Thursday, August 23, 2007

In the hand of the inevitable

City braces itself for job losses as crisis spreads

This will result in a lot more than a 10% drop in bonuses and a third of structured credit jobs going. This is the start of a mini-Armageddon: a hurricane, tsunami, earthquake and plague all in one.

Posted by lvmreader @ 05:58 AM (1968 views)
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28 thoughts on “In the hand of the inevitable

  • Oh dear, ‘ow sad, never mind ………….. showing my age a bit 🙂

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  • Well I think this is terrible!

    How is the ‘engine house’ of the UK economy going to function now?

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  • japanese uncle says:

    The City’s job nowadays is largely financial business for the sake of financial business, ie. serving the greed of the mega-rich gamblers, being of little use to the general public. Financial business as means to exploit the less advantageous is purely evil. Anyway 5,000 job loss sounds like an unrealistically optimistic esimation, given the magnitude of what is unfolding. One zero may well be missing.

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  • only 5,000? that is less than 1% of the workforce. i reckon the actual number might be around 15,000 to 20,000.

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  • Well said @Japanese Uncle,

    I remember 1998 when LTCM was unfolding. The banks really panicked then and that was NOTHING like this one.

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  • You think the guys taking $2-3m bonuses per year for the last three years are concerned?

    As for little use to the general public, the City is the only real income source the UK has now. You may well hate us but you cant live without us.

    Mega-rich gamblers? Or maybe your pension fund. Or the funding mechanisms that have allowed research (not to mention the money) to let you enjoy the standard of living you currently enjoy.

    I am a bear on the housing market and am worried about the social implications of it not being resolved but the attitudes of some of the people on this website are simply unreasonable, jealous and ugly and I am struggling to find anything more than anger that they have mis-judged the market. I only visit this site to see the opinions of, whom I thought, were like minded people. The more I read the more I realise why people ignore and deride you.

    For the first time I have started to find myself happy that you guys (and I) have been proven wrong for so long because I am not sure some of the contributors have anything driving them other than jealousy. And that is just as ugly as the people profiting from it .I think its sad that some of you seem to be happy with the thought that some young family who in good faith have tried to make a stable home might end up in trouble with all this. But as long as it crashes and the evil rich kids get whats coming, thats fine by you.

    I will not be visiting this site anymore. I hope the market goes the way you need it to but just be careful what you wish for.

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  • With most financial upsets, the City brokers pass the great bulk of the pain onto their clients – they sometimes even profit from it.

    This one is different – the markets are rebounding strongly, leaving many clients no worse off than they were a few months ago (at this point) – but as JU notes, the game is up for those playing on the fringe. It’s the City fat cats who are feeling the pain this time.

    It’s very hard to calculate how many jobs are on the line, but conventional market dealing – in equities and government bonds – does not require that many bums on seats to function efficiently…

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  • japanese uncle says:

    The event that is shaking the world right now, may well change people’s view of the financial business once and for all. 8-10% annual return at the cost of the most probable loss of the principal. CDOs and other derivatives schemes are all proving to be sheer cons under the guise of ‘financial transactions’ as a few (possibly quite a few) hedge funds along with their parent investment banks may well go under. Derivatives must be wholly banned, and the financial sector must be shrunk by 80%. Then GBP will plummet by 50%, hopefully inspiring a breath of life to the primary and secondary industries in the UK. Abnormally excessive dependence on the financial sector is simply unsound, distorting the value and culture of the nation.

    Also there should be a legislation to forcefully retrieve the money pocketed as ‘bonus and dividend’ by those conmen (i.e. virtually all investment bankers, fund managers, etc), who defrauded the general public. Pension fund managers must pay back their management fees as they seriously breached their fiduciary duty by investing in subprime-CDO without checking its poisonous contents. This is what we call justice.

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  • I agree hedger the UK economy is now heavily reliant on the the paper shufflers up in the smoke so the fall out to this mess will hit the UK very badly as we have very little to fall back on. And once Gordos tax receipts start to dry up all the state funded jobs which prop up the employment numbers will vanish in to thin air.

