NEW YORK // Beneath their tough New York veneer, many traders, bankers and analysts were in a state of shock as they arrived for work yesterday after one of the most dramatic weekends in Wall Street's history. After days of negotiations, the US government's refusal to bail out Lehman Brothers - to avoid "moral hazard" and on the grounds that the past few months had given markets ample time to prepare for all eventualities - had concentrated minds, and the mood was sombre.
Sitting on the steps of the Federal Hall on Wall Street, Jay Kovall checked his BlackBerry and read out an e-mail from a friend, a Lehman employee now among 25,000 worldwide fearing unemployment. "It's unbelievably unfortunate," the message said. "I feel like someone has died. I'll be in touch." Mr Kovall, who works in corporate finance though he declined to name his employers, said: "Consolidation has hit three of the big names now - Bear Stearns, Lehman and Merrill Lynch. It's going to take a while to work through this mortgage mess and lots of workers are going to be laid off."
Many financial services workers are struggling to make sense of the swift pace of events amid fears that other venerable names, other institutions that once seemed indestructible, face rocky futures. "It's huge and historic," said one young man who, while confirming that he worked on Wall Street, shared a widespread reluctance to give a name or identify an employer. "Lehman's bankrupt and Merrill's no longer independent and the markets have to adjust to all this in the blink of an eye.
"The fallout will take place on electronic trading floors and we'll never see exactly how it happens. But something has to come out of all this destruction. The banks have been hung by their own noose; they created all these complex products and derivatives, traded and funded them." Analysts are speculating on which company will be hit next by the credit crunch. The casualty list is already striking: Lehman Brothers forced into liquidation in an ignominious end to a proud 158-year history, Merrill Lynch bought at rock bottom prices by the Bank of America. Earlier this year, Bear Sterns was taken over by JP Morgan. The insurance giant AIG faces continuing turmoil.
One trader rushing to the New York Stock Exchange, recognisable by his flapping blue cotton jacket, was realistic about what awaited him. "I haven't gotten to the office yet," he said minutes before the opening of markets. "But it's gonna be a horrible day." Other traders were seen smoking nervously below the giant Stars and Stripes that hangs on the side of the stock exchange and behind black, iron railings erected after the September 11 attacks.
Within minutes of opening, the Dow Jones industrials slumped more than 300 points. Nearby, a newsvendor said business at his small street stand had been quieter than normal for a Monday morning. "I expect I'll sell more cigarettes although at $10 a pack, people think twice about buying in this economy," he said. "I feel terrible," said a woman in trainers, the familiar go-to-work footwear of many on Wall Street who change into something more formal when they arrive at work. "I own Merrill Lynch stock and I'm walking into my own demise. It's scary."
One markets researcher felt detached from the crisis. "Lots of people had business with these firms and will have to work out their losses," he said, enjoying the sunny skies over Wall Street as he smoked a cigarette. "But I wasn't involved with mortgages, credit derivatives and all that, thank goodness." Another man, who works for a trading platform software company, was more sympathetic as he reflected on the impact of the credit crunch that has now lasted more than a year. "It's bad and it's such a shame," he said. "It's terrible for the industry because we all need conditions of stability.
"It's not like previous crises like that in 2001, which had specific reasons that ran their course. This time, there's a widespread lack of understanding of things like credit swaps that makes asset valuations very hard. It will probably take at least a year before we see any improvement." People with jobs, including those in senior positions, spoke of expecting a stream of e-mails and phone calls from those without.
"I've already heard from some friends and there'll be more of them," said an investment analyst. "But there's not a lot I can do for them in this shrinking market, Makes you wonder what kind of future will investment banking have?" firstname.lastname@example.org