Each new day brings eons of change in the financial landscape. The terrain is molded by the earth movers of unconstrained greed and callous disregard for consequences. During Hank Paulson’s tenure as CEO of Goldman Sachs, two of the most pernicious pushers of subprime mortgages were Goldman Sachs and Morgan Stanley. We cannot escape the irony that this crook, Treasury Secretary Hank Paulson, is now the driver of the mother of all bailouts. Now Paulson wants the highly leveraged, wheeling and dealing ris-taking credit junkies to become just ordinary run-of-the-mill banks. Witness:
Goldman Sachs Group Inc. and Morgan Stanley have won a respite from investor panic by transforming themselves into bank holding companies.
The change in status allows the last two major independent investment banks on Wall Street to take advantage of different accounting rules, gives them more access to federal funds and buys them time to stabilize their funding base by acquiring deposits, analysts said.
It means that they operate under an entirely different set of rules, and that the wanton wreckless deeds of the past are expunged. It’s just a natural consequence of your CEO masquerading as Treasury Secretary. And it has no less personal significance for that CEO/Treasury Secretary who will not be remembered as the sub-prime crack addict who drove Goldman Sachs into bankruptcy:
“The move appears aimed at improving market confidence but does not, in our view, signal a major change in the business model,” Richard Staite, an analyst at Atlantic Equities in London, wrote in a note to investors yesterday. “The move provides Goldman with time to continue the process of de-risking itself to a level deemed suitable by the market.”
The move has nothing to do with improving market confidence. It has everything to do with bailing out the privileged, petulant twins: Morgan Stanley and Goldman Sachs. Take a look:
Instead of carrying all of their loans, bonds, stocks and other assets at market value, as investment banks are required to do, the two New York-based firms can now avoid further writedowns by moving some assets into their banking units. They will also gain the ability to borrow from the Federal Reserve indefinitely, an improvement over the primary-dealer credit facility that is scheduled to expire in January.
If they can borrow from the federal reserve indefinitely does, that mean they never have to pay it back? Supposedly, both companies will be regulated by the FED, but it’s little more than self regulation. A quick glance at the Fed’s Primary Dealer List shows the cozy relationship both banks have with the Federal Reserve.
The lipstick they are putting on this pig is that the former risk-taking investment banks will now have to play by more conservative rules, and former high flying salaries will be reduced to more pedestrian ones. If that’s supposed to make us think the two co-conspirators are being punished, don’t buy it for a second because they aren’t.
To take investment banking away from investment bankers now is like taking eyeglasses off a blind man. The swashbuckling, risk-taking, and financially perilous tactics that earned investment banks years of stellar returns are now a thing of the past anyway. The Ponzi scheme is unwinding in the shadow of its Minsky moment. The current looting and fleecing of the American people led by Goldman Sachs operative/Treasury Secretary is but the final act of that criminal masterpiece.
“Deposit-banking is king right now,” said David Hendler, an analyst at CreditSights Inc. in New York. “It’s the only meaningful critical-mass way to make money.”
Yeah, Deposit-banking. It’s all that they have left, and that’s a sure sign that the credit bubble has been bled dry, that the insiders have escaped with all their riches and the rest are just out of luck. But if you still have the tendency to feel sorry for either of them, just remember this: of the five big Wall Street investment banks that were still alive on New Years day, now there are only these two. In a business where “competition is sin,” Goldman Sachs and Morgan Stanley have reached nirvana.