

Aftermath of AIG: Goldman & Morgan Stanley in free fall - furiouslol
http://dealbook.blogs.nytimes.com/2008/09/17/brokerage-stocks-in-free-fall/

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furiouslol
If you want an explanation on why GS and MS are in free fall, look at the
money markets. After the Reserve Fund broke the buck yesterday, money market
funds are increasingly wary of lending to investment banks in the short term
repo markets. The TED spread has also spiked up to record levels (The TED
spread indicates how willing banks are in lending money to one another)

This is like the 1907 money market panic. GS and MS could be solvent but
cannot stay in business if it can't access funds easily in the overnight
markets since they don't have a stable deposit base like commercial banks do
and they are almost entirely dependent on the repo markets for funding.

Should we be expecting another bailout from the government soon?

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nostrademons
More likely, they'd just engineer a merger between a distressed commercial
bank and a solvent investment bank. You could use Goldman's asset base to
shore up WaMu's balance sheet, and WaMu's deposit base to reduce Goldman's
need for short-term cash.

So much for Glass-Steagall though. I could see this causing a bigger problem a
few years down the line when the combined entity starts taking risks with
depositors' money that lead to 1929-style bank runs.

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byrneseyeview
They could engineer private versions of the Fannie/Freddie/AIG graceful-
liquidation thing: merge now to shore up capital, but sell off 10% of your
assets every year for the next five years in return.

