Christopher Walker: Bears bring back memories of 1929

Mauled and wounded by this bear market, a group of City folk retreated to the tranquillity of the Aegean. The further we could get from the dealing screens, the better. But how foolish we were, attempting to be modern Lotus Eaters in an age when no one is ever out of touch, or out of reach. One by one, we were asked to "produce a report on the situation by breakfast", "consider head count implications by 2pm" or, worst of all, "return to the office immediately". Soon my summer holiday came to resemble the plot of an Agatha Christie B-movie, where one by one the house guests disappear.

There's no escaping a bear market. Last year this column referred to the sense of a "phoney war" prevailing in the City. Stung by the Asian crisis of 1998, when banks reacted too quickly, laying off staff only to have to re-recruit, financial institutions have been remarkably slow to react to the downturn. Only now is the real slaughter under way. And so, we hear that UBS Warburg is slicing 200 off the headcount and Goldman Sachs 1,000; Deutsche is planning dramatic cuts, and Merrill Lynch has reduced its staff worldwide by some 15,000 (there are reports that Merrill is considering cutting its European banking team by another 25 per cent).

The scale of this bear market is only now dawning on all of us, and this week many commentators have struggled to make historical comparisons. It's not that long since '98 and its aftermath were considered sufficient rubric. Since then we've taken on '87 and rightly dismissed it as a mere pause in a long-term bull phase. The bear market of '73/'74 was a more tempting comparison, particularly given its Middle Eastern dimension. But despite 11 September, the real causes of 2001/02 are not be found in Middle Eastern politics.

Given that this crisis is a reaction to the technology boom of the Nineties, a fact so obvious even President Bush has grasped it, this bear market is inevitably being compared to the granddaddy of them all – 1929 and the early Thirties. That too was a period of irrational exuberance driven by telecoms and media technology and ending with a financial crisis of confidence. Investors felt they no longer trusted the big financial institutions. The parallels are legion. Many think of the crisis in terms of that black day in 1929, but in reality the bottom in the markets took some years to be reached. If we are mimicking the pattern of 1929/34, then we are still barely halfway down.

Economic parallels are one thing, but I am equally captured by the human comparisons. Consider for a moment one investment banker from the Twenties, William May Wright. At the very centre of the technology boom, he enjoyed its rewards to the full, building a mansion on Long Island with mink-lined bathrooms and buying his wife and daughter matching Rolls-Royce's. His daughter being only nine at the time, hers was a specially built miniature model in which she was driven to watch her father play polo by a midget chauffeur.

The excesses of the most recent crop of Wall Street wizards have yet to be reported, but with bonuses of $20m being chucked around, I'm sure they exist. I also have a warning for them. Come '29, William was wiped out completely. His wife and daughter were reduced to perform- ing a song and dance routine on stage wearing silly hats.

At this point in the cycle, the market becomes a giant threshing machine. For those of us who survive, our behaviour patterns will be inevitably distorted. But while we may wish to avoid a repetition of the excesses of the Nineties we must not lose our nerve. For investors who spotted the bottom in the Thirties, the rewards were considerable – in a couple of years, they tripled their money.