Page last updated at 14:55 GMT, Thursday, 15 January 2009

City Diaries: "Tom"

Man looking at a falling graph

"Tom" (not his real name) works in finance in the City of London.

He is writing a diary on the mood in the financial industry as it goes through dramatic changes.

What a wonderful start to last week

What a wonderful start to last week. Despite so many people moaning, both myself and my colleagues thought that the blanket of snow which covered much of the country was great news. Yes, it was a bit late, however we felt that it would at least take our minds off regular bad news that we seem to be getting.

People need to lighten up a bit

There were only not that many of us in our office last Monday. At least that meant that we did not see the usual caustic office politics that we are used to from some of the management here. And I could write an article on this, believe me. However, something had to spoil it - and this was a sign of the times - calculations of just how much the adverse weather had cost the country. My personal opinion is that a billion or two doesn't make much of a difference in our current downward slide. Besides, people need to lighten up a bit - winter magic never really hurt anyone. It was, however, quite amusing to hear our manager trying to spin us a story about why he couldn't make it to work - we found it really enjoyable to see him squirm, considering the dirty tricks used to force people out of a job in the past.

Not much change from the week before. The pound is still pretty much in the doldrums vs other currencies.There's been a further rate cut, which probably won't do much good. The Davos meeing ended in disaster (unless you happen to be the Turkish PM). However, the FTSE hasn't fallen below the 4000-mark...yet, which is at least something. Looking at some of the books that I am familiar with, I can see that some have lost half their value and these are not even toxic assets.

It's very easy to detach oneself from the implications of this, because this is all screen-based. However, this is real money. Someone's pension, education fund, life's savings, home, medical bills could be jeopardised by this and that is something that I constantly think about. It's making me think about doing something completely different and more worthwhile and the only thing that is stopping me from a complete career-change is the fact that I have a family to support. I understand people who keep their money under a mattress. At least we can hope for better times and a different, safer financial system at the end of it all. Barack Obama and our own government plan an overhaul of executive pay - had this happened a few years ago, then could all have been so much more bearable and much less catastrophic.

This is the so-called 'real economy'

Around 80,000 jobs lost worldwide in one day on Monday. It's the worst start to the week in terms of job losses since the collapse of Lehman Brothers, when 25,000 employees found themselves out of work over a weekend. The difference this week is that those made redundant are not bankers, but instead factory employees, shop assistants. This is the so-called "real economy".

Unfortunately, it does seem that things are getting much worse before they get better. And everyone in the office already talks about 2009 being a write-off. Gone are the long, expensive lunches and booze-ups after work. Everyone is frugal not only because of the economic crisis and the threat of job losses, particularly here in the City. No, there is more to it. It just seems, well, the right way to be. The most boisterous of people are now humble. I am not sure whether that's fear or just a realisation that some of us took our spending and egoism a bit too far in the good times. Either way, people have changed. And I suppose that in the absence of some personality-changing epiphany, fear for the future is the next best thing for some people.

One measure of just how negatively the UK is perceived in the eyes of the world is the pronouncement by the famous investor Jim Rogers that "the UK has nothing to sell". By this, he is (mostly) referring to the fact that the North Sea oil is running out and that our financial services industry is in the gutter (and don't we all know it)! He is a chap who, together with George Soros, bet against the pound in the 1990s, which forced us out of the ERM. I think that he may have a point. And, oh yes, they made billions, so I wouldn't discount their opinion. In any case - we are in the doldrums. I may be able to tell my grandchildren about this one day, however I'm not sure how long I will tell them the crisis lasted.

Let's just hope that this is as bad as it gets or that we are somewhere near the very bottom.

People are exhausted and accept whatever might be coming

Two events have caught the attention of those involved in the financial sector this week. One is a scam, which has shocked the already battered financial sector, and the other is the move by the US Federal Reserve to slash interest rates to nearly zero.

For those of us who have been through the collapse of our banks and all the anxieties that that entails, it was something we were expecting anyway. It's almost funny when people in their mid-twenties talk about their experiences in the same way we used to hear middle-aged professionals tell us that they've been there, done that. People are generally exhausted and accept whatever might be coming in the new year. Traders who were famous for their tempers now look like they have been sedated - nothing really matters, nothing gets them fired up like it once did.

The Madoff scandal is the last thing that anyone involved in the financial sector needed

The Madoff scandal is the last thing that anyone involved in the financial sector needed. Many hedge funds look like they will take huge losses, and that is a potential disaster for funds. They were expected to be in trouble, with a third going out of business in 2009. However, the ease with which they were defrauded has serious implications.

More worryingly, it seems they don't really know what they are investing into. Perceptions are everything in this business. Rich parents send their kids to exclusive schools and universities. They end up working for banks and hedge funds because of who they are, and often rise to the top of their firms with levels of knowledge inferior to that of many people below them, who did not have the same privileged backgrounds.

I myself have seen very recently how a less than knowledgeable manager, beamed into our workplace from a mothership, gets in the way of our everyday (crucial) activities, for the sake of committee and politics.

Dear Readers, if I sound bitter and cynical, that is because I have seen peoples' dreams shattered by those who should not have been entrusted with organising drinks in a brewery, let alone the world's financial system.

