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Wall Street's $70 Billion Facade

Alex Dumortier, CFA
September 16, 2008

This is the best they could come up with? In the wake of Lehman Brothers' (NYSE: LEH  ) failure this weekend, 10 major banks, including the remaining investment banks (Goldman Sachs (NYSE: GS  ) , Morgan Stanley (NYSE: MS  ) , and Merrill Lynch (NYSE: MER  ) ), are creating a $70 billion fund that any one of the participants can borrow from in a crunch.

A purely symbolic gesture?
This industry initiative complements the Federal Reserve's decision to expand its funding facilities (the Fed has broadened the types of collateral it will accept to include equities!). However, it looks to me like a hastily crafted, symbolic action as a show of bankers' will to restore order to the industry.

First, despite what Nouriel Roubini thinks, I don't think that Goldman and Morgan Stanley will suffer the same loss of confidence that toppled Bear and Lehman and pushed Merrill into the arms of Bank of Amer