"So, we beat on, boats against the future, born back ceaselessly into the past"–F Scott Fitzgerald, "The Great Gatsby"

John Thain, former co-president of Goldman Sachs (GS) and CEO of The New York Stock Exchange (NYX) says that his new firm, Merrill Lynch (MER), will not have to raise more capital. His Ouija board told him it was so. John Mack, former CEO of almost every investment bank in the world and now head of Morgan Stanley (MS) says that he sees the light at the end of the mortgage crisis tunnel. Several institutions tried to vote Mack out as chairman of MS because of all the write-offs that the brokerage took recently. Most of the investments that caused these were made while he was captain of the ship.

People with big titles and large salaries are considered authorities on matters involving their industries, but the subprime mess shows just how wrong-headed that notion is. Two big-bank CEOs have been fired over being "right" about the economic fall-out of rising mortgage failures and the related financial sink-hole created by subprime-derivative paper. Those chiefs who were not fired have simply been taken down a few notches in the opinions of their shareholders.

While Wall St. is beginning to profess a measure of optimism about the end of this year and 2009, nothing less that the International Monetary Fund says the credit crisis may only be in its early stages.

According to the FT "The financial sector faces potential losses of almost $1,000bn as a result of the credit crisis, the International Monetary Fund said, warning of further losses and writedowns on prime mortgages, commercial real estate, leveraged loans and consumer finance." For those who have been drinking, the thought is sobering.

If the IMF is even partially right, several things are likely to happen. Mortgage defaults will rise, most likely because more people are out of work and the value of their homes is less than the value of their mortgages. Large write-downs at banks and brokerage firms will continue well into this year. These companies will be forced to go into the market for additional capital. The troubles in the economy will make that money exceedingly expensive. Stockholders in the corporations will face dilution and falling share prices. It has only just happened in the new financing of Washington Mutual (WM), a take-under deal if there ever was one.

The odds of pension devaluations may be the most serious issue. Many of the pools hold subprime paper and millions of retiring workers rely on them  for their livings once they reach the golden years. The prospects of a significant number of people being thrown to the wolves late in life is both tragic and and unappealing.

It is in the best interests of Wall St.’s elite to talk up the possibilities of the future. But, that future may look very little different from the last several months.

Douglas A. McIntyre

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