Views on the Fed, Merrill and future for Wall Street investment banks

September 15, 2008

merrill.jpgThe Wall Street investment banking model is being tested. No, it’s broken. No, it’s been broken for a while and the bailout of Bear Stearns and the demise of Lehman show that it’s on the mend…

Views are coming in from across the spectrum as financial world commentators join the markets and try to piece together what the busy weekend on Wall Street will mean for stocks and the shape of the financial services industry.’s voluble Jim Cramer declares: “Nobody from the Fed has gotten ahead of this problem.” How can the Federal Reserve not cut interest rates “right now?”

Market strategist Barry Ritholtz, blogging in The Big Picture , says a cut “would be ill advised … Why on earth the FOMC would want to undue any of the work by Treasury with a rate cut? That is the current market bet, that a 25 or even 50 basis cut may occur at tomorrow’s Fed meeting.” The Fed should keep its powder dry, he concludes.

Arnold King at Econlog says he’s thinking about the Fed simply as the “the lender of last resort” today. He adds: “For the stock market, I’d say if it only drops 3 or 4 percent and stays open all day, I would count that as a win.”

Paul Kedrosky at Infectious Greed is on watch for signs of blaming the short-sellers. A “one-sided piece in today’s NY Times is a good example of something we are likely to see,” he says.

Calculated Risk pulled from a transcript from Bank of America’s CEO this morning on his expectation for a tough 2008-2009 in financial services and a key comment from Merrill’s John Thain, that “as we go forward, size is going to matter, so the ability to have a diversified stream of earnings, the ability to maintain high degrees of funding certainty are going to continue to be very important.”

And beyond New York, economics professor Greg Mankiw writes that he gives his introductory lecture at noon today for Harvard students and notes that he’d like to “thank all my friends on Wall Street for doing so much to spark interest in economic issues.”

What’s your view on what the Fed should or shouldn’t do next?


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This is my 3rd Wall Street and Commercial Real Estate freefall. Sit down, watch Monday Night Football and remember that 1 more second of life is worth more than all of the treasures in the world.

Thank you B of A, you saved us over $45,000.00 today. It takes courage and a steady perspective of things to weather storms. you are no different that Wall Street. Remember folks, markets are driven by more than numbers, in most cases – EMOTION. Lemmings die because of it and vultures capitalize on it. Oil hit $146/bbl on emotion, the market sold off by 500 today because of it. Oil is now under $100/bbl, interest rates are stable and may event fall in the next 30-days and the market will rebound and fall and rebound and fall and ? It will take a very strong stomach to be one of the 10% that get rich in this turmoil. The Black Belt Question; will the US flu cause a worldwide plague? Will small firms be able to weather the storm financially?

Get liquid kids, this may take awhile.

Pepto anyone?

The Old Man

Posted by Old Man at DBI | Report as abusive

Intoxicated with the fall of communism, and involved in poorly-thought-out “wars” against terrorism and drugs, the U.S. government has been blind-sided by the deceptive inventions of the financial industry. Now, with the government foolishly trying to stop the inevitable, mathematical consequences by accepting less than worthy collateral from banks, the stage is set for the final phase of the collapse of the American economy, widespread failure of the banking system, failure of the deposit insurance system, skyrocketing unemployment, astronomical inflation, and the general decline of the living standard. In short, an economic depression of the worst sort.

Posted by Daniel Young | Report as abusive

Wishful thinking there in the comment by Daniel Young. The wars on terrorism or drugs have nothing to do with the financial conditions. And the failure of the banking system is doubtful—banks have failed this year, but banks fail all the time.

The problem in this crisis seemed to be allowing lenders to take advantage of borrowers and investors. Loans would be made to borrowers who couldn’t afford the loan, and then these loans were sold in packages to investors. It was sounds much like fraud to me.

Posted by Capstone | Report as abusive