Spiegel Online has an interview with former International Monetary Fund chief economist Kenneth Rogoff about the financial crisis: Interview With Ex-IMF Chief Economist: Banks Won’t Be as Profitable in Future.

Kenneth Rogoff: It’s the worst financial crisis since World War II — there’s really no hyperbole anymore. At the same time, it had to happen. The US financial system was bloated and overgrown and reckless to some extent. Now it is being reigned in.

SPIEGEL: What went wrong?

Rogoff: In 2006, the financial sector accounted for a third of corporate profits in the US, although it only represents 2 or 3 percent of total gross domestic product. Goldman Sachs alone distributed $16.5 billion in bonuses to its 26,000 employees. I’m sorry, I think it’s unbelievable. You can’t just make money out of thin air like this, and underlaying this there were enormous risks being taken.

SPIEGEL: What do you think willl happen now?

Rogoff: What we’re seeing is a shrinking industry — perhaps by 20 or 25 percent and in some segments perhaps as much as 50 percent. But these finance products based on fancy rocket science and derivatives just aren’t coming back, and that’s very painful. The industry is not going to make the same profits in the future as it did in the past. And this isn’t just about subprime and mortgage losses. Investors are starting to realize that the profit model these investment banks were running on has been trimmed.