Wall Street Is Dead

Wall Street is dead. According to its Journal, it died last night when the Federal Reserve agreed to convert Goldman Sachs and Morgan Stanley, the last remaining mega brokerages on Wall Street, into bank-holding companies. The Wall Street that was, “a coterie of independent brokerage firms that buy and sell securities, advise clients and are less regulated than old-fashioned banks,” is no more. In exchange for access to more Federal loan money, and not having have to mark its assets at market value, the two companies will be subject to tighter capital requirements and more government regulation and oversight about how they do their business. This will blunt profits, but that seems in order considering the run racked by so much reckless profiteering, for so long.

Fed Statement on Goldman, Morgan Stanley [WSJ]
Goldman, Morgan Scrap Wall Street Model,Become Banks in Bid to Ride Out Crisis [WSJ] (Photo: Getty)
PREVIOUSLY: It’s “The End Of Wall Street As We Have Known It”

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  1. newberrycrater says:

    wall street I hardly knew ya

  2. Red_Flag says:

    The Wall Street is dead! Long live the Wall Street!

    Huzzah, private enterprise subjecting itself to increased government regulation in exchange for Fed dollars! For the rest of you about to get that 700 billion — if you can’t play the free market like good little capitalists (and take the losses in the same stride you took the profits), don’t come crawling to the Fed for handouts.

    Oh, wait, nevermind, the President already decided to give it to you anyway, with absolutely no oversight. My bad, I thought we actually wanted corporate “persons” to be responsible for their actions, rather than taxpayers. Guess I was wrong.

    • Flame says:

      @Red_Flag: I Don’t think that is quite what is going to happen. The latest that I’ve seen from the AP is that there is going to be heavy oversight on this. “Scrambling for a quick accord on the $700 billion bailout, the Bush administration and leading lawmakers have agreed to include mortgage aid and strong congressional oversight along with unprecedented help for failing financial institutions, a key lawmaker said Monday. “

      Site: [news.yahoo.com]

      • @Flame: is that there is going to be heavy oversight on this

        If I may clarify: the “heavy oversight” includes paying $700 Billion (on top of the 900 Billion already offered and the billions in loans and other assistance already given out during the course of this year) to fix what could have been avoided if the post-1929 crash Glass-Steagal Act hadn’t been gutted during the 1990s by congressional Republicans including Phil “My employer UBS needs help too, even though it is a foreign bank” Gramm.

        Bill Clinton was dumb enough to sign that legislation with Bob Rubin’s advice, so it’s a bipartisan cluster, but make no mistake – DEregulation throughout the 1980s and 1990s was put into place expressly so that Wall Street Investment Banks could make more money by moving into commercial bank territory,

        I’m all for more regulation of the banking industry. At the very least, we could go back to the early 1980s, when Wall Street banks actually had to do research to find which companies to invest in instead of the current mode of simply moving devalued paper around until the music stops and we bail them out.

  3. Does this mean I’m gonna be out of a job soon?

  4. Savage says:

    Does that mean our 401ks are dead too?

  5. Sollus says:

    I have a great idea. Let’s give the Republicans 4 more years to try and fix this because we all know 8 hasn’t been enough.

    • joepa1 says:

      @Sollus: Congress makes the laws…and guess who is in power….Dodd is a fool.

      • Sollus says:

        @joepa1:

        Republicans have had control of the Congress for 3/4 of the last 8 years. The Dems finally get control but not enough of a majority to pass anything worth a damn. They have like a 3 seat majority in the Senate. Don’t be a silly goose.

        • Valhawk says:

          @Sollus: FUCKING SHIT THIS IS THE THIRD TIME I’VE HAD TO WRITE THIS!!!!!!!!! DAMN INTERNET!!!!!!

          Alright….

