Wall Street Now Services Main Street

Day traders might appreciate high market volatility, but lending banks like the once proud Lehman Brothers and Merrill Lynch, who rely on successful short term funding to keep their banks solvent, do not. With the former heading into bankruptcy, and the latter being purchased by Bank of America, it became evident over the weekend that the Wall Street model could not sustain itself.

And so it is, as reported in the WSJ, that Goldman Sachs and Morgan Stanley, two Wall Street financial heavyweights, have announced that they are shedding their investment bank status and becoming bank holding companies. In doing so, these two institutions will be putting themselves under the lens of even more government scrutiny and oversight in exchange for easier access to liquidity- most notably from direct customer deposits insured by the FDIC.

I found this kind of ironic in a way. Bank bailouts have become the market motto of the past few months, and so in a way this seems the lesser of two evils. Unlike the bailouts for Bear Stearns, Freddie, Fannie, and AIG, this one seeks to keep Goldman and Morgan afloat with non-compulsory public funding. Instead of being permitted to lift money from the back pockets of taxpayers, Goldman and Morgan will become commercial banks that have to earn money from depositing customers. Whether or not that amounts to the same effect is yet to be seen.

What about the $700 billion dollar mortgage bailout? I'm sure everyone reading this knows by now how I feel about government bailouts. But putting aside my feelings that Uncle Sam doesn't need to protect banks like a father would his children, it may in fact be a necessary step to shelter the economy from the possible collapse that could result from the failure of these banks.

What do you think?