Meredith Whitney Watching Wall Street Banks and Layoffs

Meredith Whitney gained fame as a Wall Street watcher by predicting that Citibank would have to cut their dividend as the credit crisis began. She was almost laughed out of New York City. But she was so right!

She has some new predictions about the Street. These are sobering assessments of the employment picture as she fears a chronic unemployment for years to come.

Essentially Meredith is saying that state government must continue to cut jobs, massively, in order to balance budgets. 49 out of 50 states require a balanced budget. She is saying this could destroy over 1 million jobs and take over a trillion dollars out of the national economy. Because of fee prohibitions on banks, she is saying there could be hundreds of billions of dollars taken out of the economy from those limitations on the banks. This doesn't even include possible housing declines and a double dip recession.

She has recently stated that 5000 banks will close by spring of 2012 in the United States.

Fighting Unemployment is the Solution

Ms. Whitney has said that fighting unemployment should be the government's number one issue. The reason is, lending to small business has tanked. And there may be regulatory headwinds to lending. While she didn't state this, my feeling is that subprime lending is what small business wants, both to them and to their customers. I don't really think that this reflation trade, undertaken by Larry Summers and Tim Geithner, the two stooges of Obama's financial plan, will work. We have heard that General Motors wants more access to subprime borrowers. Isn't that how we got into the credit crisis mess in the first place?

And small businesses who cannot get credit because they have poor credit are caught in the squeeze. Unless government is willing to guarantee those loans at taxpayers expense, and taxpayers rightly hate that idea, I don't see banks taking the chance to lend to subprime businesses and subprime consumers on a mass scale, but you never know. However, with all the state layoffs, she is saying that without small business to offset these declines in state jobs, there will be a lot of unemployment for a long time.

My Bone to Pick With Meredith Whitney

While she is an astute and highly intelligent Wall Street observer, Meredith Whitney is too close to Wall Street. While she rightly focuses on unemployment, she fails to see the need to tamp down the banks' risky behavior. We hear that Republicans want Wall Street banks to be able to gamble with taxpayer money. As bad as the Democrats are, and they are bad, this Republican desperation is a very bad idea!

So, we need to be tough on the big banks, and circumvent them with state chartered banks on the Ellen Brown model if necessary. We cannot have a reflated subprime mess again, because that delays the inevitable need for Americans to save capital and cut their own debt.

Walk Away From All Bad Loans

I have advocated that households, who received no help, as banks got huge bailouts and easy money loans at the Fed discount window, cut their own debts by walking away if they have to. I believe that banks have been engaged in ponzi loans destined to fail, and also in usury in their credit card fees. Time to tell the big banks to shove it, and walk away, even strategically, if you can. I am not an investment advisor or attorney, so I am not giving advice, but rather am for Americans protesting the abuse of the big banks by just not paying the debt back.

Because investors are getting skittish about sovereign debt loads many think that there is not enough money to have a massive jobs program or focus on jobs. Obviously the US can print more money, and just create money through the private federal Reserve bank out of nothing. However, sovereign debt is the total debt of a nation. The US is reaching a near dangerous level of this sovereign debt.

So, we face some issues and headwinds here. First, China may be slowing some to crack down on their housing bubble. Second, Europe may have too much sovereign debt and that could weigh on the recovery of a block that has 1/4 of the world's GDP. Third, the US may be slowing down again, and this would mean another 1/4 of world GDP could face a slowdown.

With half the world slowing down plus China possibly slowing the rate of growth, and with half of US business being small business in a credit crunch, Meredith Whitney sees a problem with future recovery. So do I. This make it even more important that families walk away from their bad loans. All of this slowing of economic activity is extremely deflationary. While I am for a slow reduction of debt in the public sector, a rapid IMF style decline will wreck havoc with a huge sucking sound of capital out of the private sector of any country that goes to the IMF for assistence.

Warning: Meredith Whitney says that it will get more expensive to be poor in this country. Well, if you feel poor, and if you can, walk away from debt and be very careful to consider taking any more debt on.