In 2007, a research analyst at Oppenheimer named Meredith Whitney predicted problems developing at Citigroup were worse than most thought—and she was right. During the Bear Stearns crisis she was one of the first to predict the investment bank’s downfall—and was right again. Now CEO of Meredith Whitney Advisory Group, the Wall Street expert has an op-ed in The Wall Street Journal predicting troubles for fledgling credit markets:
I believe that we are only in the early stages of the second half of this credit cycle. I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code. During the past four quarters, lenders have cut “inactive” accounts (whether or not the customer viewed the account as a liquidity vehicle).
The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.
Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences. Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit.
Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul.
Read the whole piece here.