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Exuberance yields to a new austerity
The party is over and the hangover has kicked in. In economies all over the western world, corporate executives and the rising stars of finance are beginning to think this downturn could be different.
- By Brooke Masters, Financial Times
- Published: 23:30 November 21, 2008
The party is over and the hangover has kicked in. In economies all over the western world, corporate executives and the rising stars of finance are beginning to think this downturn could be different.
Unlike the dotcom bust, which briefly crimped sales of champagne and Porsches before the good times started again, this slump is prompting Wall Street executives and Kensington yummy mummies alike to rethink their attitudes to their career, values and spending habits.
"The old debt culture is dead. The attitude of 'let's solve the problems of debt by borrowing more' is over," says David Blankenhorn, author of Thrift: a Cyclopedia.
"It's a belt-tightening out of necessity, but I predict and hope that one would begin to embrace thrift as a path to sustainable prosperity ... It's not just poorer people or lower middle class. This is an across the board (effort to) get your house in order for the seven lean years," he adds.
The shift is showing up in employment offices, churches and shopping malls, as jobless bankers look for different careers, parishioners seek counsel and shoppers reach the limits of their credit cards.
In boardrooms, merger talks have taken on a new tone as the managers of troubled target companies have become far more willing to give up their titles to save their businesses.
The financial services sector is expected to lose up to 150,000 jobs, making Wall Street and the City of London the epicentres of the new austerity. Even those that still have jobs are starting to question their 20-hour work days and slavish focus on bonuses.
"People are realising that all the solid things they were tempted to trust are not solid at all," says Mark O'Donoghue, City minister at St Helen's Bishopsgate, a church located in the heart of the City of London. "We have people strolling in and wanting to talk, saying: 'My life is a mess'."
Headhunters say that younger City workers, facing their first downturn, are opting for teaching, travel and a change of pace. Older executives are scaling back their financial expectations and seeking more stable work. "I think we'll see people leaving the industry even if there are opportunities. They'll say: 'I'd rather do something that is less fraught with peaks and troughs'." says Michael Rendell, head of human resources consulting for PwC.
The effect on the world economy is palpable: US retail consumer spending fell 3.1 per cent in the third quarter and real spending on durable goods, such as cars, fell 14 per cent.
Moving to cash
Investors have moved heavily into cash. "People are now more concerned about their long-term financial future," says Mike Wilson, chief executive of St James Place, a UK investment manager that caters to wealthy clients.
"A lot of the bonuses were going into exotic investments and now they're saying, 'I have to save for a rainy day or my retirement'."
Even where shoppers still have money to spend, attitudes are changing. "The entire zeitgeist is finding ways to save," says Danny Meyer, chief executive of Union Square Hospitality.
But both corporate and retail clients need constant reassurance, and corporate clients in particular are starting to think about what they might want to do in 2009 about refinancing debt and picking up distressed assets.
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