Aparently the retail banks are able to weather the storm and buy the investment banks because they have lots of cash in the form of deposits from you and me. Anybody see a potential problem here? As Bank of America and Wachovia use depositor money to cover losses in their new investment banks, we could see an even bigger collapse, all FDIC insured. Before this is over, the USA will probably have to devalue our currency, and when that happens, we will be in for a long goodbye.

and you'll find Phil Gramm and friends, "modernizing" the financial sector with the Gramm-Leach-Bliley Act, then turn on any financial news and watch this market plunge to hell, like yesterday. yep, after Gramm let the dogs out, he got a sweet job with UBS(which was a good thing as his wife Wendy needed spending money after her Board job with Enron went south).

folks, wake up! see whats going on in the world of big money, could explain why you don't have any.

The news late Wednesday that Morgan-Stanley was seeking a merger with Wachovia ...

Neither of them is looking all that good these days, so what do they hope to gain by this? Are they trying to become big enough that the Fed will feel compelled to bail them out?

While Congress repealed Glass-Steagal, nobody has repealed the original causes of its passing back during the depression era. Now that investment banks are once again fully integrated with commercial and consumer banking, what happens during the next future crises when the activities of Merrill Lynch, for example, potentially cause all of Bank of America to fail. As we see clearly with the current AIG situation, the excessively risky behavior of even a small unit can bring down an otherwise extremely sound and profitable giant.

With a return to the pre-Glass-Steagal days, these cyclical crises will now threaten consumer's savings and cause widespread panic among ordinary citizens who have no investments but some amount of savings in the bank. That was the original intent of Glass-Steagal - to seperate the two activities so that an investment banking crises does not threaten the consumer and commercial banking sector. Does no one remember this from Junior High history class?

The next crises may not happen for another decade or two. But it most certainly will happen, and when it does, the situation will be far worse than it is now.

As I went about my morning reading, I found this:

http://bigpicture.typepad.com/comments/2008/09/regulatory-exem.html

A relevant pullquote:

As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

Individualized deregulation by quiet fiat from within the regulatory agency. Oversight turns into overlooking, and we the American people get to clean up the mess.

"Quis custodiet ipsos custodes?"

The more things change...

as long as your googling around, google for "National Debt", each US citizen now owes $31,641.61. that's your war, your bailouts, your pork barrel, your healthcare joke. here's an idea, let's put that $31k on each and everybodies credit rating. huh, WTF!?

Its funny how in vogue the economy is and how it makes peoples ears perk when they hear about it on the news.

Whats not funny is during the primaries, the ONLY candidate that was trying to drive the point over and over and over about the dire situation our economy and our financial system is in was..... wait for it... Ron Paul.

He was too brash too non convential to possibly represent the GOP. Sadly he's the only one whos main p[atform was focused on our Foreign policy and our Economy.

Too late now.. I wish we had more options the tweedle dee and tweedle dumb

The big advantage of the Merrill deal is that the combination is "too big to fail" unlike Lehman which was small enough to fail. Better to have all the advantages of an investment bank and Fed backing.

“Too big to fail’ is the new black on Wall Street.

Bank of America is playing the same game sucking up Countrywide and Merrill Lynch. Even today nobody really knows just how much bad debt is sitting on Countrywide’s books. Mark my words; at some point in the next six months BoA will go the Feds and say,

“We will either have to decimate consumer deposits to cover all these bad loans or you’re going to have to buy them from us.”

And that’s exactly what the government will do; absorb all the bad debt at taxpayer expense, in order to ‘save’ BoA. Now BoA has yet another round of derivatives and ugly debt it picked up from Merrill Lynch and it will go back to the Feds and demand coverage for those bad debts as well.

They are going to use the threat of massive losses to consumer accounts and the huge liabilities of the FDIC to blackmail the government into cleaning up their books by making all the bad decisions go away.

It now looks like Wachovia and Morgan-Stanley are going to try and play the same game.

All because they are “Too Big to Fail”/