CNN just broke a story that the last remaining investment banks on Wall Street would be convert into "Bank Holding Companies."
This allows the last two investment banks on Wall Street, Goldman Sachs and Morgan Stanley, to basically become commercial banks which gives them access to the Fed lending window. Also this means that Goldman and Morgan can buy up already existing commercial banks that are struggling due to mortgage crisis. Both of these measures will allow for the firms to access funds which should stop the fears of investors.
I think the move by the Fed is a much better move than to just wait until both firms go under and forcing a Federal buyout. This allows both firms to still be separate from the government but still requires them to become more regulated. Although Wall Street will not be the same, these actions are not the most drastic and are adding an extra level of stability. It will also mean that the failing banks will have more options to turn to for help (as in being consolidated with), which could help to dilute the problems.
I might be completely wrong, so let me know what you think?
3 comments:
I'll agree with you on this one Nate, I think this is a great idea (although you flip flopped your stance since your last article). Waiting till both firms go under is probably not an option right now considering recent events in Federal buyouts.
Maybe this is an entirely new question (that I may post separately once I research it more) but couldn't the government think of something like this to do with social security? I'm far from an expert on the stance, but I heard rumors of privatizing social security to potentially yield more money?... is that right? But why can't we think up something in-between-ish like this to solve our other problems? I think this is a step in the right direction nonetheless, but somebody bail me out of this one and explain it if you would.
I agree. This is a good idea given the economic situation. However, this will completely change the game on Wall Street. Goldman and Morgan will come under the close supervision of national bank regulators, subjecting them to new capital requirements, additional oversight, and far less profitability than they have historically had.
I disagree. I feel that they should just be kept as investment banks. The line is already pretty blurry as to what is a commercial bank and what is an investment bank, and i feel the line should be made more clear, not more blurry. What will happen to these last two? We don't know, but I say let the market decide.
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