“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Sunday, September 21, 2008

Morgan Stanley, Goldman Sachs to become bank holding companies.

This is rather extraordinary in that commercial banks were prohibited from doing things that investment banks could do and investment banks were not permitted to do commercial and retail banking. Now it seems as if the investment banks will be able to complete for new sources of money and liquidity by being able to set up demand deposit accounts. Since the big investment banks do not have branch banks, I would expect that they will move to acquire many small regional banks to set up a national network.

If that is the case, then it may not be a bad idea to find healthy regional banks in good markets that have been beaten down in price, with the expectation that they may be merged into the large investment banks. Just a thought.


Goldman, Morgan to become holding companies
Last remaining independent investment banks will qualify for Fed aid

By Robert Schroeder, MarketWatch
Last update: 10:31 p.m. EDT Sept. 21, 2008

WASHINGTON (MarketWatch) -- In yet another extraordinary development for Wall Street, the Federal Reserve said late Sunday night that venerable investment banks Goldman Sachs and Morgan Stanley will become bank holding companies.
The Wall Street titans will be allowed to transition into holding companies following a mandatory five-day waiting period, and will be able to take advantage of credit from the Federal Reserve Bank of New York in order to complete the transition.

Upon completion, Goldman (GS:129.80, +21.80, +20.2%) and Morgan (MS:27.21, +4.66, +20.7%) , two of the biggest and most powerful investment banks on Wall Street, would join the ranks of and compete with Citigroup (C:20.65, +4.00, +24.0%) , JPMorgan Chase & Co. (JPM:47.05, +6.75, +16.8%) and Bank of America (BAC:37.48, +6.90, +22.6%).

In a short statement on its web site, the Fed said it authorized the New York Fed to extend credit to U.S. broker-dealer subsidiaries of Goldman and Morgan against all types of collateral that can be pledged at the Fed's primary credit facility for depository institutions.

The Fed also made the same collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch.

The Fed's move is the latest milestone in a jaw-dropping couple of weeks for Wall Street and American business. Goldman and Morgan were the last two independent investment banks, following the filing for bankruptcy of Lehman Brothers (LEH:0.22, +0.16, +313.7%) and the acquiring of Bear Stearns by JP Morgan this spring. Bank of America, meanwhile, is buying Merrill Lynch (MER:29.50, +7.44, +33.7%).

Robert Schroeder is a reporter for MarketWatch in Washington.


  1. When the going gets "weird," the weird turn "Pro."

    GS are the ultimate "Pros."

  2. My Rich Nephew's gonna get twice as Rich!
    ...but I'm the smart one:
    I went to College.
    Har de har har.
    Sometimes that goes down harder than others.

    It is hard not to admire the way casino owner Steve Wynn reacted when Goldman Sachs volunteered their services in one of the controversies he had with legendary financier Kirk Kerkorian a couple of years ago.

    When the GS executives arrived and cited an exorbitant figure for their services as a retainer, Wynn pressed a silent button. Six large German shepherd dogs ran into the room and fixed their open but snarling jaws on the crotches of Mr. Wynn’s visitors (regardless of gender).
    This was persuasive, and the proposed Goldman retainer shrank quickly.

    Conrad Black Lessons to learn from Wall Street's week of no return

  3. The National Post! That was a good read, Doug. Thanks.