For many of us in the financial industry the old curse about interesting times seems to have hit home in the last year. After many years of benevolent market conditions the world changed dramatically in the summer of 2007 when it became apparent just how inflated the debt bubble had grown, and how complex the financial instruments developed to support these risks had become. The collapse in the US housing market came at a time when there was so much borrowing in the system that the consequences were bound to be severe. However, very few of the gurus and experts foresaw just how severe. A year later, it is apparent that the whole banking system had reached a degree of leveraging which was no longer sustainable, and that the situation was being exacerbated by the complexity of the various refinancing techniques which had enabled the last phase of growth. Here in the UK, the whole situation can be summed up by the complete evaporation of the long term funding which had grown to support around a third of the residential mortgage market. Banks have had to recapitalize around the world, house prices and stock markets have fallen and economies have slowed down as consumers have lost confidence. On top of all of that we have had to work out what roaring commodity prices bring to the mix. Oh dear - are we watching the death of capitalism as the banks get their comeuppance?
Against this background it is important to remember that since the fall of Soviet Russia the free market system remains the only proven mechanism for distributing capital efficiently. The price of this system is instability and consequently it seems unlikely we will ever escape the reality of ups and downs in the economic cycle. The world's financial system is more interconnected than ever - while this can increase fears of contagion in difficult times, it also means that impetus for growth in the developing world, and a necessarily coordinated approach by the Authorities, will contribute to a return to better times eventually. Of course, human nature also contributes to excessive swings of sentiment, as we move from boom to doom and gloom, and back again.
While there is no doubt that the full consequences of an end to the credit boom have yet to materialize, there are also reasons to be optimistic. Banking and finance is a cyclical industry where markets and economic behaviour influence each other, usually to excess, in both directions. Just as times of great common prosperity should be cause for caution, it is equally important to remember that the greatest opportunities come at times of great despondency.
For anyone about to embark on their working life there are many advantages in starting at a low point in the cycle. It may be difficult and more competitive as hiring slows down a little, but for those who enter our industry today there will be fantastic opportunities to learn from the current situation and observe firsthand how this dynamic industry reinvigorates itself, as it has done before, and as it surely will again.
Obviously UBS has been in the thick of the traumatic events of the last twelve months. Like many others we have had to think hard about what went wrong and what we can learn from it. As we continue the process of rebuilding and of planning for the next phase of the cycle, it is more important than ever that we attract motivated persons of every background to contribute to the process. We continue to work hard to offer great career opportunities to the right people and I very much hope that those of you who are interested in the financial industry and are excited by a challenge will consider applying to UBS for an Internship or ultimately a career.