          What you need to understand is that this problem has been a long time coming. It stems from some deregulation taken during the Clinton Administration. The wider problem is that the idea that the Federal Government has ever been in surplus is nothing more then the result of creative bookkeeping. While it appeared that way in the late 90s the reality of the situation was the Federal Government was taking money from the Social Security surplus and using it to cover over the holes in the federal budget. When this no longer was viable it became clear that the Idea of the Federal surplus was nothing more than fiction.

          What people in general need to understand is that their needs to be a radical rethinking about what they expect to receive from the government. People will have to make a choice between continuing Social Security and Medicaid and paying higher taxes, and I am not talking just the rich or even small amounts. I am talking significant to crippling tax increases across every bracket. In January 2008 the GAO projected that by 2030 combined medicare/medicaid and social security spending will be around 20% of the US GDP.

          Even if we completely eliminate defense spending and other expenditures including education, it will hardly make a dent in the amount this will cost us.

          The thing that makes me want to scream is that neither candidate has a plan to solve this. Neither McCain or Obama have any constructive plan to help stem this growing crisis.

  6. upsidedownpaddle says:

    Privatize the Profits; Socialize the debt.

    Maybe if i lobby the guvment they can buy out my 5 figure debt.

  7. no.no.notorious says:

    maybe this is why we shouldn’t invest based on “speculation,” and we should be smarter with our savings accounts.

  8. Pinget says:

    The big lesson I got out of this is the oldtimers are right. Wall St equals gambling. I’m no longer putting any money I can’t afford to lose in anything that’s not FDIC insured. My kids’ college money, my retirement savings – none of it. If very many of us reach that same conclusion, look for a very different stock market.

    • ben_linus says:

      @Pinget: Historically, the Wall St = gambling argument doesn’t hold up. The average rate of return on the stock market is 10%/year, but it strongly depends on how much time you’ve put into it. If retirement is still 30ish years away, I’d rethink your position about your retirement savings if you want to have financial security.

      • Pinget says:

        @ben_linus:

        Wrong.

        For years, banks, brokers and insurance companies have besieged us with marketing claims that the regular purchase of shares in public companies would effortlessly grow in value forever.

        Never mind that there have been long periods in the past century — such as, roughly, 1929 to 1932, 1937 to 1949 and 1965 to 1982 — when this simply wasn’t true. It has been valid enough in the recent consciousness, from 1982 to 2000, and with that hopeful seed planted, the same ad whizzes who depend on our natural human optimism to buy all manner of fluff took it from there.

        [articles.moneycentral.msn.com]

  9. rockergal says:

    i wish someone could just explain this whole thing to me. How does it affect someone who has no stocks, investments etc. and just does the old fashioned “saving”
    I’m serious I don’t understand

    • Notsewfast says:

      @rockergal:

      Basically, you will not be directly affected by these most recent developments because you have no investments. What you will feel is the slump on the economy.

      This bailout will force the federal government to borrow and print money, which will erode away that nest egg you have through inflation. Basically if your savings account pays you 2% and inflation is 3.5%, you are losing 1.5% each year by keeping your money in a relatively safe place. Using treasury bills as an example, with the recent ‘flight to safety’, yields will likely continue to fall and inflation will likely continue to rise.

      If all of that wasn’t enough, the recent problems will likely cause the economy to spin its wheels in the short term, making it tougher for you to switch jobs or negotiate a raise because your employer is feeling the squeeze of having to raise prices in an economy where people’s real wages are falling.

      Additionally, if you want to start a business, or buy a home, it will be difficult to qualify for a loan unless you have sterling credit.

      My advice is, if you can stand it, do what you are doing now and hang on. Things will shake out, and the problems always look the worst at the bottom of a cycle.

  10. marsneedsrabbits says:

    Are 401ks safe? I don’t mean from market ups and downs, but are they FDIC insured?

    I can’t believe I don’t know this.

    • GrumpyMcGillicutty says:
    • @marsneedsrabbits: Any savings or investment plan that relies on the market is historically a good bet, but never, ever a sure thing. This includes 401(k) investments – the same type of investment the Bush administration wanted to transform social security into – instead of real dollars or even bonds backing social security, they wanted to put people’s SS dollars into stocks and bonds.

