Morgan Stanley’s mark downs of mortgages and leverage loans pushed the total losses and writedowns from the credit crisis above $1 trillion today. And very few believe that we’ve reached the end of this cycle. Certainly the Federal Reserve, which announced an unprecedented set of emergency actions yesterday along with reducing interest rate targets to zero, seems to expect a lot more pain.
Here’s the good news: it looks like our long nightmare of national denial is over. At last, people are facing up to the wreckage of our financial house.
A year ago, we were in a very different position. Everywhere you turned, you could hear people talking about temporary market dislocations, market misbehavior and reaching the late innings of an economic crisis.
Some examples of wishful delusion rather than analysis from November and December of 2007:
- The O.E.C.D was saying that total write downs and losses would amount to just $300 billion.
- Royal Bank’s chief credit strategist Bob Janjuah thought that write downs would range from $250 billion to $500 billion.
- Chief minister of panic, Nouriel Roubini, thought that $500 was a “quite reasonable” and “likely” number.
- Alan Gayle, director of asset allocation at Trusco Capital Management in Atlanta, told David Gaffen of the Wall Street Journal that “the good news is that the writedowns should mostly be completed by the end of the year.” Gaffen wrote a column called “Are bank stocks cheap?”
- The IMF predicted aggregate losses of $600 billion, a number it revised up to $945 billion in spring of 2008.
The list, obviously, could go on and on. We hit the $500 billion of write downs and credit market losses halfway through the year. It’s good to see that Wall Street may finally be close to becoming a reality based community again.