I'm not hearing much optimism

The new spending plans announced by Barack Obama have been greeted by many as the new "new deal". A trillion USD is the cost of "change" which naturally comes from the audacity of hope! Massive infrastructure renewal projects and even something for the US car industry have been among the Christmas presents. On hearing the news, the markets saw something of a rally - once again underlining the irrational nature of their behaviour.

I'm not hearing much optimism. The expectation is that, as it is only banks that have been bailed out, many businesses will fail - both those which defied gloom and doom prophecies (such as Woolworths) and a few surprises as well. The falling value of the pound shows just what the markets think of the UK's near-term economic prospects in general. And those who think that the falling pound means that demand for manufactured British goods may rise should also consider that overall output and demand is falling worldwide.

All of this unsurprisingly means that this year's Christmas celebrations have been more muted than any that I can remember. Last year, people held massive parties, the credit crunch was seen as something that would blow over quickly once banks got their houses in order. With the onset of recession, however, there is a really depressing feeling among people I know. In addition, people feel guilty about excessive partying when their friends have been made redundant. To borrow a famous American saying, it never fails to amaze me how much it really is all about the economy, stupid!

Cheap credit was just an illusion

Many traders I speak to argue that what makes this recession particularly nasty is that it didn't happen earlier. The longer the credit bubble went on, the bigger the pain would be when it burst. Cheap credit was just an illusion.

There are predictions that interest rates might be slashed further, perhaps to 2% in the near future. However, many are saying that the unthinkable will happen, that the UK will replicate what Japan did a few years ago and have a 0% interest rate in order to try and revive its economy.

The idea is to show the Bank's commitment to reviving UK industry. However, any measures take time to come to fruition and are heavily reliant on the sentiment of the financial markets.

While interest rate cuts might be seen as positive, they do not solve one of the fundamental issues behind this crisis, the fact that the cost of borrowing is not passed onto the consumers, and more importantly, that banks are not lending to each other. This has sucked the lifeblood out of the economy and is the first step to any recovery.

The recent pronouncements by our top politicians that they are thinking of ways to force banks to lend, illustrates just how crucial and acute this is. In this sort of environment millions of households across the country have curbed their spending. This is another problem as demand for goods and services is clearly falling.

The overall conclusion is that we are in for a lengthy downturn and there is not much we can do about it. Any measures introduced by the Bank of England can only soothe some of the pain, they won't heal the UK economy on their own.

Redundancies have been coming thick and fast

Redundancies have been coming thick and fast. I will never forget how we joked about which one of us would "go". One of the more senior guys, "James", said he knew it would be him, jokingly remarking that the bank did, after all, have to trim the fat.

I was among the first people at work. I had a feeling that this was it, today was the day when things would happen. It's wrong to admit it, but I was somewhat excited by it all. I was going to witness what I heard about, even if it happened to me. Rumours were that hundreds of people would go worldwide. Everyone came in and we got on with the day's work, with the usual banter. "James" had gone outside, as he usually does. Half an hour later we were summoned to a meeting.

We went into the big meeting room and everyone stood against the wall, whilst the head honcho sat down at the table. We were told that things were tough, that market conditions had forced some adjustments to be made. As we got back to our desks and digested the news, it dawned on me that "James" was gone. So was "Anna." Rumours about who else had gone from other floors began to do the rounds.

I found out that the way people are told to go is very simple. You get a call from human resources, who tell you that you have to go and see them immediately. You are told that you are going and that they will be in touch regarding your redundancy. Whilst you are told this, your colleagues are summoned for a meeting. A security guard escorts you to your desk and you pick your belongings, without being able to say goodbye to anyone. You are escorted out of the building, where you surrender your pass and that is pretty much it.

People in the city fear for their futures
I have had an insider's view of the City as banks have collapsed. Speculation mounts for weeks as traders speak to each other. The world at large picks up on this and the pressure becomes close to unbearable. You go into work knowing that you are working for an institution that is under siege. If you happen to have a backpack with your company's logo on it, your fellow tube passengers give you a look of real pity.

People move around in the City more than they do in other industries. Last year, a decent candidate could have had five or six job offers. Now, they would be lucky to have five interviews. As people leave a company in trouble, they are not replaced. The bulk of their work falls on their already overworked former colleagues - 7am until 11pm is common as a working day. These people are also working under the dark cloud of possible redundancy. The resulting atmosphere is awful, to put it mildly.

People are looking to senior management for answers. As managers come out of meetings, every facial expression is scrutinised for clues by their staff. Teams of people are summoned into meetings to be told that there is no news, the situation remains the same, that the media are hyping everything up and that things are OK. Other banks are in trouble, but not this bank. However, markets tell you differently.

As the weekend comes, everyone is aware that a deal for a rescue or a buy-out has to be struck over the weekend. If talks on rescuing your firm fail over the weekend, the word's media and therefore all the bankers, are aware of what is coming the next morning. As people in the city fear for their futures, there are tens of thousands of those who know exactly how they will be feeling. Unfortunately, that number of empathetic individuals continues to rise.

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