The Fate of Morgan and Goldman

Both investment banks reported positive yet much lower earnings this quarter, but questions about their future as stand-alone investment banks remain. Why? Because the money markets are no longer willing to support an investment banking model.

Investors have finally figured out how risky it is to borrow money short to finance a huge, risky trading operation. Morgan Stanley and Goldman Sachs have emerged as the best risk managers on the Street, yet sentiment has now appeared to turn against them.

Despite the AIG bailout by the US government, which was a far better alternative for the investment banks than allowing a bankruptcy filing, both Morgan Stanley and Goldman Sach's stocks are getting routed in pre-market trading. Credit default swaps on Morgan Stanley have now spiked to levels last seen on Lehman Brothers' debt. Remember Lehman?

That other investment bank that went bankrupt last weekend? If you thought the turmoil was over, think again.

By Mock The Market http://mockthemarket.blogspot.com/