Boom or Doom?

October 31, 2008

Every down market usually has its perennial optimists, and this present cycle is no different. But I was shocked to discover recently that my own flesh and blood has taken a seat alongside this rosy and senseless league of cheerleaders.

My son has been roaming around the house, exclaiming “Boom!” at every chance he gets. This, despite the point that all economic indicators make it clear that another economic boom is quite a long way off. More disturbingly, I haven’t heard him even try to mutter “bust.” Granted, the guy is only 18 months old and “boom” is the only word he knows, but still.

In a desperate effort to talk some economic sense into the kid, I planned a family field trip to an art exhibit. Not just any art exhibit, but to a 1,500-pound ice sculpture of the single word “Economy”chiseled out of ice, and melting onto the streets of lower Manhattan. The exhibit, called “Main Street Meltdown,” is a pretty good economic forecast. Even the artists in this city seem to know finance.

The same day, I got on the horn and called up a banking exec who was among the recent casualties as the financial services sector consolidates. To my amazement, he was shockingly upbeat. He wouldn’t go so far as to exclaim, “Boom!” but he wasn’t too far from that either.

“The securitization and services has to be much more tightly linked to origination,” the exec told this reporter. Then he continued, “Management and regulators will quickly figure that out, and if those changes are made, I think the securitization market will bounce back pretty quickly.”

How quickly does he consider to be “pretty quickly?” Within 2009, he estimated.

If he’s right, it would mean that credit could return in the next 12 months, which would allow players in the M&A market to emerge largely unscathed. It also presents a bullish case for the boutique banks that have the infrastructure and willingness to grow to move ahead with those plans and capitalize on the slowdown.

This is particularly true for firms that make an effort to recruit top talent during this period. Gregory Mark Hill, Trenwith Asia’s chief executive, said recently, “It’s little bit of musical chairs. When the music stops, where are people going to be at?”

With all of the noise flooding the marketplace today, the idea that we may see such a comfy recovery within a year is increasingly a minority opinion, but at least I’m glad to know that my 18-month-old isn’t the only one who takes that position.

In case you’re wondering what lessons were learned at the ice sculpture, by the time I arrived, there was nary a puddle left on the spot. Things melt fast around here. Let’s hope the real economy doesn’t follow suit.