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  • Well said Hedger

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  • Hedger,

    It’s only figures on a peice of paper. Remember that there were the bread riots in Russia in 1905 and thwe Tsar respectfully shot (or had shot) many of those involved.

    Then there was a hiatus and the proletariat and particularly the middle classes were given more crumbs from the table. The lawyers Bankers etc… etc… all thought matters had gone away.

    Then bang 1917… The middle classes including (presumably) the likes of you were queuing up with the likes of those here to get their bread, their money and if they were lucky and did a socially useful job a one bed flat. The money and assets they thought they had was worthless and/or confiscated (refer to “10 days that shook the world” for interest, (by John Reed)).

    The fact is that London has stripped the wealth out of the rest of the economy that is all. There is much more potential than London alone here in the UK (inc Scotland Wales and Northern Ireland) and if it is properly taxed and regulated then perhaps…

    Alternatively well you never know, you may get your results not quite intended mightn’t you? 30 – 40% of Russians are still Communists by the way, I wonder what the figure is here?

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  • Hedger, before you go I want to ask you a question.

    From the sounds of it you work in finance in the city. I work in the finance industry in a tax haven, spendin large amounts of time analysing hedge funds.

    You made a comment some time ago which I hear quite often. Something along the lines of “people who think hedge funds are a danger don’t know what they are about”

    Hedge funds are literally meant to hedge against risk. Maximising the upside and minimising the downside. But having studied them (difficult as they are all so secretive), I think this is a load of rubbish. They are highly leveraged in who-knows-what. The proof as far as I am concerned is the fact that hedge funds have been suffering massive losses at a time of turmoil in the markets. The very thing that they were supposed to prevent!!

    Please can you justify your earlier comment (wish I could remember it accurately) on the basis that the evidence disproves it, and maybe argue my point that hedge funds are often secretive and nobody therefore knows how big they are or how much damage they could do.

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  • hedger – anger more than pure jealousy I think.

    As for pension funds – what happened with Equitable Life probably had a decent hand in driving the initial sentiment behind the BTL market. Pension funds, in the long run, do worse than the market as a whole. Similarly with the average managed fund. Banking, derivatives, insurance etc. are a necessary and important financial lubricant for a healthy economy, but at some stage they become parasitic and deleterious to economic and social stability. I think that that stage has been well and truly passed.

    Japanese Uncle – part of the problem is the short term incentive structures in the city. It encourages risk taking. There is certainly an issue regarding due diligence with respect to CDOs. If the people on this website could see long ago that there must be serious problems in mortgages a couple of years ago, then why couldn’t the experts?! Either they are stupid, wilfully ignorant, or mendacious. I’m putting my money on a combination of all three.

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  • planning4acrash says:

    Hedger, the only people we get angry with here are buy to let investors who speculate the housing market into a bubble. Nobody here wants to see families go under and many people who post have families but cannot get a place of their own because M3 money supply has been allowed to go to the moon to avoid recession after the .com fiasco. Its not jealousy either, its a human need, remember that the right to housing is a fundamental human right and part of the UN’s charter of human rights. For the record, most people here, are keen to advise bulls to sell at the top and not run the risk of negative equity. And, I am very happy to wish for house prices correcting to their long term average, more than happy, I’m not jealous of anybody in the housing market right now, wish I’d been able to benefit from the biggest housing bull market in history, but if I had a house right now, I’d be selling and putting cash into a high interest account, going for a round the world trip for a year and buying on my return. People here got it wrong before, because they didn’t realise quite so much that housing must not only go far from fundamentals, but that money supply must be restricted and become more costly. We are there now, so the thing is a dead cert.

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  • japanese uncle says:

    Speaking about risk-taking, tha’ts fine, but casinoes and betting shops serve such purpose much better than banks and other financial institutions. And accordingly bankers salary must be adjusted to the level of Ladbroke employees.

