9.21.2008

Morgan and Goldman Molt
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Like cicadas emerging from the ground after a long developmental slumber and leaving their chitinous shell on the soil or in a downed, rotting tree trunk - rather than 17 years, however, this cycle was 79 years - i-bankers Goldman Sachs and Morgan Stanley are going to be reclassified as integrated banks, allowing them to take deposits and make commercial loans. In 1929, just as Gatsby was muttering his last 'old sport' the bank holding company act of 1929 forbade investment banks from the bread-and-butter banking business, in an attempt to put a drogue chute on some of the sleight of hand financial practices that had created and amplified the roaring 20's.

Reversing this decision puts us back into the landscape of the Herbert Hoover administration. (Hoover test) All of these gyrations may create opportunities for smaller banks to bulk up and fill the gap left by the recently departed.

Morgan Stanley was the lead underwriter for UPS - in what (at the time) was the largest initial public offering yet. Stock held by founders and heirs and pre-IPO mgmt was set aside as Class A - a new class "B" was created for retail purchasers. Only around 10% of the equity was sold, with different voting rights than Class A. The previous largest offering was Dow Chemical co, and the subsequent largest was AT&T Wireless.

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