Wednesday, September 17, 2008
Relentless Assault on GS and MS
The assault on GS and MS is relentless. CDS up sharply. Stocks getting hammered. The perception in the market is that counterparties are now questioning whether they want to have their trades with highly leveraged investment banks that require access to the short-term funding markets in order to meet their obligations. This is a huge reversal in sentiment as GS was seen a bullet proof on the counterparty risk side (GS is probvably still bullet proof but perception is always reality in situations like this). Put simply, this is all rumor and conjecture. Nobody seems to have any facts. Is there really any concrete evidence of counterparties pulling business away from GS or MER and sending it to a commercial bank because of the stable depositor base? GS and MS management are in a trap here because of the precedent established by BSC's (and FNM, FRE, AIG, ect) failure to calm the markets. GS and MS are going to need to defend their business models at some point if the carnage continues. This is nuts - the market (or government as a colleague just noted)is in the process of forcing these two companies to do deals with commercial banks.