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Meredith Whitney isn’t buying the turn-around.  Her latest comments are not exactly what the optimists would like to hear right now:

“You have trillions of dollars of loans that were underwritten with bad math assumptions, and those have to work through the system,” Ms. Whitney said the other day. “You’re going to start seeing banks sell stuff, the way you saw banks purge CDOs [collateralized debt obligations] and mortgage-related assets. And that’s going to drive valuations lower. It has to run its course.”

The latest rally doesn’t have her fooled. It may keep going this month, thanks in part to those accounting rule changes and one-time tax gains. But it can’t last.

That’s because 2009 isn’t looking any better for the big U.S. banks or the economy than did 2008. And it could be worse “because so much credit is coming out of the system,” she said.

Without doubt, more U.S. banks will fail or end up effectively nationalized. And if that’s not enough grim news, there’s another black hole still to come – commercial real estate. No wonder she recently opined: “It remains clear to us that core liquidity fundamentals are deteriorating at an accelerated pace.”

This is why it is so critical that we deal with the toxic assets now and begin forcing the banks to take the losses.  The challenges ahead of us are mounting.  The longer we let the issues linger the more Japanese we become….