Abet Chichi2

[DiscoverGold]

From Hyde to Jekkyll: Goldman And Morgan Morph Into Banks
by Dr Joe Duarte September 22, 2008

"What Does It Mean. And How Will It Work?
As if the effects of the potion that turned Dr. Jekkyll into Mr. Hyde had work off, Wall Street's big risk takers went from a life at the speed of light to riding a bicycle over the weekend as Morgan Stanley and Goldman Sachs became bank holding companies.

But is this new kinder, gentler facade going to bring change, or is it just another partition that blurrs the lines between Wall Street and Main Street, only accomplishing a cosmetic solution?

On the cover, it means that these two former high flying, hedge fund spawning risk taking giants, are now going to be competing against Wachovia, Bank of America, Compass, and your neighborhood bank for deposits, loans, and ATM cards.

But beneath the surface, nobody knows what this means. Do these institutions have the knowledge and infrastructure to pull this off? And where are their branches going to be located? How much capital will it take to build, buy, or lease the buildings to put these branches?

And does this mean that these two big players are going to divvy up Washington Mutual, which has a McDonald's like presence with branches everywhere?

The truth is that no one knows what this means. Oh sure, we're hearing all about how the move will bring tighter regulation to Wall Street. But did tighter regulation help Wachovia, Citigroup, and other banks that also had brokerage operations? Not really, as these institutions still bought bad subprime paper that cost them billions in losses during all this.

And did tighter regulation help the deposit banks that have gone out of business this year from making bad loans? Again, the answer is no.

Which means that although the plan sounds bold, it still misses the fundamental aspect of the current crisis, which is the centerpiece of every financial crisis. Markets will always go too far to the up side and to the down side.

That's the down side to Capitalism. The risk taking gets carried away. And because risk taking is based on human nature, no matter what the Fed and the Treasury do, there will always be financial crises due to greed and fear.

So is this a bad thing? It's hard to tell, especially when the stories about why the U.S. government finally went to the "nuclear" option last week. According to The New York Post, a paper not usually associated with high brow journalism, the subprime mortgage crisis had gotten to a point where the U.S. Treasury and the Federal Reserve had to bail out the financial system last week as the potential for a huge financial calamity was reportedly on the rise.

According to the Post "Had the Treasury and Fed not quickly stepped into the fray- on Thursday- morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor."

The Post added: " According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning. The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value."

In other words, if this report is accurate, and it is not being disputed, the selling on Wall Street was about to get significantly worse.

Conclusion

So now we're in uncharted waters, as Goldman and Morgan will have to go out and order toasters, clocks, calendars, and pens, in order to entice us to pony up our deposits. That will be good for the Chinese companies that make that stuff now, but what will it do for the rest of us?

And, boy, we can't wait to give those guys our hard earned cash, so that they could find a loophole that lets them funnel it into derivatives, swaps, and subprime mortgage backed securities. Oh sure, there will be more regulation. But just wait until the lawyers and the accountants find the loopholes.

Marketwatch's Irwin Kellner noted: "Coming down the pike is nothing less than a modification of our capitalist system. You remember capitalism; it says that you are free to enter -- and free to exit -- any business you may want to."

According to Kellner, this will mean big changes for Wall Street as "the rewards will come down from the stratosphere," and 'The "Masters of the Universe" will have to be content with two cars, one home and no private jet.'

And if you can project that logic into the future, we may see a return to the days where bank stocks moved sideways and paid decent dividends. Wow, it makes us want to get our cardigan sweater out of the closet, slip our penny loafers on and head down to the neighborhood Sonic to get a milkshake.

Maybe Fonzie, Ritchie, "Pots" and Ralphie will be there too. Now where is that "I like Ike" bumper sticker?

<!--------------------- START current Stock of The Day -------------------------->

Gold ETF (AMEX: GLD) Rallies As Traders Remain Skeptical

The SPDR Gold Trust (AMEX: ETF) looked to be on the verge of a technical failure as last week came to a halt. But thanks to the U.S. government's bailout of the financial system GLD has found new life.


Curiously, despite the fact that stocks rallied on Thursday and Friday, GLD moved higher as well, suggesting that despite the upswing in stocks, gold traders may be expecting the whole rally in stocks to fail, and perhaps miserably, with the financial system continuing to take hits.

Two things stood out last week that also support this notion. One was that the dollar reversed its recently bullish trend. And the second was that despite the huge amounts of short covering that fueled the two-day rally on Wall Street, none of the major averages climbed back above their 200-day moving averages.

In contrast, GLD moved well within striking distance of its 200-day line, the line that traditionally divides bull markets from bear markets. And if the current trend continues, the metal will be back near $1000 in a very short time.

What makes this most interesting is the fact that on September 19, it looked as if the gold rally was about to fizzle. The fact that it didn’t, and that it actually gathered steam, is something to keep an eye on, given the potential of the current situation to continue to unravel despite the latest moves from the U.S. Treasury and the Federal Reserve.

So far, the U.S. Treasury and the Federal Reserve have poured hundreds of billions of dollars into the financial system. Yet, the stock market is still wobbly, seeming unable to continue last week's rally, at least as of very early trading on Monday.

So what is gold trying to say? It looks as if for now, the gold market is betting that none of what's being done is going to work.

George.