Goldman Sachs has come out with a new financial sector outlook for 2009, and much of how you receive it will depend whether you see things as"half empty" or "half full."  It is not a good outlook, but you can at least start to get an idea of what is left to come.  Overall, Goldman Sachs expects that the fundamentals of the financial sector and economy will remain poor in 2009.

For starters, Goldman Sachs sees the total credit mess as a$1.8 trillion dollar problem.  This implies that we are now roughlyhalf way through the credit crisis without including the impact of anew de-leveraged financial world.  Goldman Sachs also expectsgovernment intervention and government "assistance" to continue into2009.

What is interesting here, albeit something we have expected for sometime, is that the crisis will migrate away from residential mortgages.  Goldman Sachsbelieves that the next waves of trouble spots will come from consumerloans and corporate loans. 

Goldman’s call also sees whole loans getting hurt further in the year with farther markdowns on the bank books.

Again, your take will revolve around whether you are a "half full" or"half empty" mindset.  This does not at all argue that the worst is yetbehind.  But it also implies that the acceleration of bad news may becoming to a head despite more negative headlines.

That might not mark a bottom, but despite the massive numbers this scenario does not outline an Armageddon scenario.

Jon C. Ogg
December 18, 2008

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