is done all before taxes. If you are not sure about your job security, it may not be the way to go for you. Failure to re-pay the loan means that you will have to pay income taxes on the entire loan.

    • LD

      Linda,

      Great color. Thanks for sharing.

    • tek

      We are paying off our debt, but we are still stuck with a house that we can’t sell, so we are trapped. Is the government worried about people like us? Nope, just worried about corporations, as always.

  • tek

    AIG’s 10 bil loss is due to bets placed on Wall Street–no securities or anything tangible the government can buy, AIG simply spent 10 bil betting on the market on now the taxpayers are supposed to pay it off. What happened to the free market? What happened to drowning government in a bathtub? What happened to not taking handouts from the government? These corporate crooks are the biggest hypocrites ever. The American people better start calling them on their crap.

    • LD

      Tek,

      You are exactly right. “WE” own 80% of AIG yet who is truly minding the store there. What degree of accountability is in place?

      Regrettably, we would be naive to think that there aren’t more losses yet to come from that organization.

  • beaming

    Sorry, this isn’t really funny, but look at the bright side. If we have no income we don’t have to pay taxes.

    I’m a custom home builder for 32 years. This is the first time since Jimmy Carter was president that I didn’t know what I’ll be doing next week. Screw Wall St, UAW union, and all the corrupt politicians including the ONEs about to take office.

    • LD

      I’m with you. I want to be an eternal optimist while also being a pragmatic realist.

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  • bart

    Strangely enough, the video only played for about 3 minutes for me. Then it goes to a network screen and starts all over again. AAAAuuuuuugggghh!

    • knotfourhymn

      Same here. It reset twice.

  • http://powerandcontrol.blogspot.com M. Simon

    I have a friend with main street savvy.

    He thinks we are in for 5 to 7 years of treading water.

    One problem is that we have automated away manufacturing jobs. Making stuff no longer requires near as many workers for a given amount of output.

    This is similar to what happened to agriculture in the 20s.

    At this point there is no “big new thing” to take up the slack. Biotech is not ready. Green energy in most cases is a net loss (green energy is higher cost than coal). Fusion if it was ready tomorrow would take 5 to 10 years to make an economic impact. And fusion is not ready for roll out tomorrow.

    If the research goes well the Bussard Fusion Reactor (BFR) might be ready in 5 years. Projects like ITER are not only not ready (30 years more to go) but the energy is expected to cost 5X to 10X current sources.

    The nice thing about the BFR project is that it can be done for about $200 million and will take 5 years. If the answer is positive energy costs will be from 1/2 to 1/10th current prices.

    What needs to be done is a lot more research on a lot of things. Research is labor intensive. However, it can’t absorb a lot of labor. Say we started a 100,000 new research projects (there aren’t that many good ideas to fund) that would only absorb 500,000 people. Of that number 100,000 would have to be highly trained. We don’t have that many highly trained people not already involved in research.

    We will pull out of this. It is going to take time.

    • LD

      M. Simon…great post. I wholeheartedly agree and from that it is obvious that we need an increasingly well educated pool of labor. Those who increase their skills will be able to benefit.

      I understand it is and will be painful in the interim but we have few other choices.

      Thanks for sharing.

  • Jessica Johnson

    How did you do it all?  Have a husband, four children and maintain the financial status on Wall Street.