The financial industry has been transformed to a degree that few thought possible only a few weeks before. But this is all a sideshow to the real story of change as it relates to the economy and deciding how Main Street will fare in the months and years ahead.
Still, it’s hard not to gawk at the spectacle that is Wall Street. First observation: Wall Street as it existed just a few weeks ago is gone. The news that Morgan Stanley and Goldman Sachs–the last two large, independent investment banks standing–will transform their businesses into bank holding companies, a decision that completes the decimation of the old investment banking model. The boys had a good run. Unfortunately, they blew up the industry and now all that’s left is a bunch of humbled Citigroup wannabes.
That’s not so bad, if only because Citigroup, sprawling and unwieldy as it is, didn’t self-destruct. Neither did J.P. Morgan or Bank of America. One reason: those three, as bank holding companies, operate under a tighter, more constricting regulatory framework, and so by law they were forced to operate more conservatively compared to the likes of Bear Stearns and Lehman Brothers. No problem: some of our favorite institutions are plain old banks and the world will probably survive just fine now that they’ve inherited the throne.
But let’s not get too giddy. Keep in mind that there are still a lot of little Lehmans and Bear Stearns in the world, otherwise known as hedge funds. Collectively, this gang runs a lot of money, much of it leveraged, and some of it–perhaps most of it–is managed unintelligently. We don’t really know, of course, but given what’s transpired in recent weeks we’re inclined to wonder.