Barry Ritholtz On Banks: "You Can't Drink Yourself Sober" (Video)
May 19, 2009 at 7:17 PM
DailyBail in bailout nation, bailout opinion, bailout rant, bailout rant, bailout video, bailouts, bank bailouts, bank stress tests, barry ritholtz, leverage, the big picture

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.

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