Goldman Sachs and Morgan Stanley are now banks

Here's the news release:

The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.

To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.
http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm

Goldman's Chairman, Lloyd Blankfein had this to say:

“While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,” Lloyd C. Blankfein, Goldman Sachs’s chairman and chief executive, said in a statement Sunday night. “We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources.”
http://dealbook.blogs.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies/?hp

At least he said "will be regarded." If their Level 3 assets weren't toxic but "exceptionally clean" they wouldn't have started the raid on Goldman, and the Federal Reserve wouldn't have acted so quickly. Just last week, Goldman Sachs said they weren't looking to buy a bank. Now they've become a bank. The Fed found the way for Morgan Stanley and Goldman Sachs to get the benefit of bank funding, without buying a bank, and keeping their assets in the dark.

Last week, Secretary of the Treasury Paulson said the banking system was sound. It's so sound we were days away from a financial meltdown. It's so sound that we need to jam this $700 billion stimulus bill through Congress yesterday. A bill, that doesn't create any jobs.

Monetizing the debt, instead of marginalizing it. You could give forbearance on mortgages, cut the principle and the rate, and start an economic boom with an infrastructure and alternative energy platform. We could do that if our banking system was fundamentally sound.

So we take the $700 billion plan because we don't have a choice. Does anybody really think that Goldman or Morgan Stanley wanted to become a bank? Did they have a choice?

Showing on Wall Street it's better to get scrutiny from the Fed than from shortsellers!