Make up your minds!

So the story now is that the investment banking model that has generated hundreds of billions of dollars (and pounds and yen) of revenue over the past couple of decades is so deeply flawed that it needs to be abandoned? Goldman Sachs is reorganizing as a bank holding company? The thinly veiled truth is somewhat different. The model worked until the investment banks overleveraged themselves. The model itself was not flawed - it simply was stretched to the point that an unanticipated stress in the system snapped it. The investment banks remaining after the Lehman meltdown saw the writing on the wall and realized that in the coming regulatory environment, they were not going to be able to generate the profits they had been used to. So why not poke the taxpayer in the eye and take part in the bailout, and put themselves in position to have their liabilities guaranteed by the FDIC? They did the math and figured out that taking cheap deposits and engaging in reduced investment banking and securities underwriting is the best way to maintaining the maximum level of shareholder value and personal income. The cost of holding additional capital is partially offset by the low cost of attracting deposits and the benefit of FDIC guarantees versus having to purchase their own insurance (in the form of derivatives or bond insurance) on their balance sheets. So GS will buy WaMu or some other regional with a banking license (M&T? Fifth/Third? Wells Fargo?) and become just like Deutsche Bank or UBS in its prime. MS has already sold a share in itself to MUFG, but that is unlikely to be the last chapter.