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Tuesday, September 30, 2008

Investment bank and more on bailout

The Federal Reserve announced that it granted permission for Goldman Sachs and Morgan Stanley, the last two major investment banks to become the bank holding companies in order to stay in business. This will help the company avoid the fates of Bear Stearns, Lehman Brothers and Merrill Lynch by giving them broader access to borrow federal money and the ability to build a stable base of deposits. The tighter regulations that will help reshape Wall Street, the two companies will have access to more federal money to shore up their global operations.

Prior to the creation of the Federal Reserve, banks could only lend what they had. In fact that they had limited, such as gold and would only invest so much of it just to keep the risk behavior minimized. The governments are interfering in the free market for a long time and it is been downhill since. The free market is adjusting and would use the opportunity to clean the companies that has less capable out of the industry and leaving the good and solid companies. Investors trusted Goldman to make the right choices and then found that it had make less severe but still terrible investments. Morgan Stanley also are agree to sell 20 percent stake in itself to Japan’s biggest bank for about $8 billion. During the past nine months Morgan Stanley’s profit also fell 41 percent compared with the same period last year. Goldman and Morgan are extremely important participants in the U.S and global financial markets and it is very important for them to remain in the future.

As a college student, I wish that the Fed would step in to make college education free or at least cheaper, using some of that $700 billion for higher education. Many of us college students don’t have to put such a weight of debt after we graduate from college. Better educated students are more likely to engage in professional activities with benefits that are not fully compensated by the market. The positive externalities of higher education are smaller and more elusive. If there are no externalities, people have to accept the idea that the increase in productivity resulting from higher education is reflected in such as wages. We are all affected not only by the level of quality of our own education but also by those around us that can communicated and work more effectively if they are well-educated.


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