AIG, Morgan Stanley and The Future Of The Financials

AIG caught a $90 billion bailout. Morgan Stanley is now pondering a possible hookup with a deep pocket bank (are there any deep pocket banks left?)There appears to be a change developing. It’s almost as if Paulson called John Macke and said “hey dude, if there is any more junk or bad news under your sheets, fix it, because there will be no more juice from the Fed.”

A couple of weeks ago Nouriel Roubini mentioned that MER and GS would not exist as public entities in a year and that a few more banks would go under. Well MER is gone and it looks like MS is taking the cue. We will see how this one unfolds. In this new world, it’s becoming obvious that the brokers will need capital to not only compete, but survive.

One thing for sure, if AIG didn’t get a life preserver, the DOW would probably have tagged 10000 and quick. Today’s direction will be decided by interpretation, everyone needs to process and synthesize this news flow. Will they view it as a potential bottom in the financials or just a final admission that things will only get much worse? We’ll know at 4pm.

P.S. I’m glad Barclay came in and saved some Lehman jobs.

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