Goldman and Morgan as Bank Holding Companies

I’m torn about the news this morning on Goldman and Morgan flipping to a bank holding structure. It’s overdue that the two companies are shrinking their leverage and rethinking their approach to risk, and I don’t care about the end of Wall Street’s supposed gilded age.

But saddling up with the Federal Reserve as banks worries me. To be somewhat cynical, anything that Goldman Sachs and Morgan Stanley agree on that involves any sort of backstop by U.S. taxpayers is almost, by definition, not good for the rest of us. It’s sort of like the old joke that if you’re playing poker and you don’t know who the mark is at the table, it’s you.

Feel free to talk me down, but this feels like we’re heading in worrisome new directions. I would like to see more bank consolidation, not less, and the sudden rush among banks to be backstopped by the Federal Reserve and consumer deposits in a shrinking credit environment is a trend that can only go so far without creating new risks.

More here.