September, 2008 will eventually get a nickname.
- Monday, October 19, 1987 was “Black Monday.”
- October, 1929 was “The Crash.”
I would love to see your suggested nicknames for September 2008 in the comments.
Goldman Sachs and Morgan Stanley, the last big independent investment banks on Wall Street, will transform themselves into bank holding companies subject to far greater regulation, the Federal Reserve said Sunday night, a move that fundamentally reshapes an era of high finance that defined the modern Gilded Age.
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.
By becoming bank holding companies, the firms are agreeing to significantly tighter regulations and much closer supervision by bank examiners from several government agencies rather than only the Securities and Exchange Commission. Now, the firms will look more like commercial banks, with more disclosure, higher capital reserves and less risk-taking.
In exchange for subjecting themselves to more regulation, the companies will have access to the full array of the Federal Reserve’s lending facilities. It should help them avoid the fate of Lehman Brothers, which filed for bankruptcy last week, and Bear Stearns and Merrill Lynch — both of which agreed to be acquired by big bank holding companies.
Today, Goldman Sachs has $1 of capital for every $22 of assets; Morgan Stanley has $1 for every $30. By contrast, Bank of America’s has less than $11 for every $1 of capital.
JPMorgan Chase acquired Bear Stearns this spring in a fire sale brokered by the federal government, while Bank of America has agreed to buy Merrill Lynch for $50 billion.
I imagine the New York luxury real estate market will tank along with the enormous bonuses that those investment bankers were so famous for.
{ 11 comments… read them below or add one }
MPS 09.22.08 at 4:29 pm
I think “doomsday” is a fine name. Since it is the doom of capitalism as we knew it. And since everyone has been calling me a “dooms dayer” for saying this would happen.
John Williams 09.22.08 at 5:34 pm
I think
The Day the government realized that if it screwed all of us by not regulating the ridiculously wealthy there would be no one to pay the debt or service them.
Ok that’s too long.
How about The year of the Manipulators
The manipulators are lining their pockets at our expense. Where is a good musket when you need it.
JW
Brian McMorris 09.23.08 at 6:18 pm
Wow!! What we all need to remember is that this crash is self inflicted. Let’s all quit blaming the Rich Guys (are you listening Congress!?) and start looking in the mirror. All of us that bought a home in the 2001-2007 period, with very low interest rates, bought down by a much too lenient Federal Reserve (Alan Greenspan), hoping to flip it for a profit, are to blame.
We can also blame the fat, DUMB and happy Congress that did not enforce its own regulations (yes, Congress is responsible for making sure that the regulations it codifies into law is enforced. It can’t blame the Treasurer, Paulson, like it is trying to do right now). And in the case of crazily complicated derivatives paper that has imploded, why are there no regulations controlling the issuance of that paper? Ask your Congressman. He/she dropped the ball.
What about foreign economies who were so eager to sell us goods at prices so low they cut out our own manufacturers, but kept Walmart and Main Street happy? They took all those dollars we sent them for their goods and sent them back to by buying mortgage securities. Let’s not forget their greed, or pragmatism, if we are more forgiving.
Yes, the Wall Street “Masters of the Universe” get their fair share of blame. But let’s not con ourselves into believing they are the root of the problem. All we can say is the problem flowed through Wall Street, on its way to the Atlantic.
Brian McMorris 09.23.08 at 6:21 pm
Oh, the nickname: “The Great Housing Bubble of 2007″. I am sure it will go down something like that, just like “The Tulip Bulb Crisis”
John Williams 09.23.08 at 8:12 pm
Well ok… Now that you mention Allen. He sure did a great job of busting the tech bubble. With all the irrational exuberance talk he single hardly stuck a pitch fork in a bubble that he should have been using a pin on. It is the equevalent of a fire marshal running into a building and yelling fire. Then man is a waste of space. I could have done a better job and I don’t even have an economic degree.
As far as the rich folks. Look me right in the eye and tell me you don’t think some very wealth people have been lining their pockets at our expense and I will shut up.
Anyone that is legitimately rich would surely not take umbrage at my comments.
I have been a student of the market for 30 years and I tell you that it is no longer a level playing field. It has not been for a long time. Which is why I have not owned stocks for some time. My hope is that this puts some reality (instead of Mad Money) back into the the stock market and we can get back to investing instead of playing Vegas style.
JW
John Wake - Real Estate 09.23.08 at 8:38 pm
Yeah, “The Great Housing Bubble” sounds right. Or, “The Great Housing Bust” or “The Great Housing Crash.”
It will have its own chapter in my future grand kids’ text books.
Maybe we need a t-shirt, “I (almost) survived The Great Housing Bubble.”
I was earlier thinking “Black September” or similar but really it’s a rolling crisis spread over years.
MPS 09.23.08 at 9:27 pm
Maybe we should call it “buyers market” day. Ha ha ha. If you don’t get that one then you never met talked to or read a blog by a realtor. Look, “doomsday” is a good name. But we’re not sure what day that is until we have a run on the banks. Let the house of cards fall and lets sweep it under the table. The bail out may postpone it. The thing that nobody talks about is that a good portion of people who took on these risky loans only did so because it was their only hope to get ahead. Basicly there’s a boat load of people who had “nothing to loose”. Bailing out wall street won’t change that. Tell me your not thinking about going to the bank and withdrawing all your cash?
krogers 09.24.08 at 10:08 am
Here’s an interesting trend that I’ve noticed just as of Monday, and I’m sure you’ve probably seen this as well John in some of the listings you run.
Banks are now pre-approving short sale prices. A couple properties I’ve looked at now put that information in the description. My guess is they see the financial giants heading towards doom and realize they are up next on the chopping block. Can’t remember who I heard predict it, but I’ve heard nearly 50% of banks are expected to shut down next year. I don’t think the number will be that high, but I’m sure quite a few will either close or be close to it.
Since it seems about 70-80% of all homes I’ve looked at are short sales, this looks like it might speed up the process a lot on selling houses out.
John Wake - Real Estate 09.24.08 at 4:25 pm
krogers, I’ve seen “pre-approved” short sales for a while but they are definitely more and more common.
Brian 09.25.08 at 9:16 pm
John
Plenty of the Rich Guys are getting killed in this crisis, just like us little guys. I wonder how many Rich Guys got hammered on the Bankruptcy of WaMu tonite? A bunch of them at Texas Pacific Group (TPG) which invested $2B in WaMu in April for sure.
What about the investors in Lehman, or AIG? How do you think Hank Greenburg, founder of AIG (an OLD rich guy), is feeling right now?
Rich Guys / Poor Guys, we are all the same, Greedy. Look in my eyes, John, and tell me you are not. It is in our nature: survival of the fittest.
John Williams 09.26.08 at 9:55 am
Brian I will agree that I want to make as much as I can. Call it greed….yep you got me……but what I would not do is stuff my pockets in such a way that I know is harmful to other people.
I was raised better. There is the difference between me and these greedy wall street people that the government should protect me from.
JW