Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, says the Federal Reserve, a move that will fundamentally alter the landscape of Wall Street.
The move alters one of the models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsize paychecks that helped shape the image of the chest-thumping Wall Street banker.
It is also the latest signal by the Federal Reserve that it will not let Goldman or Morgan fail. The move comes after the bankruptcy of Lehman Brothers and the near collapses of Bear Stearns and Merrill Lynch…
Being a bank holding company would also give the two banks access to the discount window of the Federal Reserve. While they have had access to Fed lending facilities in recent months, regulators had planned to take away discount window access in January.
Should be an interesting morning in the world of bourses.
All I’m saying is that if a company is so big that a civilization cannot afford to let it fail, then the company is too big… period.
#1: Now that’s a good comment!
There is no point in worrying about this.The boomers are going to work till they die and our children will still have a huge bill to pay.
#1, – What no politician will admit, (except for maybe Ron Paul) is that the companies could be allowed to fail. No company is so large it that it will bring down “civilization”.
If a city (or state) government can go bankrupt (and some have) or even a country (New Zealand) then we can let AIG and the others collapse.
The market confidence would be shaken. Hopefully shaken enough that the people would think twice about borrowing in order to invest in stocks, and the politicians would think more than twice about bowing and scraping to the Wall street bankers.
This discussion can and should parallel the discussion regarding capital punishment. Somebody has done something wrong.
Do we want to punish or reform? How much pain are we as a society willing to suffer for the perceived/selected goal?
With super computers relied upon to reach virtual certainty on global warming, why not run some code to see which scenario is “better” for USA: allow banking failures, or bail them out.
If those numbers were available, would you be more for justice, or more for avoiding pain?
It’s all McCain/Palin’s fault.
So, did you get the news about what happened in Germany last week? A state owned Bank (Kfw) transferred about 350 million Euro over to Lehman Brothers, on THAT monday. So, just because some moron was sleeping, there goes half a billion dollars of taxpayer’s money.
Nobody’s going to jail for that. Just 3 guys got suspended. And they still get their paycheck…
It’s almost all politicians in that bank…
Regarding fault and solutions, Bloomberg just published a great article on how the crash happened and who is to blame.
As usual, follow the money …
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
#1 I’ve been saying that all along. I’m no MS defender, but if Microsoft can’t take a piss without a possible anti-trust lawsuit, how can these financial companies be “too big to fail?” It wasn’t a lack of oversight, it was turning a blind eye. I worked at Washington Mutual for three years during the refi boom. When I left in early 06, I was telling my colleagues to get their 401k’s out of company stock. I’m no market prognosticator, far from it. It was plainly obvious to anyone paying attention. The company’s strategy was to buy up all the mortgage servicing it could in large urban areas (Chicago, NY, Atlanta, etc), then open up retail bank branches, then push the (then) highly profitable Option ARMs, 1st Lien Home Equity Lines of Credit etc.
I then moved over to JPMorgan Chase. Already established in those same urban centers, they employed mostly the same tactics. Push the profitable mortgages on everyone. And I mean everyone. All sales reps were told that “everyone should have a home equity line of credit.” I damn near lost my job for not towing the company line on this one. They wanted us to push TWO credit cards on people when opening a checking account; one for purchases another for “overdraft protection.” Then they all needed a HELOC as well. Now Chase has shown pretty good performance throughout this current crisis, but don’t think that they haven’t contributed.
And now the government wants us to hand over a $700 billion blank check to Sec. Paulson, who by the way, was an exec with Goldman Sachs until his appointment in 2006 (hmmm interesting). I do believe that there needs to be a short term “solution” to put out the fire right now. Commercial paper froze last week, and if that were to continue, then the economy would systematically self-destruct. But to give the treasury dept a blank check with no oversight (the current proposal says that all securites bought by the treasury would not be reveiwable) seems pretty onerous to me.
What we really have here is a band-aid on a bullet-wound. These companies were allowed to get too large. These banks were allowed to lend to people that didn’t deserve to get a loan (I know, I saw the credit reports of these people first hand). Interest rates were kept too low for too long. The SEC rubber stamped scores of mergers and acquisitions in the financial markets.
