It's "The End Of Wall Street As We Have Known It"

Goldman Sachs and Morgan Stanley will no longer be investment banks, says the New York Times. Instead, they will “transform themselves into bank holding companies subject to far greater regulation.”

The firms requested the change themselves, even as Congress and the Bush administration rushed to pass a $700 billion rescue of financial firms. It was a blunt acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.

It also is a turning point for the high-rolling culture of Wall Street, with its seven-figure bonuses and lavish perks for even midlevel executives. It effectively returns Wall Street to the way it was structured before Congress passed a law during the Great Depression separating investment banking from commercial banking, known as the Glass-Steagall Act.

Former FDIC chairman William Isaac told Bloomberg:

“The decision marks the end of Wall Street as we have known it. It’s too bad.”

Shift for Goldman and Morgan Marks the End of an Era [NYT]
Goldman, Morgan Stanley Bring Down Curtain on an Era (Update3) [Bloomberg]
(AP Photo/Mark Lennihan)

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  1. iMe2 says:

    Here’s a question: why don’t we have all the super-rich hedge fund managers who predicted and therefore made billions (seriously) on this collapse run the “new” financial system? How much money do they need? There should be some sort of mandated draft – if you make godzilla money, you need to give back a little.

    Let’s start paying attention to the people who saw this coming a mile away, instead of political operatives and insiders (like Paulson).

    • blackmage439 says:

      @iMe2: I have been saying that for years. Sadly, it will never happen in our “free” market. I can already hear the screams amid the Sheeple upon someone mentioning such a [fantastic and logical] idea:

      “You mean you want the… GOVERNMENT to REGULATE their salaries?!” COMMUNIST! COOOOOOOMMUNIIIIIST!!!”

      The rich get richer, and the poor get poorer. It’s not until the rich become ostracized by the super rich in the top 1% that anything will happen.

    • reverendskinner says:

      @iMe2: It should be pretty clear by now that these kinds of people feel they need ALL the money.

    • agnamus says:

      @iMe2: Running a hedge fund is a lot like gambling. Yes, you need to be super smart, but the old saying is especially true here, “It’s better to be lucky than good.” Giving the keys to the economy to the HF managers that bet on the economy and won is kind of like giving the keys to the casino to the guys that bet on red at the roulette table and won. Sure, they’re probably smart, but the fact that they were incredibly lucky tells us little about their competence.

      • iMe2 says:

        @agnamus: Wish I had more hard data, but I have to disagree. It’s not a matter of luck when an already billionaire, like George Soros, personally took home 2 billion last year when he bet against the markets. People like this have a history of being ahead of the curve, and it’s how they make billions placing bets. Sure, they’re not always right. But I like their odds better than everyone else.

  2. zentex says:

    I find this move shady (duh?). I know WHY they did it, but I can’t believe the govt LET them do it knowing why they did it.

    I think the govt needs a cut of the profits from these companies. Private Profits, Public Losses is CRAP!

  3. wattznext says:

    Haha. And what about this is too bad? Too bad if you are the one taking advantage of the insane bonui and lavish perks.

  4. mariospants says:

    “This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position – with the stability and flexibility to seize opportunities in the rapidly changing financial marketplace.”

    Heh, heh, just another way of incompetent people saying “We’re taking this seriously.” so that they don’t get in any trouble.

    “Rapidly changing financial marketplace” my ass. THEY were the ones who set themselves up by buying massive amounts of mortgage-back securities/derivatives whatever without doing any of the research that those stupid television commercials would have us believe.

    These people are no different than the folks who ran Enron into the ground. They’re just as smart/stupid and accountable.

  5. CaliforniaCajun says:

    I’ll agree with that headline. Not since 1929 has Wall Street overreached so far – excpt that as a repercussion of that series of events, some smart legislators built some regulation in he system to prevent it from happening again. Unfortunately, Phil Gramm (R) put legislation together that rescinded many of the limitations banks had to endure since 1929, expanding the types of securities banks could trade in, and at least in part, giving rise to what my economist friend like to call “giant shi*pile”. Because that’s what it is: a giant pile of bad debt that you and I are now expected to pay for.

    Who is to blame? A little of everyone, from Clinton for signing the Gramm provisions into law, to “liar loan” purveyors, to the lack of financial education in this country, to the Congress that has sat still and let this happen over the past ten years. Regardless of party, this was about advancing the ability of the banks to use new financial instruments (like collateralizing debt) to make more…money! All while making it tougher for you, poor taxpayer, to file for bankruptcy when the temptation of no-doc loans and your poor financial education met in ruin.

    We’re seeing a fundamental, historic change that could spell out what most of us have been saying for years – that corporations, as legal, but non-person entities, now have more power than the citizens of this country. I won’t protest at the WTO meetings, but it’s plain for me to see that the unregulated free market results in little more than a serf class who exist to pay off the bad bets made by the executives of amoral (look it up; companies are the same as people under the law…except they have no moral compass and are therefore amoral) companies.

    Did I mention Phil Gramm was McCain’s economic advisor until he told consumers to “stop whining” a while back? Incidentally, he works for UBS – one of the foreign banks now getting protection under the proposed bailout. Talk about getting a deal on the rising and falling ends of a crisis!

  6. forgottenpassword says:

    wall street got its name from back when there was a wall constructed there to keep wild pigs out of new york. Looks like the pigs got in.

