"When all anyone can think about is bad news, that's the time to go looking for investment bargains," he counselled in best contrarian style. Under questioning he conceded that "markets will react" if Brazil, or the Japanese banking system, or another hedge fund collapses. But he stuck to his forecast that "a broadly diversified portfolio will see a 10 per cent increase over 12 months."
The pepped-up City executives' new-found optimism was immediately tested. Returning to their offices, they found their screens glowing red, as markets round the world sounded yet another retreat. By Thursday the bears had trampled over the cut in US interest rates mandated by Federal Reserve chairman Alan Greenspan on Tuesday. "At the beginning of the week people were getting a little complacent," said Mohamed El-Erian, Salomon Smith Barney's London emerging markets chief. "Now the complac- ency is gone."
Instead of complacency there was something close to panic in the City air as the week closed. Until Wednesday wise heads positioning themselves as people who have seen it all before were saying the FT-SE 100 index could fall 30 per cent. By Thursday some of the same people were saying the fall might not stop at 50 per cent.
The speed of the transformation from a world in which the bulls are running riot to one in which the bears are running riot is awesome. In July everyone was talking about the New Economic Paradigm - a heady mix of new technology, anti-inflationary job insecurity, and the "globalisation" of everything - underpinning record valuations for company shares.
Three months later the narrative is all about downward revisions of everything - from bank stocks to emerging market national accounts, to forecasts of economic growth in the UK and the rest of the industrial world.
The Government says the economy will grow 2.1 per cent this year and slightly less next. "I will be surprised if the figures for the next four quarters do not show the UK in recession," said a senior City banker last week.
Whatever happens to stock market indices and economic growth rates, the City itself is bracing for a serious zapping. Since the once seemingly invisible hedge fund LTCM collapsed a fortnight ago, a string of shamefaced bankers have come forward to announce the losses they have suffered as a result. Ten days ago UBS, Europe's largest bank, revealed it was writing off pounds 405m. On Thursday the central bank of Italy - not your typical hedge fund client - announced it had invested pounds 150m in LTCM.
The drum roll of City lay-offs is speeding up. On Thursday ING, the Dutch bank which rescued Barings, announced it was cutting 1,200 workers worldwide. David Komansky, the chairman and chief executive of Merrill Lynch, said the firm would "respond aggressively" to the changed trading environment and that measures would include "some rightsizing of certain businesses".
Beyond the fading dreams of Christmas bonuses in the City, there are wider fears of a credit crunch. Indeed not since 1974, when the international banking system nearly seized up after Germany's Herstatt Bank failed, has there been as much anxiety that the banking system itself might malfunction. Two weeks ago the credit-rating agency Standard & Poor's placed the US investment bank Lehman Brothers on CreditWatch - the list of companies it is considering downgrading. Last week Moody's downgraded the Japanese giant Nomura.
The odds of an actual meltdown - where the confidence on which paper and electronic money is founded collapses and financial instruments lose their value, forcing a domino effect of bankruptcies - is extremely remote. But the City was full of warnings last week that nations, companies and individuals will be starved of credit in coming months. "Everyone is fleeing risk everywhere," said one executive.
Last week the International Monetary Fund forecast that the world economy would grow 2 per cent this year - the worst performance since the early 1980s and half the number forecast a year ago. Michael Mussa, the IMF's chief economist, said: "The potential for a broader and deeper economic downturn stems from a multitude of inter-related risks that make the current economic situation unusually fragile."
With the City still reeling from all this bad news, its shell-shocked inhabitants are turning their eyes westward. The annual meetings of the International Monetary Fund and World Bank in Washington in October used to be the financial world's Mardi Gras. Private bankers entertained government officials from borrowing countries as well as the finance ministries of the Group of Seven.
This year Washington is filled, as the City joke goes, with men vying for a return of capital, not a return on capital. The customary polishing of pre-drafted communiques goes on as in previous years, and the European, US, Japanese, IMF and emerging market officials meet as before. But this time they are assembling under cover of the general activity to do serious business.
The real agenda, though, is to try and understand what has happened in a matter of weeks and formulate both an emergency and longer-term response. At his press conference following the release of the IMF's economic forecasts last week, Mr Mussa said of the collapse of LTCM: "We had a millennial event. That is, something which the probabilistic model said would happen once in a thousand years happened in the middle of August."
Holed up in the IMF's 1970s-monstrosity headquarters this weekend, US Treasury Secretary Robert Rubin, Chancellor Gordon Brown and their counterparts and expert advisers are fundamentally fighting a global crisis of confidence that began in Thailand, swept through Asia, took down Russia, and is now threatening to spread from the financial capitals of the West out on to the high street.
To do this, however, they must respond to problems occurring at three levels. The easiest is the long term - the task of reforming the international financial regime so it works better. This level of effort is providing the soundbites about developing a new "21st century architecture" for global finance.
The British and Americans want a little reform - making it easier for outsiders to peer into the books of emerging market nations and banks. The French and Canadians want a lot of reform - giving effective sovereignty to the IMF so it can declare states of emergency during which bankrupt nations could default on debts without disgrace.
But the term "21st century architecture" is a literal one. Other than conveying a vague sense that the Group of Seven is moving in the right direction - assuming it can agree on how to move forward - it does nothing to contain the epidemic of fear destabilising events.
At a second level, Group of Seven officials and the IMF are battling to stop the emerging market debt crisis from jumping to Latin America. Here the frontline is Brazil. City types with the stomach for it will be following the news today as Brazil votes in the first round of presidential elections.
President Fernando Enrique Cardoso is the front-runner. But Brazil has lost about $15bn (pounds 8.8bn) of its $70bn in dollar reserves since July. Last week, according to Mr El-Erian at Salomon Smith Barney, dollars were leaving the country at a $500m-a-day clip. The second round of the election is not for two weeks. Meanwhile, Brazil has a 7 per cent government deficit and the best way to restore investors' confidence is to cut government spending.
But Brazil also has 8 per cent official unemployment. Unofficial unemployment and partial employment could be as high as 25 per cent. President Cardoso is unlikely to accept the strict conditions for an IMF bail-out before he is securely back in office. And that presumes President Bill Clinton can persuade the isolationists in the US Congress to put up US taxpayers' funds for the US part of a Brazilian bail-out. It also presumes European finance officials can twist the arm of the Bundesbank, which is on record as preferring a chastening Brazilian default to a bail-out.
Finally, officials gathered in Washington are braced for more hedge fund and possibly even bank failures. Last week Japan Leasing, a subsidiary of Japan's Long Term Credit Bank, filed for a pounds 10bn bankruptcy. The City is a feverish rumour mill at the best of times. Last week people were recycling rumours that, if they were to come true, would make 1998 definitely look like 1929.
Groping for perspective, the City will watch Washington today through to Tuesday, when President Clinton is due to address the IMF annual meeting, to judge if the political pillar of the world is equal to the task of righting the toppling market pillar.
"It will take time to get out of this mess," Greg Smith told the 130 City executives gathered in Merchant Taylors Hall on Thursday. "But the policymakers understand the problems. They are moving in the right direction."
Did Mr Smith - the American optimist - convince his sceptical City audience?
"He might be right," said one.
But if he's not?
The City banker shrugged.Reuse content