The old model for Finance is dead

The collapse of this twenty-five year credit bubble made 2008 a year for the history books. I never thought I would see the day when the likes of Citigroup, AIG, Royal Bank of Scotland, UBS and B of A, the biggest names in the banking world, had to be bailed out by their respective governments and partially nationalized – to forestall collapse.
I never thought I would see the likes of Merrill Lynch, Wachovia, Washington Mutual, and Countrywide Mortgage, all huge financial institutions, being forced to sell to forestall bankruptcy. In particular, the five big investment banking firms in New York, which a year ago had total assets of $4.2 trillion, blew themselves out of the water.
- Bear Stearns, with total assets of $350 billion, forced to sell out for a pittance and Lehman, with assets of $700 billion, bankrupt.
- Merrill forced to sell to Bank of America which over-reached itself and is now in trouble.
- Morgan Stanley and Goldman forced to raise equity at distress prices and convert to bank holding companies to get federal aid.
For these five big investment banks, this has been a complete and unmitigated self-inflicted disaster.
As I said in my book, Money Magnet, the old model of investment banking for these five big firms on Wall Street is dead. The new era will have private equity race ahead with its focus on relationships and its manageable size.