Wall Street Strategists Warn Of ‘Credit Recession’ Lasting More Than Two Years
Earlier today, some Wall Street strategists sounded the alarm over a “credit recession” which may last more than two years and result in a massive consolidation of the U.S. financial sector. Reuters’ Jennifer Ablan, Dena Aubin, and Walden Siew reported:
The fallout from deteriorating subprime mortgages and the broader housing and credit crisis will eventually lead to a healthier market, but not until after a prolonged purging process, Jack Malvey, Lehman Brothers Holdings Inc’s chief global fixed-income strategist, said in New York.
“We’re going through a tough spell with regard to credit,” Malvey said at a Securities Industry and Financial Markets Association conference.
The “subprime debacle” due to years of excess and easy credit will be followed by years of tight credit, Malvey said…
“This is the biggest blowup that we’ve had,” the strategist said.
Richard Bernstein, chief investment strategist at Merrill Lynch, told Reuters that in the last market cycle downturn, about 25% of financial firms (including brokers, banks, and asset managers) “went away,” referring to bankruptcies or mergers and acquisitions. To date, only 7% of financial firms have suffered this fate. He was also critical of proposed remedies for the housing crisis. From the Reuters piece:
Bernstein also faulted U.S. government proposals to broadly modify U.S. mortgages, which may create a “moral hazard” that encourages future risky behavior, he said.
“Washington is misguided in focusing on mortgages,” Bernstein said. The federal government should focus on “job creation and people keeping their jobs,” Bernstein said. “That is the key to rectifying this situation.”
Source:
“U.S. subprime debacle may spark 2-year credit recession”
Jennifer Ablan, Dena Aubin, Walden Siew
Reuters (India), June 4, 2008
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