    Also I would like to ask, ‘Don’t gamble with my money, but with your own, please’.

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  • sold 2 rent 1 says:

    UT,

    “This one is different – the markets are rebounding strongly”

    You talk as if the liquidity crisis is over and the bull run is firmly back on track.
    October is historically the month for stocks crashes. Maybe the BIG ONE is still to come.

    Everyone has been focussing on sub-prime over the last few months.
    Moving into Sept/Oct there will be more talk of the R-word (recession) in the US.
    We will hear more of the housing slump, slowing car sales, retailer profit warnings etc.

    Remember, company director’s stock selling has been at its highest since 1987 for the last 9 months.

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  • Jealousy? Damn right I’m jealous.

    The people that work in the City are getting really astronomical bonuses, not because of a high education, or some great skill, but seemingly by virtue of the fact that they work with money. They are taking much more than their fair share and doing it in broad daylight. I accept that this is a free market and that is the best system there is, but free markets have their weaknesses too, such as anti competitive behaviour, monopolies and a fundamental lack of conscience. Its negative aspects need to be controlled, in theory by government.

    Hedger, I think, is dead right when he says they are not really worried about this. The thieves have already done their laundry. What this really means for them is an extended holiday.

    And I don’t really feel sorry for the families of the ‘lower downs’ that will suffer as a result. You might guess that I’ve been desensitized by struggling families that invest their life savings in an overpriced home only to have it repossessed.

    I also dispute the fact that we really need these guys. Why do we need a massive GDP? It’s only nominal value. What is more important is a stable well-balanced economy. Our economy, at present, is occupied with shuffling money around. What about doing something geniunely productive? I vote for building more houses, and upgrading the transportation system.

    Having ranted a bit, I have to admit that the people I should feel real anger towards are politicians for not controlling this lot. They may act like ravenous dogs, but isn’t that who we want in this position when competing for british interests on the world stage? Politicians on the other hand have failed dismally both on this issue and so many others. And perhaps I should feel more anger at the general public for not demanding more of our politicians.

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  • Hedger, can you not see why people are angry when they see city financiers awarding themselves £1,000,000+ bonuses whilst they are struggling to survive on minimum wage. While they see them pumping out tons of CO2 in their corporate jets whilst they struggle to keep a roof over their heads. The vast majority of city institutions are based on greed and I see it as no great loss if a few of them lose their jobs. You need to live in the real world if you don’t understand that it is with ‘anger’ and not ‘envy’ that the rest of us look upon the city of London.

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  • Hedger:

    Can you just have a look at this link:

    http://business.timesonline.co.uk/tol/business/industry_sectors/health/article2195771.ece
    (KKR unable to sell any debt for its £9bn Alliance Boots acquisition)

    No one sems to have answered the writers question. Where did the ‘money’ come from and how can either now do any business?

    Is this our new London economy? built on sand?

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  • C'mon Correction says:

    Hedger – many of us have families, are lucky enough to have good jobs and yet still we can’t afford a decent house to bring our children up in. This is due to the New Labour government, estate agents, irresponsible banks and BTLer’s (who are social parasite’s who make money out of others). It is these people I am angry with, not jealous of people who have over-stretched themselves to get on the housing ladder.

    I am looked down on, on a daily basis by home-owners thinking they are somehow better off than me. I have been described as being in a ‘situation’ by people who bought 5 years ago and think I’ve missed the boat. I think some home-owners like these who have bought in the last five years, need to look at themselves and study the ‘situation’ they are in.

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  • I share hedger’s observation about the tone of many people’s posts. There is certainly a significant number of people who sound bitter and event hateful towards the better off. I couldn’t care less how much anyone earns so long as they play by the same rules (tax, domicile etc). I feel for anyone who loses their job, or suffers any life crisis, rich or poor, but if a hedgefund manager loses his job and has a few million tucked away I care less. Many of those losing their jobs will be much further down the food chain though. I think it is right to be extremely critical of financiers who cause the general population/economy hardship through their greed and profligate actions though, and also the politicians who sit by and let them with impugnity. As to BTLers, I do not understand the anger directed at them. They are providing very cheap flexible rental homes (which I have taken advantage of) and taking crazy risks to do so. The main problem is lack of govt. regulation/control and profligate lending by banks. The emphasis on the UK economy being dependent upon the finance industry is rubbish as well. London might be, but London is messed up for all sorts of reasons. The rest of the economy will do just fine, in fact probably much better in the long-run, without the overseas banking casino that is London.

