Have we overdone it? Has the doom and gloom gone far enough?Should we stop mocking people who say they can see green shoots of recovery? Are we misinterpreting economic fundamentals to be the end of the world? Is it just that we have become so used to bright financial sunshine that we have overreacted to the shafts of financial darkness we've been seeing recently?
Having identified The Royal Bank of Scotland as a possible buy at 60 pence a share, even more attractive at 50 pence, and a must buy at 41.70 pence, I have been rendered speechless as the share price has continued to fall. This is the bank that financed my first car at age 17, but only after interviewing me and my parents in person, on the premises, did they agree to do so. I grew up with RBS as a model of sobriety. In fact, it was while standing in the banking hall of the Airdrie High Street branch patiently waiting for the return of my 'pass book' in the mid-1970s that I began to formulate the career plans that would see me join Midland Bank International (RIP) on graduation from Glasgow University in 1979.
Compared to Airdrie Savings Bank, RBS even then was slightly racy, with daylight actually allowed into its branches. But compared with its Babylonian counterparts south of the border it epitomised good old fashioned Scottish virtues of thrift and conservatism. The notion that it is now virtually worthless is one I struggle badly to accept. It must, for heaven's sake, have cash in the till equivalent to 20 pence a share. Whatever happened to fundamentals?
I have lived through several economic cycles, starting with the Barber Boom in the early 1970s, and seen a number of disasters, starting with the secondary banking crisis of 1973-74, which most people don't even know happened, because we did not have 24/7/365 news coverage to panic us all.
I was working on the Southern European region of MBI when Banco Ambrosiano went belly-up. Virtually on the day I joined the Financial Times Group Johnson Matthey hit the news. I wrote about Latin American debt rescheduling for five years. I edited the FT's mergers and acquisitions through the last great slump of 1989-92.
I launched myself as a freelance in the teeth of the recession in 1993. I edited a monthly newspaper for ING Barings in the post-Leeson months, being one of the few people to benefit from the Barings collapse. We've had LTCM, Russian flu, Asian contagion, SARS. And now the credit crunch. In short, I think I've seen it all before. Only the sheer scale and speed of recent events has been different.
So the question I am asking is: have we overdone it? There is little doubt that many investment banks are in complete disarray, and a strong feeling, at least for the moment, that the investment banking model is broken.
There is little doubt, either, that many of their most senior staff, who have spent almost a lifetime making money out of taking risks with their employer's and other people's money, are in stout denial, unable to recognise that there might be some other way of making money.
How about the old-fashioned way, executing a risk-free transaction for a client as an agent, in return for a fee, rather than as a principal looking to make money from taking risk? Or giving independent advice? To a financial fundamentalist like myself, who has never properly understood or approved of complex derivatives, it seems self-evident that we should go back to basics. I would bet a pound to a penny that the Airdrie Savings Bank isn't ridiculously overleveraged and exposed to toxic assets.
I think RBS will inevitably be transformed into as near a replica of its former self as it is possible to create: a sound high street retail-based bank running a matched book in a narrow range of products. But the process involved in reaching that state will involve the break-up of a vast organisation, generating fees for investment bank advisers of one size or another, and creating new business opportunities as the transformation unfolds.
The money raised from sales will go to creditors, and the UK government, and then eventually to 'ordinary' shareholders if there is any left. It has to be worth more than 20 pence a share, doesn't it? Even the Bank of Credit & Commerce International in the end returned more than 100 pence in the pound, if I recall correctly. Surely RBS can't be in a worse state than that?
I believe we have overdone the doom and the gloom. To me, it seems inconceivable that virtually every single asset of every single major bank is almost literally worthless. And remember, in whose interests is it for banks to shock and awe us with balance sheet busting bad debt provisions? The new managements will benefit from writing off as much as possible against 2008 figures, so that even if they do more than break even this year, and become slowly profitable next, they can be hailed as geniuses.
Lowering expectations is something that Britain has become an expert at. I suspect it's happening again, and the wool is gently being pulled over our eyes. As the debts that have been provided for, in such prodigious amounts, largely continue to perform, at some point banks will have no option but to begin writing them back on to the books.
We saw it in the 1990s with Latin American debt, for instance. And what happens then, as what is effectively new capital suddenly appears from nowhere, adding to the walls of money provided by governments? The banks will be overcapitalised, and overcapitalised banks are like drunken sailors on shore leave with three months' pay in their pockets.
In resolving the current crisis, banks and governments are sowing the seeds of the next one. As surely as they have overdone it as the pendulum swings towards austerity and frugality, they will overdo it again when it swings back towards cheer and prosperity.