None of this will get corrected. Congress, on both sides of the aisle, is far to deep into the pockets of the financial market to enact any serious and needed changes. The democrats will not allow the downsizing of mortgage portfolios saying that they are allowing the disadvantaged to achieve the “American Dream” of owning a home. The truth there is that the banks want things like that so they can charge higher rates and more fees to people that are not credit worthy and in reality would be better served by coming up short on rent than on their mortgage. The republicans push for deregulation saying that the evidence shows that more regs actually hurt the economy. While the evidence does indicate that, it also indicates that not all regulation is bad regulation. The financial Cos are pushing at the same time for less regs to make it easier for them to profit at whatever cost.
The only thing we can do until Congress purges itself of this financial puppet-master, is vote with our dollars. We need to stop relying on debt, and in turn the debt pushers.
#5 – bobbo – Interesting parallel. Are you now or were you ever a philosophy teacher? 😉
#8 Yes, nice article by Kevin Hassett, an adviser to Republican Senator John McCain to which the opinions expressed are his own.
The fact is, this collapsing house of cards falls squarely on Emperor Bush and his minions. It is a government of unaccountability and let chaos reign in the financial institutions.
#10 – OK, consider the source, that’s fine.
Are you then saying that:
– McCain didn’t co-sponsor the bill to reign in Fanny/Freddie?
– Democrats didn’t block passage of the legislation?
– Obama, Clinton, and Dodd didn’t receive gigantic contributions from these GSEs?
Sure, one should suspect a source if there is, in fact, bias, but does that negate the facts?
Like I said, follow the money.
#6 No it’s Bush’s fault. Why else is all this happening during the last year of his term 😉
#1 – Well said.
#4 – He was using the word “civilization” to make a point, not as an absolute. Some of these companies coming down would take too many people with them; too many being defined by the public. I think his point stands.
#10 – Liberal hacks fail at all threads, not just financial threads.
i dont think *our* politicians are at fault as big as everyone would like them to be..(yes they past laws that made it easier to happen however….
…guys….i’m really new to the in depth workings to all this stuff, but.. i thought this was worth a mention..maybe those
of you can tell me if i’m wrong or not in my opinion of the matter..
i dont have the links to the first part of the story (my main pc with all the links is dead atm) but i thought you’d like to get a wiff of this little reported tidbit
of information ….the fact that the major firms (and banks) that are now being allowed to become the new “kings of the banking
empire are the very same scam artists that were fined mega millions and forced to buy back billions in those crap auction securities because they were found to be manipulating the auctions about a month ago+…(they had their own people (shills)
at the auctions bidding the securities up even higher than they were worth.
read part of of the fiasco on bloomberg.com here:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRMcVkHljdiE
you would THINK this would be headline news everywhere ..and that they would be the LAST entities to be bailed out, let alone given the keys or allowed run to the “new system” being devised/revised..
(find parts 1-3, they have the real meat of the story)
#14–sound==good link, thanks. Generically, we all know capitalist pigs for what they are, just good to see the proof piling up.
but you say: “i dont think *our* politicians are at fault as big as everyone would like them to be..(yes they past laws that made it easier to happen however….” /// When you KNOW FOR CERTAIN that you are dealing with greedy, lying, corrupt, capitalist pigs, why would you pass laws making it easier for them to be so? You make no sense. Please consider your position and repost?
On a related note, did anyone crude opened up limit around $25/barrel? All the guys who couldn’t short financials are going long on crude.
Just goes to show, if you limit market trading by barring short sellers they’ll just find a way around it.
#15:bobbo
agreed…it was hasty post in regards to my wording.. while the politicians are to blame just as much…i tend to look/focus the blame more squarely on what think is “true” source of the corruption. -in this case The banks and their wall street henchmen. -as they are the ones that “installed” the (con) system in 1913 (most likely prior, but i’m just going to limit this small point to American history..as flawed as it is..
both parties are owned hook line and sinker, by banking powers (and a few other debatable elites/multinational xxx) so to me..focusing all the blame on the (political) law makers seems misguided (though valid on the other side of the coin just the same, for the sake of argument..) because it distorts the whole debate into a political one when in fact, (my fact, ty) one should be starting the investigation (or pointing a finger) at the source of the money and follow it on down to the pawns (politicians).
again..
to me its a given that politicos (on both sides of the aisle) are corrupt. so saying it’s repubs fault, or the dems fault is meaningless.
