Since February there has been a crescendo of voices arguing that the worst of the credit crisis has past (see Exhibit 1 at the foot of this post). A few isolated souls were even claiming as much back in September.

The list of optimists is long and includes John Thain, Warren Buffet, Henry Paulson, Bill Miller, Sir Win Bischoff, Alan Greenspan and the Bank of England. But their argument generally separates the banking book loss element of the credit crisis from its slow seepage into the real economy. In this the optimists’ views are disappointingly disingenuous.

And yet even the heart of their assertion is questionable given the ambiguity of recent bank results. On Monday HSBC presented well-received numbers (albeit data that possibly said more about the righting of poor company policy than the environment they operate in); but today saw Bradford & Bingley plc launch a major cash call a scant month after denying the need for such a requirement.

French banks present similar interpretative difficulties: Société Générale sparked some relief that there were no surprises in its report; and BNP Paribas continues to bask in its reputation as the nations largest and most prudent house having lost a mere €900m to the credit crunch. But what to make of Crédit Agricole? It reported broadly in line yesterday but followed up an April-announced capital raising of €3.9bn via the issue of preferred shares with plans for what appears to be an additional €5.9bn. Speculation in the French press of even larger than disclosed investment bank trading losses at their Calyon filial look plausible - a notable deterioration over only a month.

Perhaps it is all a nadir for banks as far as balance sheet damage goes. But look no further in today’s headlines than Spain for clues that the real economy has yet to trough. La Tribune are reporting this lunchtime that property transactions are off 60% in Q1; house price declines of 20% are being seen; and the boom in both government budget surpluses and employment nurtured by a decade of property/construction expansion are being sharply reversed.

Exhibit 1: Press mentions of credit crisis situation

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  1. Charles Butler // 5/14/2008 05:16:00 PM

    There's an implied belief in this kind of talk that the problem is fundamentally one of your garden variety cyclicality - thus a lot of borrowing against the sooncome up wave, amongst other optimistic assumptions.

    Andalucía has just announced, in an attempt to save the lenders and comply with some election promises, an intervention that will quickly prove or disprove any estimates as to at what level housing demand will show elasticity.


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