Thursday, January 29, 2009

Bad Bank: Afternoon Update

Meredith Whitney, the esteemed financial analyst and a Cassandra over the past 2 years, has added her voice to the anti-"bad bank" proposal, saying, as reported on, that:

"A U.S. proposal to create a “bad bank” to buy troubled assets won’t cause banks to increase lending, Oppenheimer & Co. analyst Meredith Whitney said."

“Simply removing ‘toxic’ assets from bank balance sheets will not directly cause banks to increase lending,” Whitney wrote in a note today.

The banks likely won’t participate in selling assets if the Obama administration wants to pay fair market value for the assets “as capital hits would be too dear,” Whitney said.

The Obama administration is moving closer to setting up a so-called bad bank in its effort to break the back of the credit crisis and may use the Federal Deposit Insurance Corp. to manage it, two people familiar with the matter said yesterday.

Whitney is in favor of banks selling “crown jewel” assets to cover their own losses, she wrote.
“We believe private capital will readily invest in businesses that make money and grow,” Whitney wrote. “However, the banks do not fit this description.”

“If a bank were to sell its ‘bad’ assets into a ‘bad bank,’ it would still be left with lower earnings power from higher losses on ‘good loans’ and the requirements to build reserves, lower earnings power from lower assets and a higher legacy expense structure, or both,” Whitney wrote."

I have authorized entree to view Ms. Whitney's comments on-line via the Oppenheimer website. She has been so right for so long, it's almost scary. Roubini level of prescience, almost.

In addition, I heard an anecdote from someone who knows her. Because she has told the truth about Wall Street, she actually is physically attacked with fruit thrown at her when she visits the Stock Exchange. Really. A man accompanying her returned to his office with his suit bearing the proof. Lovely people, those Wall Streeters. Masters of the Universe? Hardly. Not even masters of their own domain.

In any case, opposition to the bad bank includes from Mr. Soros, Nassim Taleb, Nouriel Roubini, Meredith Whitney . . . all people who called for a financial crack-up before it happened. Against this are Robert Rubin and Tim Geithner, amongst others. Might this opposition give the Obama Administration pause?

We can hope for a course change, can't we?

Copyright (C) Long Lake LLC 2009

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