“We the people” are the ones that get burned the most in the whole process..esp since they’ve made the majority of us complacent lemmings that *think* their vote is going to make a difference at this point in the venture..
whichever party gets control just fast tracks that parties pet projects, but its the invisible big wigs at the top that ultimately
drive the whole process in the direction they want it to go..
i feel if it was *possible* to have a *real* debate/investigation on all the matters at hand, based on pure 100% facts by definition, one would find both sides equally at fault.
-and both sides would ultimately be found to be serving the same master..
*its that/those master(s) that needs to be eradicated more than any one party or person in the US Government.* -and unfortunately, i feel eradication is the right action…blood line and all..
i realize i open myself up to all sorts of fire/ridicule/whatever in saying this..and that history shows it will just start all over again..but for now, without drawing myself further into an abyss of debate..
that’s how feel on the matter..
i hope that kinda gives you better insight
into my position, as it were.. i apologize for not elaborating properly all the time..but at times i just scribble stuff down before it pops out of head. other times..well..
in parting
we’re birds of a feather..just maybe on different parts of the bird?
(and in case you cant tell..tbh, i really hate politics…i hate deception. which to me, is what politics is all about)
anyway…bbl..back pain..
good day
-s
#17–soundwash==thanks. Well done. Your emphasis is still misplaced. An analogy==we pay prison guards to guard prisoners, but they are lazy and inept and prisoners escape. Are you mainly going to criticize the prisoners or the guards?
You see, capitalist pigs are criminal by nature and its capitalist philosophy that understands and takes the best advantage of this. We hire politicians to guard against this evil cabal. Prisoners and capitalists are known for what they are and in that sense deserve punishment when caught but the outrage has to be reserved for the crooks in Washington DC that fail in their holy duties==regulate the bastards.
Here is a short related link with an even better link within regarding all the experts who lied to the public about the failing housing market:
http://www.huffingtonpost.com/leonce-gaiter/every-man-for-himself-sai_b_128211.html
18 – bobbo, I have to disagree with your analysis of the housing bubble and the link you presented. The problem the credit markets are experiencing are directly related to stupid decisions made to loan people money who were totally unqualified to pay it back. Since many people made money based on the quantity, rather than the quality of this paper they wrote, they were encouraged to do this to a stupidly large degree (that would be the capitalist pigs of which you speak).
Aside from areas such as San Diego, where I live, where prices have gone through the roof mainly due to supply shortages based on government restrictions and interference into housing supply, as well as crazy levels of immigration (not just the illegal kind), prices around the country are pretty reasonable.
It comes down to government interfering in the mortgage market for reasons having more to do with politics and cronyism than sound economics. If the regulators had been operating with economic sensibility instead of political and social engineering, they wouldn’t have allowed this to happen. The fault runs across party lines and, once again, proves that politics plays too much of a role in economic policy. That is why regulation should be limited to prosecuting and stopping fraud, rather than enabling the “little people” to “enjoy the American dream” and other social engineering nonsense.
bobbo, if you are just going to be some pseudo intellectual clown, you should at least put on some clown shoes so you will be an entertaining one. Capitalists are naturally criminal and need to be guarded against? By politicians? Hahaha! Capitalism is what created the standard of living we enjoy today. Capitalism is why we get to work 40 hours a week to not only meet our needs but also satisfy our desires for goods that are made efficiently and inexpensively, as opposed to toiling 15 hours every day just trying feed ourselves. If anything, it’s this modern mercantalism of industry protectionism, government market manipulation and corporatism (which can’t exist without the sanction of the government) that is the core component of the problems we face today. But you are too busy railing against those who risk failure to bring new and better products and services to consumers because you are either blind or just plain stupid.
For those unwaware, conversion to commercial bank status is another kind of bailout for GS and MS that not only gives them borrowing access to the Fed discount window but lets them avoid marking their bad assets to market. They can instead hold them for investment for the full term of the bad bonds and defer their losses on an accounting basis. It’s an accounting maneuver–it doesn’t give them any more money.
More creative financial hocus-pocus from Wall Street.
LET WALL STREET DIE. We will survive, I promise.