      Like I said – historically a good bet…but never, ever a sure thing. And not insured in any way, shape or form.

  11. veryape says:

    burn baby burn

  12. azntg says:

    Rot in hell. Too bad that some people in Washington won’t let that actually happen especially to those in Wall Street who deserve it!

  13. u1itn0w2day says:

    Too big too fast-that simple.Even if just the sub prime end of their business too big too fast.

    I keep on hearing we don’t even know what’s in these loans-BULLCRAP-that’s your freaking job to what your buying for your firm and selling to your customers.

    And if the federal regulation or accounting practices say you have to back up things on a balance sheet then you do it ,you account for it,do your freaking job.

    The regulations and regulators(at the agency was) were there but not used.

    We need a follow the money investigation in detail starting with the original borrowers who signed for the mortgage.

  14. no.no.notorious says:

    it’s weird, in all of my business classes it always seemed that wall street and main street had no correlation. like, wall street is based on estimates and spectators, while main street is your demand and supply in action. it seems like the media is blowing this all out of proportion (as usual). really, the only people who are hurt are those who invest their money in risky stocks….wall street possibly collapsing is an undertook risk in investing.

    • @no.no.notorious: That was the case until Wall Street investment banks got many of the same privileges as commercial banks. There are (or rather, were) regulations that governed what each type of bank could invest in, how they could spread their money around on loans, etc.

      Phil Gramm, a Republican, was responsible for gutting most of this regulation during the 1990s – and on the advice of Robert Rubin, Bill Clinton signed Gramm’s deregulation into law.

      Unfortunately, it put the risk taking mindset of Wall Street right into Main Street’s loanmaking business by making it easier for banks to bundle and sell their loans to other banks for profit. The loans were put together and ‘collateralized’ – that is, assessed based on the amount of money they might make over the lifetime of the loans. This means that a bundle of loans worth $500 million at maturity (when they were all paid back) could be sold to another bank for $500 million or thereabouts – even though the entire package consisted of little to no actual value at the time.

      Unfortunately, because of liar loans and loose standards surrounding subprime loans, massive overbuilding supported by the same, and the new “fad” of walking away from homes, these collateralized bundles of loans started to fall apart. Since so many people are simply not paying back loans, that $500 million bundle is worth a lot less, and can’t be used as collateral to buy other things…like operating capitol and investment.

      You can also thank the congress for making it tougher to file bankruptcy, which provides a measured way for overcommitted persons to “fail gracefully”. Now that bankruptcy is tougher, people are just walking away from homes, making what could have been a renegotiated mortgage nearly worthless.

      This is where putting pressure on your lawmakers (and intelligently vetting them to begin with) makes a difference in your life. Personally, I often demand of my lawmakers that they stop letting companies tell them what to do while pretending that it’s for the common good.
      And now Gramm’s employer – UBS, a foreign bank – is going to get money from this bailout because of their “significant domestic investments”.

      You gotta love the “anti-welfare” folks. When they lie, they lie big.

  15. bmorg003 says:

    I’m no expert, but the guy in this interview seems to know what he is talking about: [www.pbs.org] it may serve to give you some more information on the totality and severity of this situation (spoiler alert: it’s not very cheery though). If you think it’s a bit alarmist, this is what the top government accountant has to say:


    + Watch video

    The blue pill or the red pill, it’s your choice… Goodnight and goodluck…

    • redkamel says:

      @bmorg003: boy, he needs to relax. How does he sleep at night?

      Just kidding. We’re so f’d in the b its not even funny. I guess I’ll live long enough to see it and tell the whole story to my kids kindergarten class, either as a hologram, or in Bartertown.

  16. zolielo says:

    Let the market correct it self. Eventually, it will balance. Times will be tough but in the very long run we will be better for it.

    • @zolielo: I can appreciate your sentiment, but the last time we let the market correct itself, it took a decade and a war to get back on solid footing.

