Five years ago, on September 21, 2008, the Federal Reserve Board of governors approved a document that was then signed by the Deputy Secretary of the Board that changed the legal status of Goldman Sachs and Morgan Stanley from investment firms into bank holding companies. Why? Because that made it easier to bail them out. Banks can access the Fed’s so-called “discount window.” That’s essentially a free- or low-interest credit card with no credit limit. (We should all have one; for example, Sen. Elizabeth Warren (D-Mass) introduced legislation giving college students access to the discount window.)
When they were investment firms, Goldman Sachs and Morgan Stanley could own anything they chose — buildings, power plants, aluminum cans, a casino or two — and they actually own all of that … stuff.
But bank holding companies cannot legally own stuff. That’s due to the cornerstone principle of American banking: Banking and commerce shall not mix. More