Tags: whitney | bear | calls

Whitney: I'm Now Even More Bearish

By    |   Tuesday, 02 Dec 2008 09:16 AM

Financial analyst Meredith Whitney, managing director of Oppenheimer & Co., says she is "more bearish" than she has been at any time during the last 18 months and now believes that the U.S. economy has "been derailed."

Writing in the Financial Times, Whitney, whose predictions of problems in the mortgage market preceded those of other experts on Wall Street and in Washington, posits that the "capital destruction" continues in the financial sector.

"More than $3 trillion of available credit has been expunged from the markets, and, therefore, corporate and consumer borrowers so far this year," Whitney notes.

Whitney believes that the American mortgage market will shrink this year for the first time in history and that the consumer credit card market is about 18 months behind the housing market.

"While just over 70 percent of U.S. households have access to credit cards, 90 percent of these people use credit cards as a cash-flow management vehicle, or revolve payments at least once a year."

Compared to the mortgage market, the credit card market is small. But declining liquidity in that market will have terrible effects on consumer spending, Whitney believes.

"My primary concern is preserving liquidity to consumers, who command more than two-thirds of the gross domestic product."

Time is what is needed to heal the injuries to the economy, but Whitney expects that billions in credit lines will be cut early next year as banks become more risk averse and capital becomes scarce.

She has several recommendations that could help heal the economy more quickly, including:

• Having the government encourage local lenders to get into the credit card business, and use the processing expertise of mega-banks to manage the transactions.

• Expand the Federal Deposit Insurance Corp. (FDIC) guarantees for bank debt.

• Let lenders keep the ability to reprise unsecured loans.

"These changes are ones I would never have imagined endorsing a year ago," notes Whitney. "But these are extraordinary times."

Some economists, however, think the crisis mindset over the recessionary banking industry is short-sighted and suggest that the U.S. needs to concentrate on generating long-term growth with just a little policy tweaking.

"It's essential that we not just strengthen the dollar but stabilize its value as a way of insuring the constant wealth-enhancing exchanges of goods that characterize a growing economy," writes John Tamney, a senior economist at H.C. Wainwright Economics, in a Forbes.com column.

"After that, there's not much else we can or should do. Thanks to our natural economic advantages that result from the people who populate this country, the path to renewed economic vibrancy is very simple: Let our citizens produce as freely as possible. In short, let's stop worrying about recessions and start growing again."

© 2017 Newsmax. All rights reserved.

   
1Like our page
2Share
StreetTalk
Financial analyst Meredith Whitney, managing director of Oppenheimer & Co., says she is "more bearish" than she has been at any time during the last 18 months and now believes that the U.S. economy has "been derailed." Writing in the Financial Times, Whitney, whose...
whitney,bear,calls
452
2008-16-02
Tuesday, 02 Dec 2008 09:16 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved