June 24, 2008 – 12:36 pm

The credit crunch is like spidering cracks in a windshield, its fissures letting out a snapping sound as they deepen, threatening to bring the entire glass work to shards in the drivers lap.
Goldman Sachs can WOW Wall Street with buffed-up earnings on overlooked level III muck while the rest of the world’s big banks do their best to follow suit with any other off-balance-sheet bullsh!t they can imagine. But when the smoke clears, the credit crunch is coming into sharp focus.

As profits turn to huge losses, revenues dwindle and banks must cut real costs. Future revenues cannot be booked today, so the loss of revenue cannot be hidden or misconstrued; it is a precursor to losing money despite what and how you report your current earnings. The main money making crack on the Street is now going dry as the M&A hype dies down:

Goldman has so far suffered the least damage in the global credit crunch and remains the leading M&A adviser. But in an environment where mega buy-outs have disappeared and M&A activity has fallen sharply, even Goldman has felt the squeeze.

Goldman, in common with the rest of the industry, has been gradually shedding staff this year, or sending bankers previously based in the US and Europe to the Middle East and Asia, where business remains buoyant. Group headcount fell by about 400 between the first and second quarter.

Employees, unlike ugly unwanted assets, can’t simply be removed by an accounting entry. They must be accounted for in the real world and that means let go, i.e. laid off or fired. When you are losing money you cut staff and most times conversely, which is exactly what the big banks are doing in such volume it can’t be kept out of sight.

The world’s biggest financial firms may lose as many as 175,000 jobs by this time next year as Citigroup Inc. and other banks shed workers amid slowing revenue and billions in writedowns, executive recruiters say.

Financial companies have announced plans to trim more than 83,000 jobs since last July, according to figures compiled by Bloomberg.

And the new money-making machine of late is already sputtering as the bank tries to find a money maker of their own for a change.

In the past several weeks, bank executives have encountered unexpected resistance from investors, who have expressed reluctance to participate in the capital-raising transactions sweeping through the industry, according to people familiar with the situation. Already bruised by big losses and fearing that bank shares haven’t yet hit bottom, some of these investors are choosing to tighten their purse strings.

It’s not what they say, but what they do that counts. So, Goldman Sachs defies the credit crunch in earnings reports quarter after quarter, but deeply cuts into staff along the way. This is extremely telling and lets one know “the worst is yet to come.”

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