Act 5: Final stage of crisis

LIKE 'all best Shakespearean tragedies', the current financial crisis can be divided into five acts - and it has now reached its fifth and final act, said a former chairman of Britain's financial regulator on Monday.

Sir Howard Davies, director of the London School of Economics and Political Science, was speaking at the Institute of Banking and Finance's Distinguished Speaker Series 2008 at the Shangri-La Hotel.

Calling the saga a SLUMP - which stands for Subprime, Liquidity (crunch), Unravelling (of financial institutions), Meltdown (of other banks) and Pumping (in of liquidity into markets) - Sir Davies also likened the current recession to that of the Great Depression.

'We are now in 1931,' declared Sir Davies.

He stopped short of predicting just how deep this recession will go, but noted saliently that data from the International Monetary Fund showed that previous recessions were deeper and somewhat longer when credit was restrained.

Even as governments pump liquidity into the markets today, he is quick to point out the worst may not be over, as market participants 'remain suspicious' despite 'intervention on an absolutely massive scale'.

Noting Shakespearean tragedies usually end with 'lots of blood and dead bodies', Sir Davies said cryptically, 'There's no shortage of blood, or red ink, of banks' balance sheets.

'In the midst of the carnage Shakespeare usually manages to find important messages of redemption or reconciliation for the future. At the moment, it's hard to find the light at the end of the tunnel... and that light may well be an oncoming train.'


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