Tuesday, April 21, 2009
Geithner's rah-rah boosterism for TARP becoming less convincing each month as banks aren't lending
Each month, U.S. Treasury Timothy Geithner goes up to Capitol Hill to try and cheer up lawmakers that the TARP rescue of America's financial industry that began last fall is working.
Of course, these lawmakers are seeing differently back home in their districts and hearing the same from their constituents.
Geithner's monthly pleading is enough to convince investors not to completely desert financial stocks as they did on Monday. The Dow rose 127 points today.
But the evidence grows, and even Geithner admitted, that this nation's credit markets remain tight. Cash is not flowing into businesses to expand and hire people. Banks simply aren't lending.
And part of the reason is that home loan losses on their books are greater than believed. And so they need all the cash they can have on hand.
That point was stressed by the NYU economist who predicted this economic downturn. And he says we are in for even more bad news on banks and an end to what he calls the suckers' rally on Wall Street. That CNBC's Jim Cramer thinks differently makes Nouriel Roubini''s contentions even more convincing.
He has predicted a Dow 5,000. I believe he is right. Folks, we're not going to be done with bad times for quite a while.
Well-known economist Nouriel Roubini, one of the few experts to foresee the current global crisis, said Tuesday a recent "suckers rally" in stock markets would fade as the U.S. economy continues to wither and the financial system suffers unexpected shocks.
Hopes the world economy will stage a faster recovery this year have fueled a six-week rise in global markets, with major benchmarks on Wall Street and in Asia up more than 20 percent over just six weeks.
But Roubini, a professor at New York University's business school and former adviser at the U.S Treasury Department, was doubtful and predicted markets would test the lows seen in March.
"For people who say there are green shoots, I seen only yellow weeds frankly," Roubini said at a conference in Hong Kong. "It's not a true recovery. It's just a bear-market rally, it's a suckers rally."
That's because the U.S. economy won't grow again until 2010 after contracting by 2 percent this year, he said. Unemployment will hit 11 percent next year and corporate earnings will come in worse-than-expected, he predicted.
Troubles in the financial sector, meanwhile, are far from over and will be worse than many expect. The results of the government's "stress tests" will show even the biggest 19 American banks don't have enough capital to cope with the huge losses they'll inevitably suffer on souring loans.
"The losses are much more than people are predicting and (the banks) have not reserved enough," Roubini said.
"It looks ugly for every one of those 19 banks, let alone the smaller ones," he added. "So it's going to be ugly for the financial system."