Rest in pieces, Glass-Steagall

Our grandparents' generation felt it worthwhile to separate bankers from card dealers to prevent banks from imploding like a house of cards.

But then, they had the fear and experience of the Great Depression as their mentor. Today's economy is a not so great one, just your run of the mill laconic affair.

Guambat wrote last week about the demise of Glass-Steagall and the return of the banking dinosaurs.

Events of this last weekend, in addition to draining the credit default swamp, also put some flesh on those dinosaur bones:

Goldman, Morgan to Become Full-Fledged Banks

Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, the Federal Reserve said Sunday night, fundamentally altering the landscape of Wall Street.

Announced without fanfare on Sunday night, the move signals the final end to the Glass-Steagall Act, the epochal legislation of 1933 that signaled a split between investment banks and retail banks.

The move fundamentally changes one of the mainstay models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsized paychecks that underpinned the traditional image of the chest-thumping Wall Street banker.

Guambat read that last sentence with a bit of a sputter.

By becoming bank holding companies, Goldman Sachs and Morgan Stanley ... lays the groundwork for additional deal making. Given the expected bank failures this year, it is possible Goldman and Morgan Stanley could seek to buy them cheaply in a “roll-up” strategy.

Being a bank holding company would also give the two [continuing] access to the discount window of the Federal Reserve.

Goldman said that it will now become the nation’s fourth-largest bank holding company, with its small existing deposit-taking units to be rolled into GS Bank USA. Morgan Stanley will convert its Utah industrial bank into a deposit-taking national bank, to be called Morgan Stanley Bank.

Guambat fears the Fed hasn't the resources or resolve to regulate these behemoths, and that the SEC model will prove to be the default choice.

//