How the Mighty Have Fallen

This past week events on Wall Street were even more surreal. After deliberations over the weekend, last Monday Goldman Sachs and Morgan Stanley, the last two of the major independent investment banks, agreed to become bank holding companies. Their new status will give them greater stability, but will subject them to much tighter regulation and governmental oversight. The bulge-bracket firms folded under their own weight (or lack thereof).

Then on Thursday Washington Mutual became the latest victim of the crisis. The bank (known for its significant sub-prime mortgage portfolio) was seized by the federal government and then sold to JPMorgan Chase. This is the largest bank failure in America to date. While people were trying to digest the latest developments, Secretary Paulson was pushing for the adoption of a $700 billion rescue package for the industry (and the country and the world). The mood in DC and New York was getting panicky and all sides seemed to get behind the "appropriately" named bailout plan on which Hank Paulson, the Bush administration and Congress were working tirelessly. Even both presidential hopefuls, Barack Obama and John McCain, agreed that the bailout plan (as it became known) should be approved at least after being worked on in Congress for a few days. And when everybody thought that an agreement was reached and something resembling a plan will be implemented - the House sent a clear message to Wall Street - Drop Dead. Another black Monday was on the books after the markets took a dive and the Dow recorded its biggest point drop in its history (though not the biggest percentage decline).

So, let me recap: within a single week the last two big investment banks were no more, the US recorded its biggest bank failure and its biggest stock market dive. Seismic events, indeed. I hope that both Barack Obama and John McCain have not only the brains, but also the guts and the stamina for what is in store for the one that gets elected. This ship is taking on some water.