After ECB head Jean-Claude Trichet’s gloomy outlook on the ongoing credit crisis earlier this morning, two more noteworthy commentators have weighed in. Perennial optimist U.S. Treasury Secretary Hank Paulson thinks that the end is in sight. Nobel prize-winning economist Myron Scholes, however, thinks that we could only be in “the eye of the storm.” From The Big Picture:
I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions, and specifically, by the recovery of the housing sector,” Paulson said in a speech in Washington. He reiterated his view that “we are closer to the end of the market turmoil than the beginning.
From my perspective, I think that we don’t know if the storm has passed or if we are still in the eye of the storm. Are there other shoes to drop and new events or new shocks that will come to the fore?’ In my view, this is probably as bad or worse than the 1989-1990 crisis and may even rival the worst crisis we’ve seen since the end of the Second World War.
From where we sit, the truth seems somewhere in between. As the TED and other credit spreads continue to normalize, it seems likely that the biggest of the surprise writedowns are behind us. Banks are beginning to trust each other again, and the turmoil is gradually working itself out of the system. But things will likely remain dicey for some time yet as the knock-on effects spread.
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