Insight: The sacrificial lamb of Wall Street

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Insight: The sacrificial lamb of Wall Street

By Gillian Tett

Published: March 19 2008 18:25 Last updated: March 19 2008 18:25

Back in the days when I was a student of social anthropology, I used tospend time worrying about ritual sacrifice. For a common feature of manycultures is that they mark periods of stress with elaborate ceremoniesaccompanied by sacrifice - be it a tethered goat, hobbled chicken orsomething more gruesome.

The tribal world of Wall Street is no exception. In the last few days,or since the Bear Stearns drama came to a climax, a palpable sense ofrelief has erupted in major equity markets.

There are all manner of fundamental reasons for this mood shift. If youdig into the details of what the Fed has announced, for example, it isclear that there has been a dramatic increase in the aid it is offeringWall Street.

Moreover, the fact that Goldman Sachs and Lehman Brothers haverestricted their write-offs in the latest quarter to a "mere" fewbillion dollars has also come as a relief. Most important of all,however, American policy makers are now getting their act together, inthe sense that a small band of men, such as Hank Paulson, TimothyGeithner and Robert Steele, have effectively seized control of thebanking rudder.

But, amid these fundamental factors, there is also a more subtlepscyhological factor at work - the sacrifice effect. In particular, thesheer drama of recent events seems to have had a cathartic effect in theminds of some bankers, and unleashed hopes that the market is now beingpurged of the worst of its credit fears.

In place of a tethered goat, in other words, we now have a stricken Bearbeing offered up to attone for Wall Street sins - and, perhaps, slay thedemons of moral hazard, at the same time.

So will this blood-letting work?
In some corners of Wall Street, it might. After all, investor psychologyis absolutely critical now in terms of how this crisis plays out - notleast because there are many long term investors on the sidelines rightnow, ready to put their cash to work if only they believe that a bottomis in sight.

More importantly, if you peer into the deepest corners of the creditworld this week, there are a few chinks of light. In the creditderivatives sector, for example, bankers say that some buyers arereturnnig for so-called "super senior" assets (not least because thereare also encouraging signs that Canada is effectively restructuring itsinvestment vehicles that hold such assets). Similarly, stress levels inthe interbank market appear to be subsiding, a touch - alongside theequity rally.

However, the problem is that for every sign of progress, new tremors areemerging at a similar pace. For the key thing to understand about thecurrent financial mess is that this is not a financial crisis which islimited to a single, self-contained "tribe"; on the contrary, it keepsspreading between assets and geographies, as fast as rumours can move byemail.

Thus, while the news from Canada is encouraging. the signals emanatingfrom Iceland are dire; similarly, while investors might now be relaxing- a little - about Wall Street brokers, fresh anxiety is bubbling arounda swathe of European banks, not to mention hedge funds dabbling inJapanese bonds.

This credit crisis, in other words, keeps mutating in an increasinglymessy manner, that is apt to irritate investors who have grown up with aHollywood-inspired assumption that dramas should have a neat beginning,middle and end.

The upshot?
The Bear Stearns sacrifice has certainly been cathartic forWall Street, particularly given its heart-stopping climax, as JPMorganraced to get a deal done before Asian markets opened on Monday. Indeedif Hollywood does ever make the Bear movie, I daresay Harrison Fordwould make a good Jamie Dimon.

But in the real-life world, it is still far too early to call an end -simply because this drama has now spread well beyond Wall Street. Standby, in other words, to see more sacrificial victims - and more tribalwailing on the screens of Bloomberg or CNBC. The only big uncertainty isjust where and when the next set of sacrifices might be?

gillian.tett@ft.com