Meredith Whitney Scares The Crap Out Of Everyone

Today, Meredith Whitney was on CNBC interviewed by Maria Bartoromo.  It was a seven minute segment that was essentially a monologue by Whitney trying to fit in as much as she could. Boy, and did she.  Read the loosely transcribed version below.

• At a minimum, this is traumatic for everyone involved. Never in my wildest dreams would I have thought the landscape would exclude Lehman (LEH), Bear and Merrill (MER).
• What this does is exacerbates the credit crunch. Pulls so much liquidity out of the market.
• Reality is this situation makes it worse. BofA Merrill is good.
• Loss of Lehman pulls liquidity out of market
• None of the $500b in previous write downs was done amidst liquidity pressure.
• Near term Lehman and AIG (AIG) will be selling assets. When there is a liquidity crunch asset prices will go lower.
• Lehman’s forced selling of $600bb in assets very quickly will drive asset prices down very quickly causing pain across Wall Street
• Other institutions will have to mark their assets lower. A real virus will spread; I don’t know how we get out of this short of real government intervention.
• Maria: “What’s next?”
• Underlying root of all evil has been US house prices.
• Where have you (each bank) gone into this with assumptions of where housing prices will go?
• Futures indicate a 33% peak to trough housing price decline…I think well north of 40-45%.
• WB estimates a peak to trough house price decline of 21% with 60% exposure in CA where prices have been hit the hardest.
• CITI assumes a 23% peak to trough house price decline. That math is not going to work.
• The banks will have to play catch up with their write downs due to underestimating house price declines.
• WaMu (WM) should be on forefront of everyone’s mind.
• Maria asks about dividends:
• It never made any sense why CITI (C) kept their dividend. They should not pay one. They don’t earn any money. They can’t afford to pay. They will be selling assets. They have alot of stuff to sell like AIG.
• Everyone is under asset value pressure and should not pay a dividend.
• All these (financials) names will be bought at much cheaper levels in the short term.
• I can’t believe equities market has held up so well as bond market credit spreads blown out across board.
• So much destruction because of Lehman…very messy credit market next several weeks.
• Don’t understand why equities market hanging in there so well
• Europe and Asia:
• When one of your major investment banks does not answer the phone it’s traumatic across globe. Lehman going down pulls liquidity out of the economy across the globe. To date $3 trillion less liquidity is flowing through the market than last year across the globe and $2 trillion less in the US markets.
• How does engine go forward without any lubrication?
• In the past the market did not impact the economy.  But now, market directly impacts the economy and exacerbated certainly by this weekend and what I expect over the next couple of weeks. Now you will see economy impact the market going forward.
• So much of the losses so far have been because on given loans prices have declined so much. There has been a small number of relative portion of given loans defaulted so far. Going forward, there will be a higher frequency of defaults in all states. Unemployment went up 50% from July 2007 to July 2008. The market has yet to appreciate how the economy is going to impact the market. The market is still reigning havoc on the economy.

What she says fits in perfectly with a report I wrote mid last month called ‘The Real Estate Quickening is Upon Us’.

You can view the video here.

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