  7. lincolnparadox says:

    How can anyone become super-rich now? If investment banking isn’t the best way to sell your soul, what’s left? Corporate law? Pharm CEO? Oil Exec? Vice-President?

    Actually, those last two are almost the same thing.

  8. mariospants says:

    Increasingly, I’m discovering that the financial/stock markets are based less on gambling and more on scams.

  9. thebluepill says:

    He He He.. “Piggy Banks”.

  10. savvy999 says:

    It’s hilarious that the nationalization of our financial system was ushered in by Republicans.

    Chavez can have his piddly oil company, we got all the BANKS!

  11. sleze69 says:

    So…how is this different than Venezuelan or French nationalization? This seems an awful lot like communism to me.

    I am for the bailout if it includes $10 billion for prosecuting and imprisoning those that caused this problem (lying lenders AND lying borrowers).

    • @sleze69: Because America isn’t communist. Ergo, nothing America does can BE even remotely communist. It just LOOKS a lot like nationalization. But really it’s a BAIL-OUT. Which is nothing at all like nationalization. At all. I swear. :P

    • Red_Flag says:

      @sleze69:
      It’s not communism because communism would be defined as state ownership of the industries. In this case, the state (and by proxy, the taxpayers) won’t be owning the failing banks… we’re just paying for them. Wouldn’t want those execs to be unable to afford a Lamborghini for their toddler’s 4 year birthday would you? Gee golly gosh, that’s downright un-American!

    • maztec says:

      @sleze69: See: How We Became the United States of France: [www.time.com]

  12. P_Smith says:

    I’ve always maintained that the biggest source of the problem is business’ and shareholders’ attitudes towards growth: if you had 5% increase this year, you must have at least a 5.1% increase the next or the business is “failing”. Just how exactly can a business have growth greater than 75% as some of the dotcom companies have?

    The inevitable result of such mindsets is unrealistic expectations, falsified balance sheets, increased cost and lower service for the consumer, and endless borrowing to finance it all. The whole thing is a house of cards, and sooner or later is has to fail.

    Maybe people like Hugo Chavez have the right idea: nationalize companies that are making obscene profit with no accountability and working to the detriment of the country. If the US government had actually had the decency and balls, it would have taken over Exxon after the Valdez disaster and taken the cost of cleanup out of the company’s coffers, rather than imposing a fine (which has since been reduced, essentially a government giveaway to a corporation).

    • maztec says:

      @P_Smith: I agree 100%. There is nothing wrong with maintaining your business amount. It seems that we focus too much on constant growth. What is wrong with having 150 employees this year and 150 employees next year? What is wrong with steadily making the same $200,000 in profit year after year? You are still making money and you can still hand out dividends.. It really seems like dividend systems, while they are not get-rich-quick, make a lot more sense due to stability..

    • jgw says:

      @P_Smith:
      This isn’t entirely accurate. When evaluating the health of a company, the growth stage and industry of a company are taken into account. The internet company you mentioned with 75% growth would likely be in the more nascent stages of their business lifespan. Depending on the circumstances, slower growth might actually be seen as a positive, as it signals company maturity and stabilized cash flow.

      I do agree with your assertion that the focus on increasing growth dictates a riskier short-term operational strategy.

  13. redkamel says:

    I just wish somebody in the government had the balls to let all these execs burn and watch their lives crumble and go to jail. Even someone with the most basic grasp of economics could have seen that lending money to people who cant afford it* in increasing amounts based on a rising housing market*, and then selling the loans is a bad idea for the *’d reasons.

    I have nothing against being wealthy, except when you earned your money dishonestly.

  14. u1itn0w2day says:

    Too Big to fail-kiss my butt

    If you are too big to fail perhaps you are too big to be in business period.Perhaps many should have worried less about merging and aquiring and working on their core or existing business a little harder.

    It all comes back to GREED.There was no need to half of thess mergers and aquisitions.It was greed.Especially in the finace industry.

    And where the F was the SEC or FTC during all these mergers and aquisitions.Why weren’t the balance sheets scrutinized more. “oh be quiet,you can’t tell the truth and be a party pooper” I guess it goes to show you can find sheeple in any profession.

    There were enough regulations in place.And don’t want to hear this was systemic.It was FRAUD and PANIC once the band wagon jumpers realized the truth and PANICED because they still don’t understand their financial game.

    I want names,the root cause-I want an investigation,I want prosecutions and a JAIL time.I want these sub prime loans traced from the original buyer to the current owner.I want to know under what premise those loans were bought,who said and promised what.I don’t care if they changed hands 10 times.(And Yes,I want to see the original house buyer’s signature & initials on the 50 sheets of paper in the original mortgage).

    And I don’t if it’s this mark to market accounting but I want to know precisely in regular dollars how much these loan worth.I’d like to make sure that if someone has 100K in equity on a 400K home that the bank isn’t taking 400K losses.

    FOLLOW THE MONEY

  15. Ah, eventually we’ll have rioting. Then the public murdering of major CEO’s of companies. People will eventually steal money of the CEO’s they just murdered. Somehow this seems like an awesome movie idea that I can make millions off of. If someone did it, then it sounds like an awesome re-make of a movie that I can make millions off of.

    …to bad no one can afford a studio or even a camera now-a-days…