The question no longer seems to be, "Is it over yet," but ,"Just how much worse will things get?" When will we hit the bottom?
To find the answer, the Daily Beast picked three top brains in finance.
William Cohan, a former managing director at JP Morgan and the author of a recent book about the investment bank Lazard Frères, looks to history for a guide. The last credit crunch—which wasn't as bad as this one—started in the late 1980s and lasted about three and a half years, Mr. Cohan said. If this downturn goes to the same way, things won't look up until late 2010.
"I think it's going to take another two years, just as it did 18 years ago, to begin returning to some level of normalcy," he said. "Everyone acts like it's the first time that this ever happened, and everyone holds their heads in woe. Only this time is was even more expected than usual."
‘To say that it has a natural course to run seems to be ludicrous,’ said Jeff Leeds. ‘It’s not a natural disaster. It's not a Tsunami. It's man made.’
In the meantime, the Dow will probably continue crashing through the end of October, he said, bottoming out at around 6,000 points—less than half of where it was a year ago. But that’s not the end of it: the credit market will get even worse than it is now, becoming “cataclysmically frozen” over the next year as companies formed through leveraged buyouts experience their own wave of panic.
“The next shoe to drop will be a lot of big LBOs [leveraged buyouts],” he said. “We're in a position where people are getting quite scared and nervous, and that's all long term good for the market and the economy.”
Strauss Zelnick, founder of ZelnickMedia and the former head of BMG Entertainment, was more optimistic. While Main Street will continue to slide, he said, Wall Street has probably exhausted its supply of calamity. He predicts the economy will have “18 months of unpleasantness, but not so many shocks.”
“The bulk of the bad is out there in the financial sector,” Mr. Zelnick said. “But my sense is also that there will be repercussions in the consumer economy that we haven't seen yet.”
At the same time, he warned not to judge the market purely by indices like the Dow.
“Having seen what I've seen, I find it very hard to believe it's driven by fundamentals,” Mr. Zelnick said, referring to the Dow. “It's driven by sentiment.”
Jeff Leeds, co-founder of Leeds Equity, took the view there’s really no way to know what’s going to happen because nothing quite like this has ever happened before.
“To say that it has a natural course to run seems to be ludicrous,” he said. "It's not a natural disaster, it's not a Tsunami. It's man-made. That it has a natural course to run seems to me ludicrous, because what policies or courses of action governments adopt will have an enormous impact on how this plays out.”