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The Wall Street Journal reported Sunday night that Goldman Sachs (GS) and Morgan Stanley (MS) must abandon their independent brokerage status and become traditional bank holding companies. When the two most profitable and renowned investment banks on Wall Street are forced to abandon their business model, you know the Golden Age of Wall Street is over.

The independent brokerages have enjoyed exorbitant profits over the past couple decades by employing huge amounts of leverage and little deposits to show for it. They will now have to answer to the Federal Reserve, meet their requirements, and accept that they might never make the same type of profits that they enjoyed for so many years.

Although it is sad to see icons of American capitalism fall to their knees, this is all a part of the risk-return game that the markets are all about. They took too much risk on top of too much debt, and they are now paying dearly for the risks they took.

Bear Stearns collapsed, Lehman went bankrupt, and Merrill Lynch was bought by Bank of America all within the past year. With Goldman Sachs and Morgan Stanley leaving their brokerage model, there is no big independent left for Wall Street.

Whatever happened to risk management? Whatever happened to liquidity and solvency?

Surely these firms employed some of the most intelligent people in the US; some of them knew that their companies were walking a tight rope that may have been frayed. What will happen to New York (the financial capital of the world?)? And will there be a Wall Street comeback in the future, or was this truly the end of a Golden Age?





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