      I don’t want my kids to have to eat mustard sandwiches for three years (as my grandfather did during the depression…at least he had a place to live) because some connected lawmaker thought it’d be a good idea to deregulate banking and then have the taxpayers bail them out when they screwed up.

  17. supertechman-protests disemvoweling by disemvoweling himself says:

    I realize the Consumerist is not specifically a political science oriented website, but I would like to point out that this has repercussions beyond simple fiduciary modifications. This move is a giant leap toward open fascism in America.

    A fascist state is denoted primarily as a totalitarian regime backed by Big Business/Big Banking. Government regulation itself is not fascist, however government partnership with the Big B’s is a strong sign of a fascist government.

    More to the point, according to Wikipedia, “Fascism is a totalitarian nationalist political ideology and mass movement that is concerned with notions of cultural decline or decadence, and which seeks to achieve a millenarian national rebirth by exalting the nation or race, as well as promoting cults of unity, strength and purity.”

    Cultural decline and decadence. We hear this trumpeted in the light of this economic mess (and to be fair, this mess could certainly be attributed to cultural decline and decadence, but that’s beside the point). More to the point, both major parties are making a big deal about “unity and strength”. I’ve not heard much about purity (the Palinists aside), but I think it’s telling nonetheless.

    And they said it wouldn’t be televised.

    • lincolnparadox says:

      @supertechman: I agree with you 100%. Our government is a near fascist oligarchy/plutocracy, where we only have the illusion of democracy at the local level. Even at the State level, there is little that the average American can do to make any lasting changes, without becoming part of the system.

      Also, not to be a snit about things, when you’re trying to convince people, quoting Wikipedia (or the Dictionary) doesn’t make you look informed. It makes you look desperate for quotes. I agree with you, and I believe that you know what you’re talking about. Just avoid online clearing-house websites for source info.

  18. Red_Eye says:

    Well if Wall Street is dead does that mean we can quit paying all those rich bastards and not bail out folks with corporate welfare?

  19. ianmac47 says:

    Brokerage firms will probably come back in the next upturn cycle. With less regulation, it will seem more attractive in good times. Assuming of course, this isn’t the end of the market economy.

  20. P_Smith says:

    There’s an old joke: A farmer wins the lottery, and a reporter interviews him.

    Reporter: What will you do with the money?

    Farmer: “I’m going to keep farming until it’s gone.”

    After the events on Wall Street in the past two weeks, that joke doesn’t seem as funny anymore.

  21. gonga says:

    Laying the blame on Wall Street for the current financial crisis, or Portraying them as beggars are badly flawed trends. The people who took out subprime loans are responsible for much of the problem: these are the real beggars, with the cries that they were duped and that the government should help them stay in their new homes. Congress is equally responsible.
    When my wife and myself bought our first home, the rule of both common sense and financing was simple: you needed 10% down and the PITI per month could be no more than 20% of your monthly income. A few years ago we started reading about NO DOCUMENTATION, ZERO DOWN and INTEREST ONLY LOANS. At the same time, I watched the advertised price for a new home on the I-95 billboard climb from $89,000 to $149,000 ( talk about windfall profits). Where was Congress? Why weren’t they investigating the creative financing and the out of control prices? They were to busy attacking the President in the media cicrcus we call television news; their lobbyist owners didn’t alert them to the pending problem; they were too busy partying to be bothered.

    We the people have the worst congress that money can buy. Many times I have called or written with questions or comments on an issue only to be stone-walled…I have never received a real answer. The other day I finally learned that their real job is to obfuscate rather than legislate. I have yet to have one of my elected reps use their franking privelege to notify me of pending legislation or send me a questionaire.

    Maybe we should strip all members of congress of their assets and use that as a starting point. To satisfy part of their goals, we could put the money raised into a pool to help out all those poor fools with their uderwater house values and unaffordable loans.

  22. Meathamper says:

    Uh, hello. We could have written that a year ago.