Morgan, Goldman going commercial
And then there were none. The last two Wall Street investment banks standing have decided to become commercial banks, with the approval of the Federal Reserve. Steve Henn has more on what that means.
A Wall Street sign in front of the New York Stock Exchange (Mario Tama/Getty Images)
More on The Economy, Wall Street, America's Financial Crisis
TEXT OF STORY
Scott Jagow: Wall Street will never be the same after this. And I don't just mean because Bear Stearns is gone. And Lehman Brothers is gone. The whole model on which Wall Street has thrived for years -- the independent investment bank -- is over. Last night, the Federal Reserve voted to let Goldman Sachs and Morgan Stanley become commercial banks. That means they can take deposits, giving them more access to capital. I'm sure Bear Stearns and Lehman wish they'd had that. But it also means Goldman and Morgan will be under much tighter supervision. Here's Steve Henn.
Steve Henn: Investment banks are free to take big risks, make highly leveraged bets and they often realize huge returns. But recently they've been clobbered. And the last two investment banks standing, Morgan Stanley and Goldman Sachs, just turned their backs on this business model. Dick Bove follows the industry at Ladenburg Thalmann
Dick Bove: What these two companies have done this morning is simply bend to the inevitable, the inevitable being that they weren't going to get the money to further maintain their leverage and they were going to be regulated.
As commercial banks both Goldman Sacs and Morgan Stanley will be required to maintain larger capital reserves. All Commercial banks are required to have healthy cushion of money when times get tough. Bove says this makes them less profitable but has served them well.
Bove: Despite all the upset in the financial markets, not one commercial bank of any size has gone under.
Luckily for Goldman and Morgan Stanley there's a willing buyer for many of the bad investments. Bove says the federal bailout will give them the cash they need to transform into conservative commercial banks.
In Washington, I'm Steve Henn for Marketplace.
Comments
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From MELBOURNE, YT, 09/22/2008
pleased to see short selling suspended & the President involved in negotiations to solve debt problems incurred during the period of "easy finance".
I trust gs will remain as trustworthy as it has in the past, with careful insight & planning,especially now that they will be comercial banks.
From jupiter, FL, 09/22/2008
Any time I have made a bad investment, I have been on my own and had to suffer the lost. Why can't this government let these companies that have made all these bad investments work it out. And if they can't let a competitor buy them out, not the government/tax payer
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