Charlie Prince the former CEO of Citigroup, had one of the best lines describing the behavior that lead to the credit crisis. "As long as they are playing music, you have to get up and dance." The mentality of following the herd and trying to not be left behind when there were profits to be made was a major contributor to the problem. Everyone wanted to get in on this dance from the homeowner, the mortgage banker, the GSE, the investment bank to the end investors.
So what is the new song? Regulation - so we are seeing Morgan Stanley and Goldman Sachs turning into bank holding companies. They will dance to the new regulation of being a bank. So much for independence as investment banks. Of course, they were behaving like commercial banks and commercial banks acting like investment banks. There is no reason for debate about what is the chicken or egg because now the key regulator will be the Fed and not the SEC.
It remains to be seen what the new dance will be because the tune is being rewritten in days not weeks. It will be unclear where the law of unintended consequences will take us.
So what is the new song? Regulation - so we are seeing Morgan Stanley and Goldman Sachs turning into bank holding companies. They will dance to the new regulation of being a bank. So much for independence as investment banks. Of course, they were behaving like commercial banks and commercial banks acting like investment banks. There is no reason for debate about what is the chicken or egg because now the key regulator will be the Fed and not the SEC.
It remains to be seen what the new dance will be because the tune is being rewritten in days not weeks. It will be unclear where the law of unintended consequences will take us.
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