NEW YORK - May 11, 2009 - Banks are overvalued and the government enabled them to have better first quarter earnings than they should, well-known analyst Meredith Whitney told CNBC.

"At a core basis, I would not own these stocks," Whitney said in a live interview. "Their business models are not going to come back."

Whitney, a former analyst at Oppenheimer who has her own firm, is renowned for calling out the problems with banks' toxic assets before the issue became widespread.

"This is the great government momentum trade," Whitney said on why bank stocks had seen some improvement lately. "But the underlying core, earnings power of these banks is negligible."

Whitney also said that consumer spending is still going to remain slow. "There's a massive retraction in consumer liquidity," said Whitney. "Credit contraction is happening at an accelerated pace. Consumer spending is going to be less than people expect going forward."

She cited Bank of America as an example of credit contraction. "They cut more than $200 billion in credit card lines in the first quarter of this year," said Whitney. "Consumers are not going to spend money."

Whitney also said that the rules of trading have changed because of the government's role. "For investors, you invest on what you know to be the rules of the game," said Whitney. "But with the government involved, no rules apply."