Wall St.'s Surviving Giants Go Commercial

Investment Banks Goldman Sachs, Morgan Stanley Given Go-Ahead To Take Deposits

(CBS/ AP)  The Federal Reserve announced Monday that the last two major investment banks - Goldman Sachs and Morgan Stanley - can immediately move forward on plans to become bank holding companies.

The Fed said the normal five-day waiting period required under law could be skipped after consulting with the Department of Justice.

The Fed announced late Sunday it had approved the request, which will allow Goldman and Morgan Stanley to create commercial banks that can take deposits, bolstering the resources of both institutions.

The change is the latest seismic shift on Wall Street as the financial system tries to cope with mounting problems that began more than a year ago with the subprime mortgage crisis.

That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.

On Monday, Morgan Stanley signed a letter of intent to sell up to 20 percent of its company to Japan's largest bank, Mitsubishi UFJ Financial Group. Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Mitsubishi completes due diligence.

Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke kept up their outreach with Congress, holding meetings over the weekend aimed at convincing lawmakers to move quickly to approve a $700 billion package. It would allow the government to buy up a mountain of bad mortgage loans that have been weighing down financial companies since they became engulfed in a severe credit crisis 14 months ago.

Congressional leaders have endorsed the plan's main thrust, but said it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.

"We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome," House Speaker Nancy Pelosi said Sunday in a statement. "Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."

But Pelosi, concerned about spooking markets with the possibility that the bailout package might not win approval, predicted that Congress would pass the measure this week once Democrats won the changes they are seeking.

Sen. Christopher Dodd, chairman of the Senate Banking Committee, said it's just as important to act responsibly as it is to move hastily on legislation aimed at stabilizing the country's troubled financial markets.

Dodd voiced confidence Monday in Paulson, telling CBS' The Early Show "we've got the right man" to deal with the problem that has roiled not only Wall Street but international markets as well.

The Senator added that any relief package should be tailored to protect taxpayers, who, Dodd, said, should be the "first in line" to get money back once conditions in the industry stabilize and recover.

Sunday on 60 Minutes, the Democratic and Republican nominees for president weighed in on Wall Street's tumultuous week of government bailouts.

Sen. Barack Obama said he thought by the time Paulson and Bernanke actually tackled the unraveling financial situation, "they had no good options left."

The Democratic nominee added: "I think that our basic principle has to be that you don't bail out shareholders. You don't bail out CEOs who are getting golden parachutes and $100 million bonuses. That you are doing everything you can to protect taxpayers, making sure that people are able to stay in their homes, and that their mortgages don't go overboard because of bad decisions that other people make."

His opponent, Sen. John McCain, who agreed with Paulson and Bernanke's actions, blamed the crisis on Wall Street greed:

"There's a social contract that Adam Smith talked about between capitalism and the people. That contract has been broken. It's been broken by greed and access, aided and abetted by a government in Washington that's dominated by special interests and corruption," McCain said.

"When the time comes and the economy recovers then anything that's gained back is gonna go to the taxpayers first," McCain said. "I'm not saying this isn't gonna be messy. And I'm not saying it isn't gonna be expensive. But we have to stop the bleeding."

Making the rounds of four of the five Sunday talks shows, Paulson stressed that time was critical to get the proposal passed because of the urgent need to get global credit markets functioning more normally after they essentially froze up following a number of shocks last week.

The surprise Fed announcement announcing approval of the status change for Goldman and Morgan Stanley was yet another indication of how quickly events are moving on Wall Street.

The stock of the two companies had come under pressure as investors began to worry about their future following the bankruptcy last week of investment bank Lehman Brothers and the forced sale of another investment bank, Merrill Lynch, to Bank of America.

In other action late Sunday, the administration announced that it was modifying a program announced just last Friday to try to bolster the teetering $3 trillion money-market mutual fund industry by using a $50 billion Treasury fund to provide temporary guarantees to money-market accounts.

Responding to complaints from banks that this change would put them at a competitive disadvantage for deposits, the Treasury said Sunday that the guarantees will only cover funds that were in the accounts as of last Friday. The guarantees had been put in place to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.

The banking industry had complained that the new guarantees ran the risk of sparking withdrawals by their depositors, who might decide to transfer their bank deposits to money-market mutual funds. Both accounts now have government backing and the mutual funds would not have the $100,000 limit imposed on deposit insurance for banks.

In another change that highlighted how quickly Treasury is being forced to put new programs into place, Treasury said Sunday that funds deposited in tax-exempt money-market mutual funds as of last Friday would be covered by the new guarantees. Originally, the department had said those funds would not be covered because it might jeopardize their tax-exempt status.

Paulson and Bernanke made the joint decision last week that the only way to calm turbulent markets was to deal with the root cause of all the troubles, billions of dollars of bad mortgage debt sitting on the books of major financial companies.

Paulson argued in his Sunday appearances that the cost of doing nothing would be far more severe because the clogged credit markets would make it harder for businesses to get the loans they need to keep operating and for consumers to get the credit they need to keep spending.

Paulson said he was confident that other major countries would take similar actions to support their financial systems, helping to avert a global meltdown.

Congressional Democrats said they understood the need for urgency but insisted that the measure needed to provide help for homeowners threatened with losing their homes and also include more oversight over how the bailout program is operated. While Republicans seemed likely to support those changes, it was less likely that they would support Democratic demands that the bailout program place limits on the compensation of Wall Street executives or change bankruptcy laws to allow judges to modify home mortgages.

[txgrouch2006]

The question NO DEM can answer:

WHY DIDN''T BILL CLINTON VETO THE 1999 BANKING DEREGULATION????????

