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So was that it? The great recession of 2008-09 is already over? To hear some in New York talk about it, yes, the worst of the storms have passed. Goldman Sachs and JPMorgan Chase are just one more bond or equity issuance away from repaying the government loans issued to them at the end of last year, and ridding themselves of government meddling in their compensation plans.
Stock markets are rallying and portfolios that so recently looked like roadkill are stirring back to life. Private-equity shops and hedge funds that stayed liquid are racing around like shoppers at the Boxing Day sales grabbing the bargains. President Obama added to the heady new mood in Manhattan by flying up from Washington DC with his wife for dinner and a Broadway play.
But is this just summer madness? David Einhorn, the hedge fund manager who famously shorted Lehman stock before the firm collapsed, is saying that the Obama administration is simply buying time for the banks rather than restructuring their bad loans.
Consumers and firms with too much debt are not being helped at all, he says. The economy remains in a ruinous defensive crouch, delaying any prospect of a real recovery.
Another of New York's famous short-sellers, Jim Chanos of Kynikos Associates, told an audience last week that the growth of government is going to punish formerly high-margin businesses in education, health care, defence and government contracting. Chanos' main fund returned over 50% last year as the markets tanked.
If his and Einhorn's analyses are right, these boom times for short sellers are far from over.
A depressing article in The Wall Street Journal this week described the plight of former financial services workers. The main character was a 38-year-old former oil trader who lost his job in late 2007 and now works as a mâitre d'. His income has fallen from $200,000 a year to $25,000 a year. He is struggling with his mortgage, his savings are almost gone and his daughter offered the contents of her piggy bank to help the family. Last year's public anger at Wall Street has been replaced by a melancholy at the thousands of stories like this.
* NOT that everyone's struggling. Barry Diller, a media mogul, and his wife Diane von Furstenberg, a fashion designer, just gave $10 million to the High Line, a park being built along an abandoned railway line threading up through the West Village and Chelsea. With lots of benches, one hopes, where those in finance can sit and contemplate the eternal truths.
