Bye-Bank

Wall Street is dead. At least, the Wall Street we knew. The Wall Street that most of us are familiar with is not the Wall Street of the 1890s, with men in top hats betting on railways, or of the 1950s, with harassed men screaming 8220;buy, buy, buy8221; into a line of telephones on their desk. It is the Wall Street of the great investment banks, of confident, slick-haired men in suits taking big bets with large amounts of the firm8217;s money, of the five pillars 8212; Bear Stearns, Morgan Stanley, Goldman Sachs, Merrill Lynch and Lehman Brothers. Lehman is dead, Bear and Merrill sold; and Goldman and Morgan have announced that they were retiring, as it were, telling the Fed that they were fundamentally restructuring themselves and asking 8212; asking! 8212; to be regulated as commercial banks. Citicorp, Bank of America and JPMorgan Chase are all classified as such.

This is not the surprise it would have been a few short months ago. The subprime crisis, in which the bottom fell out of the American real estate market, and dozens of financial firms were left with home-loan-based securities that nobody would touch, was bound to leave bodies behind. The surprising thing is that Goldman and Morgan clearly think that the main casualty isn8217;t their profit-worthiness or their reputation 8212; it8217;s trust in their business model itself. That model has been buffeted by public doubt about the nature of the securities they sold, about borrowing short to sell long, and about their incentives to take risk. Those pressures would have eventually told on their profit margins, and so seizing the initiative was a brave and sensible thing to have done.

What now for Wall Street? America8217;s financial system will survive these and more scares, never fear, but what will it look like after? The parameters are already emerging 8212; rich people taking risks for other rich people in the unregulated Wild West that is the world of hedge funds and private equity; the giant financial conglomerates such as Citi and Chase sweeping up and investing small deposits, and doing everything while keeping their leverage, and thus risk, down; and boutique investment shops, doing one thing well, like Lazard and Greenhill. We can all hope that this emerging system provides a more stable, transparent and comprehensible Wall Street than the one we8217;ve been marvelling at all our lives.