So what if his veto got overridden? At least he would be on record as opposing it.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''''''''''''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t blame one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''''''''''''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t blame one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''''''''''''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t blame one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''''''''''''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t blame one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t blame one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t have one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t have one without the other.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t have one without the other.

[txgrouch2006]

Yes why didnt the democrat congress take action back in 2001?
Posted by gop_will_win at 01:17 PM : Sep 22, 2008

The Republicans controlled both houses of Congress until 2006.

But when they lost control, why didn''t the Dems fix this problem THEN???

Because at the time, they didn''t want to upset the applecart. BILL CLINTON signed the banking deregulation bill in 1999, and they didn''t want to appear disloyal to BILL CLINTON.

[txgrouch2006]

BILL CLINTON signed the 1999 banking deregulation bill. He could have vetoed it. But he didn''t.

CLINTON IS TO BLAME
BUSH IS TO BLAME
CLINTON IS TO BLAME
BUSH IS TO BLAME

You can''t have one without the other.

[clovisbuford]

Yes why didnt the democrat congress take action back in 2001? Its because they wanted to make Pesident Bush look bad. The liberals are worse than the terorists IMHO!
Posted by gop_will_win at 01:17 PM : Sep 22, 2008
Hey there oh brightest one, in 2001 the republicans were in charge of conngress.You can call your fellow americans terrorists ,but you cant change the fact republicans ran the congress from 1994 till Jan 2007.The definition of insanity is doing the same thing over and over(voting republican) and expecting different results.

[ahhhhhhhaaaa]

Ok, I see that some of you people went FULL ***!!!!! on the issues at hand. You didn%u2019t even go half *** like you were supposed to but you had to go full ***!!!! . Doesn%u2019t anyone understand? We are living in biblical times people!!!!!!! WE OWE OTHER COUNTRIES SO MUCH MONEY, CAN YOU SAY ONE WORLD GOVERNMENT? COMING SOON TO A COUNTRY NEAR YOU!!!!!!!

[jss2003]

The only people to profit from this bail out is the CEO''s, Board of Directors and stockholders. Bush always takes care of his cronies.

[Michael Arnold]

Got stock? Better dump it now or forever hold your peace.

[bobnjersey]

[The sad thing here is that the Democrats are secretely celebrating this crisis because it makes the Bush administration look bad ... This is in spite of the fact that both McCain and Bush have been calling on congress to take action on this issue since 2001. Both dems and republican in the do nothing congress are too blame for this crisis.]
[Posted by redbds at 01:03 PM : Sep 22, 2008]

yea ... they''ve been calling for fixing it since 2001. post your link showing this to be true. the whole federal govt was controlled by republicans in 2001 ... and 2002 ... and 2003 ... and 2004 ... and 2005 ... and 2006.

is this why gwb touted ''record home ownership'' repeatedly during the last seven years as proof of a good economy?

was he and mccain ''secretely'' wanting to change what they were in fact taking credit for?

[ahhhhhhhaaaa]

Dont worry Americans George W. Bush has heard your pleas and is working on a plan with congress to get us out of this financial mess that Bill Clinton put us in. It took George Bush 8 years to get us out of the mess that Bill put us in and he''''s almost done! The economy will be fine by the time that George gets out of office. George did the right thing by removing those harsh laws that kept big companies from making the tons of money that they are making now. George Bush has always championed the rights of the poor and fought against the fat cats in washington. He has freed Iraq and is currently working on freeing afghanistan. George is the best president ever he balanced our budget and our troops couldnt be more proud then to have George Bush as commander and chief. I think that George Bush should be president another 8 years before Barack or Mc Cain get in washington and mess up the great job that George did over the past 8 years. Dont forget the no child left behind act which is helping millions of children and George Bush is only one standing up to the fat cats in washington. I wonder if there is way to get him elected another 8 years, this country sure needs him now more than ever! The poor has always supported George Bush because he protects the little guy, the underdog and we love him for that. He always put the american people before himself and his family!!! There ought to be some way that the american people can show some gratitude as hard as George works for us.

[egresor]

The sad thing here is that the Democrats are secretely celebrating this crisis because it makes the Bush administration look bad. It helps only the dems and their Neomessiah Obamahood. This is in spite of the fact that both McCain and Bush have been calling on congress to take action on this issue since 2001. Both dems and republican in the do nothing congress are too blame for this crisis.

Posted by redbds
==============

just another twist it back on and blame the dems for what 8 years of bushcheney has done

oh yes and a congress (the democrat part) that was so afraid of seeming unpatriotic that they meekly went along (with a little verbal protest of course) with nearly everything bushcheney (conjoined) tried to do.

bush got anything he wanted
except a couple of biggies like social security.
btw
how would you feel now if they''d have tied social security in with wall street? huh?

huh??

[gop_will_win]

The sad thing here is that the Democrats are secretely celebrating this crisis because it makes the Bush administration look bad. It helps only the dems and their Neomessiah Obamahood. This is in spite of the fact that both McCain and Bush have been calling on congress to take action on this issue since 2001. Both dems and republican in the do nothing congress are too blame for this crisis.


--------------------------------------------------------------------------------

Posted by redbds
======================
Yes why didnt the democrat congress take action back in 2001? Its because they wanted to make Pesident Bush look bad. The liberals are worse than the terorists IMHO!

[redbds]

The sad thing here is that the Democrats are secretely celebrating this crisis because it makes the Bush administration look bad. It helps only the dems and their Neomessiah Obamahood. This is in spite of the fact that both McCain and Bush have been calling on congress to take action on this issue since 2001. Both dems and republican in the do nothing congress are too blame for this crisis.