Use access key #2 to skip to page content.

Meredith Whitney: Consumer Credit Doomed



December 10, 2008 – Comments (2)

By: Elaine Barr

Oppenheimer bank analyst Meredith Whitney is more bearish about the economy than she's been in the past 18 months, and her outlook for banks that "lubricate the entire system" is bleak.

"The big banks are going to be on life support for at least 18 months or 36 months. They won't fail, but they won't grow either for another two years," she told CNBC.

According to Whitney, the TARP bailout program is just filling holes and not funding any loan growth.

"We've witnessed liquidity collapse over the past 18 months, primarily in the asset-backed issuance market," she said.

There's more of this to come, she warned.

That's why she wasn't surprised by the report from AIG today that it owes around $10 billion to Wall Street investment banks for speculative trades that went bad.

According to Whitney, the United States is entering a new era in the financial landscape of forced consumer de-leveraging. Evidence of broad-based declines in consumer liquidity is becoming apparent.

"Just over 70 percent of American households have credit cards, but over 90 percent of those households revolve at least one time a year, so they're using it as a cash flow management vehicle," she says.

"The big banks are already cutting back lines on credit cards, and in 2009-2010, I expect $2 trillion in existing lines will be cut back. That will have an extremely disruptive psychological impact on consumers. Some people will be cut off from credit cards, and that will have an impact on spending."

Whitney also expects home prices to fall another 20 percent and return to 2000 levels.

"The U.S. consumer is the major issue now," says Whitney.

© 2008 Newsmax. All rights reserved.

2 Comments – Post Your Own

#1) On December 10, 2008 at 8:30 PM, jgseattle (26.51) wrote:

I agree!!!!

We are entering a new time of risk.  This is obvious by the deleveraging that is taking place.  So far the risk adjustment has been mostly a corporate thing.  However, this will have to move to the consumer by way of limited credit @ higher interest rates.

Report this comment
#2) On December 11, 2008 at 3:49 AM, jester112358 (28.17) wrote:

Yes, the return of housing prices to 2000 levels is absolutely required to create true affordability without excess debt leverage.  This clearing out process should not be circumvented or we will sufffer for decades like Japan.

Report this comment

Featured Broker Partners