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Morgan Stanley is in pretty bad shape. Any company with exposure to sub-prime lending products could easily fail. Any company that is active in the credit-default swaps and collateralized-debt obligation markets is very exposed.


I think that's an overstatement. There's a winner and a loser in every derivative, it just happens to be the counterparties right now. Every bank has some type of real estate portfolio stress, but only 7 have failed this year. Compare that with 7,000 that failed in the early 1990s.

Dick Kovacevich rightly said that this was the first bank panic that has been caused by itself. Restrict lending practices (let's face it--not everyone deserves to live in a SFR), curb naked short-selling and allow more banks and investment managers to merge so they don't try and get into each other's panties.



Yeah, I should have been a little more clear. Not every F.I. that has any exposure to mortgage-based derivatives and sub-prime mortgages is going to fail. However, we are talking about massive exposure by some of the largest F.I.'s in the country. The 7000 banks that failed in the 90s were mostly regional and local banks. Now, we are talking about a huge shakeout on Wall St., not Main St.

Your words concerning shorting are prophetic. I see that the SEC banned shorting last night. I'm not sure I like the ban. I've always thought short-selling helped bring efficiency and necessary risk management to the markets. Conditions now are very unusual, so it might be the right call.

It is too bad that many potential saviors are unable to intervene as Barclay's and BofA have done. Private equity firms should be able to step in with their deep pockets and make acquisitions of banks, but as you know, if you acquire more than 25% of a bank, you are subject to banking regulations. No PE firm is crazy enough to put themselves in that position.
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"Offer them what they secretly want and they of course immediately become panic-stricken."