Some in finance (in the US) face a worrying Thanksgiving weekend, which began on Thursday. Losses at big banks have spawned rumours of massive headcount reductions. There’s the mortgage mess, which just seems to get bigger. And the weak dollar means that anyone planning a foreign vacation is looking at a much bigger bill. Still, in the spirit of the occasion, here’s a list of 10 things to be thankful for, something Wall Street types can chew over with their turkey and pumpkin pie.
1. The prosperous past
The current problems come after decades of profitable expansion. The share of US gross domestic product (GDP) dedicated to financial activity has increased from 5% to 8% since 1990. Economists and politicians aren’t happy about the increased ratio of debt to GDP, but the trend works well for financiers.
2. The still-prosperous present
By almost any standards— if not those of pampered bankers—times remain good. Large swathes of the world are still booming.
Bonuses accrued in the first nine months of the year for the top seven investment banks in the US were up 10% from the same period last year, to $95 billion (Rs3.74 trillion). Even after big write-downs from Citigroup Inc. and others, recent estimates suggest Wall Street bonuses won’t fall much more than 10% below the record levels of 2006.
3. A market-friendly government
The US isn’t run by an anti-capitalist like Hugo Chavez of Venezuela. Better still for Wall Street, the Federal Reserve seems set on keeping interest rates as low as possible, and fighting asset price bubbles only after they have popped. By then, many bankers and traders have raked in their fortunes.
4. The politics of the next US president
No one who has much of a chance has a populist, anti-finance agenda. That could help Wall Street avoid too much blame for the current housing problems. A return to rigorous, profit-crimping regulation is improbable.
5. The judicial system
There may be enough of a populist backlash, and enough law-breaking, for a few folks in finance to worry about legal problems. But in a country that offers defendants the best justice money can buy, few miscreants will actually end up behind bars. In China, you can be executed for financial misdeeds.
6. The state of corporate governance
The rewards for success are huge, and at the top, there can be big rewards for failure.
When the Pilgrims celebrated their first Thanksgiving in 1621, they were glad to have enough food to last the winter. Stan O’Neal’s $160 million retirement package from Merrill Lynch & Co. Inc. will buy him enough simple fare for about 30,000 years.
7. The power of the dollar
Sure, the greenback is losing value and prestige. But thanks to more than a half-century of global pre-eminence, the US denominates all its $8 trillion of net foreign debts in dollars.
If those were in euros or renminbi, the talk now would be of default rather than more expensive European holidays.
8. Chinese economic policy
No one knows exactly why the People’s Republic of China has been willing to trade cheap consumer goods for vast quantities of dollar-denominated debt. But without that willingness, US consumers would be less affluent.
9. Past mistakes
Bad loans may bring shareholders to their knees and give bondholders buzzcuts, but the American way is to look ahead. In the coming rainy days, there’s going to be plenty of lucrative business for restructuring experts.
10. The experience
Gratitude for adversity is certainly in the Pilgrim spirit. As Robert Cushman put it in a 1621 sermon, delivered in the new settlement of Plymouth, Massachusetts, the Pilgrims were to be people “quietly contenting themselves with such hardship and difficulties, as by God’s providence shall fall upon them.”
That might be a tough sell on Wall Street, even at Thanksgiving. But perhaps it offers greater comfort amid the turbulence of 2007 than in some more buoyant years.