Chuck Bao
8/12/2008, 04:50 PM
I typically don’t like to do cut and past news articles, but this one says some interesting things that I hadn’t previously caught. Okay, it is very long and has a lot of human interest story type of bull crap (Wall Street analyst married to professional wrestler).
http://money.cnn.com/2008/08/04/magazines/fortune/whitney_feature.fortune/index.htm?postversion=2008080611
My take on it is that Meredith Whitney is basically right again. I’ve been saying this for months:
1) The media isn’t reporting the straight dope on the banks and there is a whole lot of bad news yet to come out.
2) Bank depositors get guarantees. Bank shareholders could lose everything and not really see it coming.
3) There is no transparency with banks. It is a survival game for them and they will lie through their teeth about it being the bottom, raise capital, write off assets and do it all again until it really is the bottom.
4) This will end up being the worst financial crisis since the Great Depression.
Now, the sharply falling oil price and strengthening dollar does take a huge amount of pressure off of the US Fed. So, that is a major positive and the potential dip in the economy looks now much less severe. So, we have that.
What I learned from this article:
1) I had no idea about peak-to-trough declines in housing price estimates. 20-25% sounds really, really bad. The Case-Shiller housing futures traded on the Chicago Mercantile Exchange of a 33% decline would be disastrous. Whitney’s estimate of closer to 40%, choke!
2) The ratio of credit ratings agencies downgrades to upgrades is a good indicator of the change in asset quality for the banks (although, credit rating agencies aren’t really known for their predictive abilities). Still, those numbers of downgrades are really, really frightening (ahem 85 billion in mortgage securities downgraded in the third quarter of 2007, $237 billion in the fourth quarter, $739 billion in the first quarter of this year, and $841 billion in the second quarter of 2008).
3) I have no idea about some of these products and I don’t think regulators and investors do either. What is with the proliferation of interest-only, negative-amortization instruments, which supposedly transformed many prime borrowers into subprime credit risks?
4) Mergers are going to be more difficult under FAS 141R because it makes the acquirer not only immediately mark to market the portfolio of the company being bought but also mark to market its own portfolio as well.
5) She did not mention Freddie Mac and Fannie Mae at all. Wonder why?
http://money.cnn.com/2008/08/04/magazines/fortune/whitney_feature.fortune/index.htm?postversion=2008080611
My take on it is that Meredith Whitney is basically right again. I’ve been saying this for months:
1) The media isn’t reporting the straight dope on the banks and there is a whole lot of bad news yet to come out.
2) Bank depositors get guarantees. Bank shareholders could lose everything and not really see it coming.
3) There is no transparency with banks. It is a survival game for them and they will lie through their teeth about it being the bottom, raise capital, write off assets and do it all again until it really is the bottom.
4) This will end up being the worst financial crisis since the Great Depression.
Now, the sharply falling oil price and strengthening dollar does take a huge amount of pressure off of the US Fed. So, that is a major positive and the potential dip in the economy looks now much less severe. So, we have that.
What I learned from this article:
1) I had no idea about peak-to-trough declines in housing price estimates. 20-25% sounds really, really bad. The Case-Shiller housing futures traded on the Chicago Mercantile Exchange of a 33% decline would be disastrous. Whitney’s estimate of closer to 40%, choke!
2) The ratio of credit ratings agencies downgrades to upgrades is a good indicator of the change in asset quality for the banks (although, credit rating agencies aren’t really known for their predictive abilities). Still, those numbers of downgrades are really, really frightening (ahem 85 billion in mortgage securities downgraded in the third quarter of 2007, $237 billion in the fourth quarter, $739 billion in the first quarter of this year, and $841 billion in the second quarter of 2008).
3) I have no idea about some of these products and I don’t think regulators and investors do either. What is with the proliferation of interest-only, negative-amortization instruments, which supposedly transformed many prime borrowers into subprime credit risks?
4) Mergers are going to be more difficult under FAS 141R because it makes the acquirer not only immediately mark to market the portfolio of the company being bought but also mark to market its own portfolio as well.
5) She did not mention Freddie Mac and Fannie Mae at all. Wonder why?