Barry Ritholtz On Banks: "You Can't Drink Yourself Sober" (Video)
Another great interview from Aaron Task at Tech Ticker, this time with Barry Ritholtz, author of Bailout Nation and The Big Picture.
Barry makes many of the points I made in this piece last night, notably that we shouldn't be using new leverage in order to escape the excessive leverage already in the system. That's not gonna end well for anyone.
From Tech Ticker:
The financial sector continues to bask in the afterglow of last week's stress test results and subsequent capital raises by numerous banks, with PNC and KeyCorp. joining the parade.
The fact bank stocks have rallied and many have been able to raise private capital is a positive, but it's folly to believe the crisis is over, says Barry Ritholtz, CEO of Fusion IQ and author of the forthcoming Bailout Nation. "You can't drink yourself sober and you can't leverage your way out of excess leverage."
Many big banks remain technically insolvent and "are only being held together by spit, bailing wire and tape," says Ritholtz.
Banks like Citigroup and Bank of America are being "propped up by the grace of Uncle Sam," which can't afford to let go because bad loans continue to rise and demand for credit is falling, says the money manager and Big Picture blogger.
The banking system needs more time, at least three to five years, to deleverage before it can be left to its own devices, Ritholtz says, suggesting only time can heal the sector's wounds.
That said, because the government is propping up "zombie" banks, you can't rule out the Japan scenario of a decade (or more) of economic malaise, he says.
May 19, 2009 at 7:17 PM
Reader Comments (18)
http://www.marketoracle.co.uk/Article10759.html
http://www.latimes.com/news/local/la-me-props20-2009may20,0,5134709.story
http://cbs2.com/local/Propositions.Results.Special.2.1013947.html
http://mises.org/story/3464
http://revolutionarypolitics.com/?p=695
Yay, California! (Now we get to bail out you guys, too.)
And check this shit out. I was reading some early (Jan.) Daily Bail and found this quote from bailout hero Henry Blodget about Ken Lewis and the Merrill deal:
"Unlike Vikram Pandit at Shitigroup [gotta love Henry -- never passes up a chance for potty humor] and John Thain at Merrill, Lewis can't blame the need for this bailout on his predecessor's idiotic bets. Bank of America needs another bailout solely because of an idiotic Ken Lewis bet: His decision three months ago to buy Merrill Lynch.
No one put a gun to Ken's head and said "You've got to buy Merrill." [Oh my] There wasn't some secret backroom Treasury deal where Hank Paulson forced him to take one for the team."
This is unreal. Just one more reason we can't trust either the bankers or our government.
Why Rookie Lawyers Get $60,000 Paid Vacations
http://www.time.com/time/business/article/0,8599,1899058,00.html?iid=tsmodule
http://mortgage.freedomblogging.com/2009/05/20/loan-reset-threat-looms-through-2012/10791/?ref=patrick.net
Loan reset threat looms till 2012
Updated chart from Credit Suisse.
"There are two sides to the credit equation, the lender (the banks) and the borrower (the people).
Once money has been loaned, there are two and only two ways to get rid of the debt. One way is to pay it back (with interest), and the other is to default.
The aggregator bank idea is to simply peel the bad assets from the remaining “good” parts of the banks and leave the bad assets to fester in a “new” bank that is basically owned by you and me – the government. Was the debt paid back? Was it defaulted? No, it’s still there, and it still must be serviced. All that’s been accomplished is to change who will ultimately take the losses on the loans when they go bad! ...
Guess what, this is a giant circle jerk as the very people who are still in debt as individuals become more in debt in their role as taxpayer."
http://economicedge.blogspot.com/2009/01/aggregator-bank-concept-who-are-we.html
What do you guys think, will the rally fade soon -- and is there a chance that they WANT stocks to fall, given the action today in Treasurys, gold and the dollar?
Unless you have money to literally throw away on a chance & hope, you'd be better served keeping that cash in this deflationary environment. Or if you're of the uber bear, doom and gloom inclination, buying (physical) gold. It might come in handy, and has never gone to zero. Vegas probably has some fantastic deals now, and at least you know the odds upfront.
Yes, with a simple short ETF, you would go "long," but where would you buy? At today's level? What if we head up to S&P 1000+, which is entirely possible. What if we decline to low 800s/high 700s, and then up to 1000+ before we ultimately head back down to test the lows or see new ones? How much in the red and for how long are you willing to hold? What if .gov really is buying everything and we never see those lows again, but just bounce between 800 and 1000 for years? The only folks making money in this market are the big boyz and experienced "traders." Not bears, not bulls, but traders.
I would agree with you that the ultimate lows most likely have not been seen, as would all the preferred Eliott Wave counts. However, they also say we can do everything I just mentioned before we see those lows, and the market usually does its best to throw everyone off the bus, or at least extract as much "fare" for thinking it is going one way, when its really going somewhere else.
Just really, really not a good time to try and cut your teeth in this market, IMHO.
No, I'd considered the other possibilities as well, but sentiment seems to have turned in the last couple of days, so I thought we might see a convincing pullback, but like you say... .gov has deep pockets. In any case, I'd only buy the inverse fund after some technical confirmation, and even then I'd be skittish as a rabbit until I sold. Thanks for the help.
Indeed, you'll also need some farmland as that pantry won't last long what with the supply chain collapsing and all. Careful what you wish for...
"In any case, I'd only buy the inverse fund after some technical confirmation...."
That's what everyone does.
"...and even then I'd be skittish as a rabbit until I sold."
Yum. Tasty snack for the market. Please feed the market.