The first green shoots? The depth of the recession has been exaggerated? The end of the beginning? Anyone that harboured those thoughts this week was getting ahead of themselves. The news from the banks suggests that the nature and scale of the financial crisis are still unclear.
Only yesterday we saw: the US authorities put another $20bn of cash into Bank of America, backed up with a further $118bn of federal guarantees; Citigroup split into a "sound" half (Citicorp) and a "toxic" half (Citi Holdings, for which an outside manager is being sought); and the nationalisation by the Irish government of Anglo Irish Bank.
Over the past week it has been reported that the Treasury is thinking of setting up a "bad bank", a bit like the toxic half of Citigroup, to act as a sort of publicly owned quarantine for bad debt. But it would seem that the main obstacle to such a plan is the difficulty – more than 18 months after problem of sub-prime mortgages induced the credit crunch – of identifying the assets that are likely to turn out to be worthless.
When it was observed that one of the biggest causes of the crisis was the willingness of clever people in the City to trade in complex financial instruments that they did not understand, few could have imagined quite how complex these derivatives were and how long it would take to render them into forms that could be understood.
That is why anyone who claims to know what will happen next is either a genius or a fool. How can anyone be sure what the impact of the credit crunch will be when we still have such an imperfect understanding of what has happened so far? We still do not know whether a second round of bank recapitalisations will be needed in this country. We still do not know what the Obama administration will decide is needed, once its eggheads open the books. Until the shipwrecked traders of the financial markets can feel solid ground under their feet, the "real" economy of jobs and living standards exists, as Tony Blair put it last week, in "an era of very low predictability".
Once upon a time, bankers were interested only in the bottom line. As we return to such traditional principles of caution, the bottom line is that the banking crisis is still not over.Reuse content