Morgan Stanley headquarters in New York
Investment banks Goldman Sachs and Morgan Stanley have been put under Federal control as part of a package aimed at rescuing the US finance system.
The move not only puts the two financial services giants under the direct supervision of bank regulators but also gives the Fed the power to force the banks to raise additional capital.
The US administration wants to prevent the collapse of two of Wall Street’s remaining investment banks after the fall of Lehman Brothers and the government-funded bailouts of Bear Stearns, Merrill Lynch and global insurer AIG.
Morgan and Goldman, whose shares plummeted last week before the Fed’s $700 billion bailout was unveiled, will likely avoid the same fate by converting from investment banks to bank holding companies.
“They were afraid they’d get killed if they didn’t,” Christopher Whalen, managing director of Institutional Risk Analytics told CNN Money about the conversion which will allow the two companies to borrow government money more easily.
“The Fed is scrambling to take the remaining targets off the radar.”
The US Congress worked through the weekend to push through a package of measures aimed at saving Wall Street from financial meltdown.
The hope is that an immediate injection of government money will save surviving Wall Street institutions desperate to raise cash with borrowing at a virtual standstill and investor confidence plummeting.
The US financial system is currently burdened by billions of dollars worth of subprime mortgages which have accumulated over years of deregulation and aggressive mortgage lending.
Mon, 22 Sep 2008 08:23:23 GMT
Source: Press TV