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TARP Isn’t Enough



January 07, 2009 – Comments (1) | RELATED TICKERS: SKF , FAZ

By Elizabeth MacDonald

Banks will have to raise new capital in 2009, as a sharp increase in credit-rating downgrades on mortgage-related securities will lead to further stresses on bank capital, according to top banking analyst Meredith Whitney at Oppenheimer Equity Research.

“From July 2007 to date, over $5 tn worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008,” the Oppenheimer analyst wrote in a research note.

As a result, “capital ratios will be meaningfully lower in the fourth quarter (of 2008) versus post TARP pro forma levels,” she added.

In describing what Whitney calls the banks’ “Ring of Fire,” the analyst explains: “When a security is downgraded, a higher level of capital is required by banks to be held against that security.”


1 Comments – Post Your Own

#1) On January 07, 2009 at 2:14 PM, jeffduby (22.23) wrote:

The problem is not that tarp is not enough. There will never be enough money to stem the crash that will come if we don't allow these banks and insurance companies to default on their debts and start over. The problem is that the federal government is behaving in a highly irresponsible manner by paying old debt with existing debt with new debt. This is the equivalent of going to get a pay day loan to pay off your credit card bills, which were used to pay off your student loans.

This is normally about two steps away from a formal bankruptcy for an individual.  Which would you rather have, bankrupt corporations, or bankrupt america? 

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