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  • japanese uncle says:

    Those fund managers and investment bankers have clearly proven that they could not even envisage what many common men on the street with reasonable common sense easily envisaged, that those who could not and shoud not afford buying houses at such ridiculously inflated prices would soon face the wall, and that such poor risk would never go away by just slicing and dicing it. Stunning incompetence! Their salary ought be 10K rather than 1,000K. Having said that I suspect many of them actually knew what should follow eventually. They just took their bite and passed the buck to the investors, presumably, hence I call them fraudsters.

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  • I’m buying an expensive house, having sold another expensive house. I couldn’t possibly afford to buy it as a first time buyer, so in many ways I’m lucky. But the false warm feeling of rising house prices is by far offset by the worry that my kids will never be able to afford their own house when they grow up. Many family homeowners seem to be drawn into the allure of a rising house market but fail to see the trouble this will cause their children.

    From my seemingly neutral-toward-crash perspective this blog is an interesting one, but not the neutral house/mortgage news aggregator I was hoping for. There seems to be a clique of people here self-perpetuating a crash spin on all news. So I wouldn’t recommend that anyone judge the market from this news feed alone, and I suspect this is also why hedger is disillusioned with what he sees here.

    Just my €0.02.

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  • I fully agree 100% with C’mon Corrections second paragraph.

    I also earn good money but there is just no way I can afford anything. I’m also amazed by some of my well respected colleagues who persist in saying to me. “Buy ASAP, as house prices will always go up”

    Neither of my parents seem to “get it” either, and I get the age old saying of “It was hard in our day as well you know”

    I don’t mind a challenge and saving for a house, but this is mission impossible!

    This web site is the only piece of encouragement I get! Any idea how many members it has?

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  • planning4acrash says:

    Anyway, its nice to see a an apparent “hedge fund” person here sounding really stressed out, feeling that the man on the street is about to have one over him. We may see a bit more of that during the next few years. 🙂

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  • to be honest I am doubting very much whether hedger has anything at all to do with hedge funds or the finance industry.

    bull…. and bluster.

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  • planning4acrash says:

    Hense me putting speach marks around the hedge fund bit,

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  • The first response to this post will undoubtedly be ‘you don’t know what you’re talking about’ and I admit i’m not an expert in the working of finance and the city, but everything i’ve read and learnt over the last couple of years hasn’t shaken my view (and that of most people not working within it) is that the financial industry, other than lending money, is of no use to society. There is a difference between creating wealth and creating money – I think that those blinded by the figures (and their egos) tend to forget that. Making and adding value creates wealth – from what I can see increasing a sum of money by moving it through a number of financial instruments creates nothing. Isn’t the increase in money without wealth or value addition simply just inflation? As for the argument that the money created is essential for research etc., I didn’t really see society struggling to invent or innovate or create before the the modern financial industry came along – what I do see is that everything was a lot more stable and predictable – perhaps people didn’t lose their jobs because the profit margin just wasn’t big enough. The Japanese seem to realise the importance of actually making things as well as a stable society – the ‘jobs for life’ ethic was extremely commendable, but it seems crushed by modern financial practices which care nothing for people, society, sustainability, advancement of knowledge or anything deemed to be useful to the human race other than the accumulation of cash. As for usual tosh about ‘it’s capitalism and the free market and it’s the best system we’ve got’, I see little in the structure of modern business that resembles the free market as put forward in ‘Wealth of Nations’ or anywhere else. I would be extremely welcoming of any explanation of why, if i’m wrong on this.

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