Skip to main content

Whitney: Credit crunch "far from over"

Meredith Whitney, the Oppenheimer & Co. analyst whose skeptical view of the investment banking industry has made her a star on Wall Street, says the credit crunch is far from over.

Whitney recently joined Bloomberg TV to talk about the credit crisis, consumer lending, the outlook for the mortgage securitization market, and the health of the US consumer.

In spite of all the highly-publicized problems that have plagued the credit markets since last July, Whitney feels that the crisis is "far from over" as many of those problems will "bleed into the consumer".

She follows by saying that bank managements will be caught off guard by problems associated with consumer credit losses and will have to "reverse a tremendous amount of revenues".

Problems associated with consumer credit losses will mark the second wave of this credit crisis. To quote from a recent Forbes article on Whitney's views:

"The first wave of the crisis affected trading books, but the second wave will hit lending. This is because consumers got accustomed to the same "a rolling loan gathers no loss" mentality, Whitney says. As long as housing values continued to rise, borrowers could refinance in perpetuity to avoid default."

Banks are expected to reign in consumer lending, removing $2 trillion of available credit lines in the process. This will, in effect, "extract...over $2 trillion of liquidity from the consumer balance sheet", Whitney noted in her Bloomberg interview.

The Forbes article sums up the problem:

"New and unforeseen strains on consumer liquidity will push more consumers into precarious credit positions and cause consumer credit losses to be far worse than what is currently estimated, even by the most draconian of investors," Whitney says.

Are rising consumer defaults and higher bank loss rates ahead?

See also:

Whitney says Credit crunch "far from over" (transcript).

Whitney: Credit Crisis will run into 2009.

The rise and rise of analyst Meredith Whitney: Michael Lewis.

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and...