Stock markets are plunging and investment banks collapsing. What does this mean for the future of capitalism? Do we need more regulation or, indeed, less? Can bank mergers save the day? Leading economists, thinkers and analysts give their views at this section of the BBC webpage.
Archive for September, 2008
The last two major investment banks (Goldman Sachs and Morgan Stanley) in the US have changed their status to become bank holding companies, allowing them to take deposits from investors. The changes should enable Goldman Sachs and Morgan Stanley to raise more funds by opening commercial banks.
The move – part of a huge restructuring effort on Wall Street – will also give them access to Federal Reserve support. The US government has announced a $700bn (£382bn) package to tackle the worst financial crisis for decades.
Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, the Federal Reserve said Sunday night, a move that will fundamentally alter the landscape of Wall Street.
Transforming these investment giants into licensed, deposit-taking banks marked the end of an era for Wall Street. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsize paychecks that helped shape the image of the chest-thumping Wall Street banker.
American finance has a new, if reluctant, kingpin: the government. In a dramatic move on the evening of Tuesday September 16th the Federal Reserve agreed to provide American International Group with a loan of $85 billion (€59 billion) to help it stave off bankruptcy.
In return, either the Fed or Treasury will take effective control of the company, which until recently was an icon of private-sector capitalism. After the historic events of the past fortnight, who would bet that AIG will be the last lumbering giant to need resuscitation? Source.
On another note. Gold prices exploded Wednesday — posting the biggest one-day gain ever in dollar terms ($90.40, or 11.6 percent, to $870.90) — as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying. Read more.
Once the gold standard in the insurance industry, AIG is the latest victim of the meltdown in the credit markets. The insurance business is all about risk—understanding it, minimizing it, pricing to compensate for it. But American International Group (AIG), the biggest insurance company in the world, seems to have had very little concept of the risk it held in its own businesses. If AIG goes, it is hard to think what else would be considered as too big to fail.
Barry Ritholtz, a prominent financial pundit, writes with tongue not entirely in cheek that the first lesson from the government’s bail-out of Bear Stearns in March was to “Go Big”. “Don’t just risk your company, risk the entire world of finance. Modest incompetence is insufficient—if you merely destroy your own company, you won’t get rescued. You have to threaten to bring down the entire global financial system.”
Bloomberg has written up a report on South Korea’s ambition to build up world class financial institutions and capabilities.
In 1999, Kim Jung Yul sat at a table negotiating the sale of Korea First Bank to San Francisco-based Newbridge Capital LLC as it sought cash to stay afloat during the Asian financial crisis. Nine years later, he’s scouting for a Korean buyer for a U.S. bank.
“This is the chance of a lifetime for Korean companies to enter the U.S. market,” said Kim, who was an official at state- run Korea Deposit Insurance Corp. when it sold a controlling stake in Korea First Bank to Newbridge. “We were naive back then,” Kim said. “We paid a high price to learn from the crisis, and it’s time to put what we’ve learned to use.’”
Executives at Lehman Brothers are racing to meet a deadline of Sunday night to find a new owner for the troubled bank, the BBC has learned. More in-depth coverage can be found at Financial Times and BusinessWeek.
Will Its “Chrome” Web Browser Put a Shine on Google’s Long-term Strategy? Casual observers may have concluded that Google’s introduction this week of its Chrome web browser was a direct assault on the dominance of Microsoft’s Explorer.
But Wharton professors David Hsu and Kevin Werbach see a longer-term strategy at work. They say Google wants the new browser to influence the development of web technology that will help draw consumers to its various web applications, making Google overall more attractive to advertisers.
Knowledge@Wharton interviewed both professors. A transcript of the conversation can be found here:
Google’s new web browser is its most direct attack on Microsoft yet. Google doesn’t just want to grab market share with its new Web browser, Chrome. It wants to change the way we use computers. Read more on BusinessWeek and The Economist.
Recent Comments