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Alan Greenspan is shocked and disbelieving. It turns out banking executives couldn't be relied on to act in shareholders' interests. They enriched themselves, didn't understand the risks they were taking, and then brought down the roof on everybody. Golly, who could have predicted that?
To be fair to Greenspan, cosy faith in deregulated markets was widespread. But his most striking confession yesterday related to a narrower point - his belief that lending institutions would protect the system by protecting themselves.
On that score, the former chairman of the US Federal Reserve should have known better. In 1998, he was obliged to organise a rescue of Long-Term Capital Management, the mighty hedge fund whose implosion threatened half of Wall Street. LTCM, stuffed with Nobel laureates and famous traders, was a fine example of how brilliant multimillionaires, in pursuit of prosperity for themselves and their investors, can get their sums dangerously wrong. At the heart of LTCM's failure lay reliance on computer models of "fair" value, excessive leverage, and use of derivative contracts. Those same factors - and more - can be found in today's crisis.
After LTCM, it was agreed that such a dangerous cocktail should never again be allowed to ferment out of sight of the financial authorities. Inquiries concluded that greater oversight would be needed. Nothing happened. For that, Greenspan should accept a large slice of blame. He had an early warning.
Goldman sacks
Now it's a proper recession: Goldman Sachs is cutting 10% of its workforce.
Actually, this news requires context. Goldman fires 5% of its workforce at the end of the year as a matter of course. The bosses regard the process as a necessary culling of the weaklings. So getting rid of 3,250, instead of 1,600, is not mass slaughter by Goldman's standards.
But the move does illustrate how the survivors on Wall Street have finally accepted that the financial world has changed permanently for everyone, not just Bear Stearns and Lehman.
Only five weeks ago, Goldman's chief financial officer David Viniar said he expected the firm to increase its workforce in the next quarter. Viniar was speaking the day after the collapse of Lehman Brothers. Yes, even at that moment, Goldman thought the weather forecast contained nothing to frighten true financial superheroes.
Since then Warren Buffett has joined the ranks of Goldman shareholders, and the US Treasury will follow, as the firm adds capital. Goldman has also become a bank holding company, rather than an investment bank, and will be regulated by the US Federal Reserve. Insiders argue the job cuts are unrelated to the change of status and merely reflect the drop in financial market activity. Either way, Goldman is signalling the start of deep retrenchment on Wall Street and the City. If it is cutting 10%, others will cut by 20% and 30%.
Cloudy Sky
Place your bets now: will the great British public cancel their Sky subscriptions in droves during the recession?
It's a tricky question because there is little past evidence to examine. During the last big consumer recession, Sky was an infant - Rupert Murdoch launched the business in 1989. That hasn't prevented the stock market working itself into a fine fever of worry about BSkyB. The share price touched a 10-year low this week as a survey reported 10% of people planned to ditch their pay-TV subscriptions this year.
The figure may sound scary, but is it useful? Some 10% of Sky subscribers cancel their service in a good year - that's been the usual rate of "churn", as the company calls it. The important figure is net additions, and Sky has built a base of 9m-plus subscribers. So perhaps the poll is signalling that disaster doesn't lie around the corner. The bullish case isn't hard to make. In tougher times, consumers may stay at home more and so be inclined to prioritise football-watching over eating out.
But, for true bears of Sky, recession is just one reason among many to worry. There is also an onslaught by Ofcom, which wants to force Sky to sell its sport and movie content to Virgin Media and BT at regulated prices. Then there's the idea that satellite is yesterday's technology. Oh, and it'll soon be time to bid for Premier League rights again, and Setanta is now on the scene.
We'll get a clearer picture on the recession question when Sky reports next week. But, given even the bears think the dividend is safe, a 4.6% yield may suggest a bottom for the shares isn't far away. Nobody ever invested in BSkyB for yield; now they can.
nils.pratley@guardian.co.uk
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