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"You Can't Drink Yourself Sober": Financial Crisis Far from Over, Ritholtz Says

Posted May 14, 2009 12:34pm EDT by Aaron Task in Investing, Banking
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.

Full disclosure: I was paid for some contributions to Ritholtz's book.

150 Comments

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:08PM EDT

smart guy. Very insightful.

John
John - Thursday May 14, 2009 01:09PM EDT

See Shags.. I really am johnq.lugnut.. I think a moving average just bounced off my ADX.... ha ha

Trevor
Trevor - Thursday May 14, 2009 01:10PM EDT

it all started when we started sending jobs overseas, NO MORE OFFSHORING JOBS. Other countries need to create there own product. There own jobs. No h1s either. Shame on you DELL and IBM ect.

Tups
Tups - Thursday May 14, 2009 01:10PM EDT

Why anyone would invest in banks is beyond me. Who can make sense of their accounting schemes. Run from them, I say.

Trevor
Trevor - Thursday May 14, 2009 01:12PM EDT

it all started when we started sending jobs overseas, NO MORE OFFSHORING JOBS. Other countries need to create there own product. There own jobs. No h1s either. Shame on you DELL and IBM ect.

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:13PM EDT

My family want to donate a billion dollar to the American charities from our federal tax refunds. We need a tax law firm ASAP to work with the program. We offer a $100 million compensation. Contact us at info@eblm.us

franck s
franck s - Thursday May 14, 2009 01:13PM EDT

American society is duplicitous and at a point of reckoning. For example, America can either have wide open capitalist medicine, which only a few can pay, or socialized medicine, which controls the profit motive in healthcare. It can let banks prey on the public, and spin wild interest rate schemes, or it can regulate heavily what a banker can take. And America can make peace, but not by pointing guns. It can do either of these things, but not both.

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:13PM EDT

The only things being held together by spit wire and tape are the brains of Task and Ritholz. it's so easy to spin things your way given what's happened with the banks. But please use some real analysis once and a while. Task should be FIRED. By the way, why haven't you DISCLOSED YOUR HOLDINGS YET?? WHAT ARE YOU HIDING??

Robert
Robert - Thursday May 14, 2009 01:17PM EDT

It's ironic that Obama hasn't put a dime into the hands of the people by way of stimulus as promised. Rather, all of the money has been given to Wall Street and AIG losers under his watch. W sent checks out to the people. Timmy was supposed to be regulating when all of this mess was created. His successor had to resign for conflict. Timmy forgot to pay his taxes. Which party is which again?

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:18PM EDT

As usual, you're way off the mark TASK. Another pompous idiot heard from that does not know how to analyze a bank. Ignore these clowns, they don't understand how powerful the earnings of banks will be going forward as their spreads are going through the roof..They will have more than enough capital to meet even a worst case economic scenario. Any analyst that has an unbiased view of banks can confirm this.

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:19PM EDT

Wow, 6 votes recommending this interview. That's more than double your usual total TASK. Must have some first time readers that don't realize how full of crap you are. Whatever he's pushing, do the opposite--TASK IS ALWAYS WRONG.

Reedersong
Reedersong - Thursday May 14, 2009 01:20PM EDT

Personally, I try to stay fairly objective. Also, I believe what I want to anyway, for the most part. However, there are so many people on here going after Blodgett, Task, and Ritholtz, that I believe these articles are biased.

hot4bearmen
hot4bearmen - Thursday May 14, 2009 01:20PM EDT

Someone at Tech Ticker stole my "Weekend at Bernie's" analogy of the Goverment parading corpses as live bodies. But I forgive you. ;-)

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:20PM EDT

The political and commercial morals of the United States are not merely food for laughter, they are an entire banquet. - Mark Twain in Eruption... sad but true...

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:21PM EDT

where's the full disclosure task. you have no credibility until you disclose your holdings. IF YOU HAVE NOTHING TO HIDE, DISCLOSE THEM. OTHERWISE YOU PRPOVE THAT YOU HAVE NO CREDIBILITY.

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:22PM EDT

I don't care what the truth is.. I just want to be right.. ha ha.. and I also feel better if other people agree with me...

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:23PM EDT

HEY YAHOO, WE NEED A THUMBS DOWN TOGGLE SO WE CAN VOTE WHAT WE THINK OF THIS INTERVIEW. ADD THAT BUTTON, AND SEE THAT READERS ARE AT LEAST TEN TO ONE NEGATIVE. DUMP THIS BOZO.

Popat
Popat - Thursday May 14, 2009 01:24PM EDT

Wall Street is one big Ponzi scheme. Get out while you still can.

Anthony
Anthony - Thursday May 14, 2009 01:25PM EDT

Obama and his economic team have been such a disgrace. They are propping up the bondholders of these financial institutions at the expense of the real economy. Nothing is being done to deal with the derivatives and in particular the credit defautl swaps. Obama promised transparency but there has been none. I don't hear Obama calling for an audit of the Federal Reserve. GATA is looking into gold market manipulation and had to submit another request for additional information being withheld by the treasury. Also notice the lack of prosecution. The clowns in the current administration are doing nothing to prosecute white collar crime. Of course they will clamp down on the little guy but the criminals at JP Morgan and Goldman Sachs will continue their merry ways with the blessing of the U.S. government. Shame on you Geithner and Obama. www.goldmansachs666.com

Yahoo! Finance User
Yahoo! Finance User - Thursday May 14, 2009 01:26PM EDT

am i the only one that hates the term "toxic"? people we dont like---toxic--what happened to A hole. now banks are --toxic--??? toxic to me is something like agent orange. Media is controling your minds folks. Please stop... and whats with ZOMBIE, PLEASE use English the way it was intended

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