It’s a cruel twist of irony that the shrewdest operator among (former) broker-dealers -- Goldman Sachs (NYSE:GS) -- now appears to be short of options. That’s the message the market is sending by giving the shares nearly a 20% haircut this month. Goldman’s stock is now trading barely above the closing price the day it went public in May 1999, despite the fact that diluted earnings-per-share have better than tripled in the interim.

It’s a game of banking musical chairs!
That upset comes courtesy of a crisis that has seen Bear Stearns folded into JPMorgan Chase (NYSE:JPM), Lehman Brothers (OTC: LEHMQ.PK) declare bankruptcy, and Merrill Lynch (NYSE:MER) absorbed by Bank of America (NYSE:BAC). It’s a game of banking musical chairs in which Goldman and Morgan Stanley (NYSE:MS) have been caught flat-footed.

Sure, Goldman is now officially a bank holding company, but the designation alone won’t bolster investor confidence. The firm needs long-term deposits to anchor its balance sheet. The trouble is, there are no obvious partners out there for the fourth-largest bank company in the U.S., whether it be buyers or acquisition targets.

Different time, different balance of power
In that context, it’s even worse irony that Goldman had the opportunity to acquire JP Morgan (now JPMorgan Chase) after going public. According to Charles Ellis’ fantastic history of the firm, The Partnership, Goldman’s chief executive quashed the deal -- against the wishes of his top two lieutenants and a majority of the management committee.

The decision-maker? Then-Goldman CEO, now Treasury Secretary Hank Paulson. In his current role, Paulson has effectively presided over a shift away from the investment banking model his firm embodied.

Paulson walked away from the merger because he felt that by combining smarts and access to the capital markets, Goldman could always outdo JPMorgan, its bigger balance sheet notwithstanding. It looks increasingly like that judgment could be another victim of the great banking crisis of 2008.

More Foolishness:

Alex Dumortier, CFA has no beneficial interest in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor selections. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.