Meredith Whitney, The GodMother of the Financials, Gives Her Outlook

Posted on July 30th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

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: http://www.cnbc.com/id/15840232?video=808357964

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.

Other Related Mr Mortgage Reports

S&P Does Hatchet Job on Prime, Alt-A and Subprime RMBS

Mr Mortgage: June CA Home Sales Report

Mr Mortgage: June CA Foreclosure Report

Mr Mortgage: Mortgage Implosion Round 2: The Pay Option ARM

Fannie/Freddie: Massively Underestimated Risks

19 Responses to “Meredith Whitney, The GodMother of the Financials, Gives Her Outlook”

  1. No you have the wrong color. It’s brown the color of total and unadultarated BS. Each time I open bubble vision I have the impression that somebody is trying to lobotomize me.

  2. I loved Whitney’s response to the question about Lehman. I think they call that a ‘tell’ in poker.

    Thx M

  3. I loved here observation that all the billions of capital being raised is just to “plug holes”. . .not for growth – her second observation is that with all the credit contraction, there is not enough “loan money” to finance even a return to 2001 or 2002 housing mortage finance – “mathematically impossible” was her phrase. . .what a smart woman!

  4. She is “Brilliant”

    Right on the money Mr. M. and the only question I was waiting for is what will happen to WAMU, but I guess the answer is far to oobvious for that question to be asked at this point…

  5. check this story out from Ritholz – a hedgie tried a legit short (not naked) and got turned down.. Wow..

    http://bigpicture.typepad.com/comments/short_selling/index.html

  6. All was great with Meredith until she started to praise Jaime Dimon and the “Boys” at GS. Way, way too much greed and power on Wall Street.

  7. the Fannie Mae/Freddie Mac response was pretty discouraging, too, and it was humorous to see the interviewer keep turning the discussion back to stock prices (I understand that it is CNBC, but still), when, if you gave the significance of what Whitney said any thought, stock prices would be pretty far down the list about what you’d be concerned about

  8. “Extraordinary leadership coming from the pros”….What is this woman on? These are the same guys/gals that did not see the risk in leveraging their entire institutions to the mortgage game. I do not want to have to count on those clowns to right the ship because their “leadership” was equilivent to giving a crackhead $100,000 and expecting him to not blow it on more crack! What’s next coverd bonds????? Give me a break….

  9. Whoa! People… She can’t be perfect, but honestly when was the last time you saw someone in the MSM call it like they see it without regard to being politically correct? C’mon, she earned her stripes here folks…
    We need a leader of some sort and I take no potential leader in the MSM for granted!!! She is on our side of the fence!!!
    Give her a chance and trust me she can be pursuaded by the numbers if the substance is there…

  10. So hmmmmm…..what do you think will be the result of the NAB cutting massive exposure so recently?? This was rumored to be quite a serious shock and turning point but so far, no one seems that shaken by it.

    Final comment?? Let this terminally ill patient (bad banks and lenders) just DIE…No more Weekend at Bernies!! OK????

  11. Hey Money Man she also told on Bloomberg that she was confident that Bank of America had taken a good decision on Countrywide, because she had a 2 hour lunch with the CEO at it was OK. Wow! That’s the way they work. A Dom Pérignon 1929 please ? Don’t forget where she works. She is still one of them. Nobody is a saint. Nobody. No she is not your side. She is on her side Stu. It’s OK. She is just a little bit more honest; for the moment; FOR – THE – MOMENT.

  12. She was very impressive. And at least Maria B. kept feeding her the right questions. The real problem is Bubblevision keeps trying to suck people into the market, esp. Cramer.

  13. From now on any person trying to short US bank stocks will be put on the same list as Ben Laden. That’s the next step by the SEC.You really believe that they won’t eventually try it ? While you are at it, they could put in prison people for trying to buy puts. Next step it’s the electrical and the water torture.

  14. […] Meredith Whitney, The GodMother of the Financials, Gives Her Outlook […]

  15. It is bad. We have players obviously negative in the mist of an oversold ralley.
    It is becomming harder for the wiz to hide the man behind the curtain.
    We can expect major smoke and mirrors from the Fed and Treasury to keep things ‘normalized’ up to the first Tuesday in November.

  16. Oversold rallye ?

    You mean a mega short squeeze stimulated by the SEC, an orgy of printing by the FED, an orgy of borrowing by the US government. The numbers all over are simply crazy. It’s not going up because the fundementals are good or it is natural rallye. It’s up because everywhere it’s the same message. “We don’t care what it will cost. Free money for Fannie, Free money for Freddie.” Not for you. In reality these “bailouts” are just disguised monetization of the debt. Yes the markets will rallye and crash again and again. Waiting for Godot to make a miracle.

  17. Will Wall St just keep partying like it’s 1929?

  18. Yes the fascists will be partying. It’s you the slave taxpayer, that is paying the bills for these scumbags. You can thank your fascists politicians in Washington. Everything is just going fine. OK. It’s an order.

  19. The closest thing I have seen to a high school pep rally has taken place since since July 10th on Wall Street. Aside from the SEC… Congress… Henry P… Big Ben B… and even W getting in on the action… opening up taxpayer monies for the largest case of corporate welfare on record… rumors are it is still not enough…

    After all, the credit card underwriters will be squealing like pigs next…

    That’s OK financials… a round two knock-down might start as early as Monday… Note that the bank’s largest amount of borrowing from the discount window occurred last week… prediction 10% drop in financials this week.

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