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Week in review: When will it end?

Bankers and economists couldn’t agree on whether the credit crunch was getting better or worse. Banks were ambivalent – they kept on cutting jobs regardless.

The end (of the crunch) is nigh optimists comprised Lloyd Blankfein, chief executive of Goldman Sachs, Alistair Darling, Chancellor of the Exchequer, and Daniel Bouton, chairman of Soc Gen.

Blankfein said markets are in the late stage of the credit crisis. This was despite a substantial increase in the value of Goldman’s illiquid assets in the first quarter.

Darling said there will obviously be a slowdown (in the general economy) but stuck to his ambitious growth projections.

Daniel Bouton said there’s no credit crunch in France and the situation is improving anyway.

The end (of the crunch) is not nigh pessimists counted John Studzinksi of Blackstone, George Soros of hedge fund notoriety, the IMF, some people at the Fed, and a consultant at Oliver Wyman.

Studzinski said the turmoil will go on until 2010.

Soros said things will get worse before they get better.

The IMF said the current US crisis is the worst since the Great Depression and there’s no end in sight.

Some people at the Fed said falling house prices and financial market turmoil “could lead to a more severe and protracted downturn in activity than currently anticipated”, according to minutes from the bank’s most recent meeting.

James Davis, a consultant at Oliver Wyman in New York, said the current crisis is the worst since the 1930s and net revenues in investment banking might fall 45% this year.

Cutting jobs regardless was theme of the week at Goldman Sachs, RBS, Deutsche and Fidelity.

Goldman Sachs cut people in its mortgage and investment banking businesses and shifted others around internally.

RBS cut around 200 people from ABN AMRO.

Deutsche cut 80 people in corporate finance.

As ever, there may be more cuts to come. Kenneth Moelis, former president of UBS AG’s investment bank, resurfaced on Bloomberg TV to say banks may need to cut 35% of their staff.

Citigroup hired a ‘noted cost cutter’ as as chief administrative officer and head of productivity for its institutional clients group.

Who’s to blame?

Not Alan Greenspan – according to Alan Greenspan. The ex-chairman of the Fed said a recession’s coming but that it’s not his fault.

Ben Bernanke said it was the ratings agencies’ fault.

The Institute of International Finance said it was the banks’ fault.

Bloomberg reported that losses from the credit crunch had reached $245bn since the start of 2007.

Central banks did – or didn’t – try a little more wand waving, depending upon their location.

The Bank of England cut the base rate to 5%.

The European Central Bank held interest rates steady at 4%.

The pound promptly plummeted to a record low against the euro.

Getting out of banking remains a possibility, as long as you’re prepared to be flexible.

The Financial Times said there’s a serious shortage of people who can clear up radioactive waste: 9,000 workers and 4,500 graduates are needed.

The Times said scrap is where the money is: rising commodity prices mean scrap merchants are becoming millionaires.

Comments (9)

  1. No one but a complete fool would think the turmoil is over.

  2. That makes Blankfein a fool, which seems unlikely.

  3. Blankfein is simply talking up his own book. End of.

  4. Blankfein is certainly no fool, in fact , brilliant. but anyone (person or institution) who follows his advice is a fool twice over.

  5. ‘..and a consultant at Oliver Wyman’ – what do those guys do?

  6. The ‘optimists’ listed above are being optimistic because it is their job to be so. No Chancellor is going to say that its all an absolute disaster and there is no hope in hell. Equally wrt any CEO.

    Also, recessions such as this one are created by people panicking. Everytime you watch the news or open a paper there are the doom-mongers handwringing, which hypes-up the situation. I’m not saying there is no problem, but the media banging on about it at every opportunity only makes it a self-fulfilling prophecy.

  7. i agree with quant1
    Added to this – Too many newspapers and websites employ people who seemed to have never worked in the financial industry. You get journalists writing technically incorrect stuff and, it seems, only really listen to their more sensationalist of contacts in the industry without adjustment for their own experience and knowledge. This enhances the spread of panic.

  8. That’s definitely right re journalists writing stuff thats plain wrong. They have got absolutely no understanding how these instruments work/behave and write such absurd generalisations. I’ve also read such fanciful myths about CDOs in the past few weeks because its been dumbed-down to make it intelligible for a lay audience. Many of these journalists are sensationalist because hype sells newspapers, but its really to the detriment of the markets/economy.

    Then, if that wasn’t bad enough, there are some people who work at the fringes of the financial industry who re-iterate this nonsense thinking that its a real grasp of the issues.

    Friedman always said how important the transmission of information was. He was right.

  9. This is more than hype and sensationalism by journalists. There have been fundamental imbalances and a correction has been on the cards for a long time. You didn’t need to be a quant to predict these problems. I do agree that comments by figure heads with their own agenda should be taken with a pinch of salt. However, if these problems feed in to the real economy – employment, wage demands etc. – this crisis will be far from over.

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