Financial Sector: What You Need to Know

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After a historic week, the financial sector continues its rapid evolution.

Get up to the speed with

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From

Goldman, Morgan Stanley Become Bank Holding Companies

:

The

Federal Reserve

Sunday announced that

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

would transform themselves from investment banks into traditional bank holding companies.

The Fed's announcement comes after a stunning week in which a financial cataclysm changed the landscape of Wall Street, making large, independent investment banks an endangered species. The crisis forced the closing of

Lehman Brothers

and the sale of

Merrill Lynch

(MER)

to

Bank of America

(BAC) - Get Report

, and sent Morgan Stanley scrambling to find a partner.

By becoming bank holding companies, Morgan Stanley and Goldman will come under the scrutiny of national banking regulators and will be subject to new capital requirements,

The Wall Street Journal

noted.

In order to provide increased liquidity to Goldman and Morgan Stanley while they make the transition to a new structure, the Fed said it would extend credit to the two firms' broker-dealer subsidiaries against a wide range of collateral.

In addition, the Fed will make such credit available to Merrill Lynch.

The Fed's decision allows Morgan Stanley and Goldman to set up commercial bank subsidiaries to take deposits, and gives them the same access as other commercial banks to the Fed's emergency loan program.

Read the full version of

Goldman, Morgan Stanley Become Bank Holding Companies

.

Plus, don't miss:

Mutual Funds: The Case of Merrill Lynch

(Merrill Lynch's willingness to adjust with investment trends has kept its brokerage business a major player in the mutual fund business.),

Why I Dumped Bank of America

(Not just because 'big mergers don't work,' but also because of common sense.) and

Merrill Brings a Lot of Baggage to BofA

(Bank of America's $44 billion acquisition of Merrill Lynch sets up a financial powerhouse like no other -- if CEO Ken Lewis can make it work.).

From

Cramer: Goldman, Morgan Better Off

(Video, Sept. 22):

Jim Cramer: "They

Goldman Sachs were saying is, 'We have more capital than any of the

Citis

(C) - Get Report

or

JP Morgans

(JPM) - Get Report

... But we have this problem: We're a prime brokerage -- people are pulling their money out... If every single hedge fund that has money at Goldman has to pull it out all at once, Goldman doesn't have that money. It's invested. But now they can just go to the Fed... Goldman Sachs had the lowest

multiple

of any financial...

Wells Fargo

(WFC) - Get Report

and

USB

(USB) - Get Report

... were selling at 16, 17 times earnings... No one's going to pay up for a trading revenue versus a deposit revenue... So the idea is, Goldman can now get a Wells Fargo multiple, which would put the stock dramatically higher."

To watch the video, click the player below:

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Plus, don't miss

Jim Cramer's 'Stop Trading!': Goldman Is Best in Show

.

From

The Death of the Investment Bank

:

Once vital cogs in global finance, investment banks like Goldman, Morgan Stanley -- and recently defunct firms like

Bear Stearns

and Lehman Brothers -- were brokers in prestige and capital. Most companies could not finance their business without them.

That isn't the case anymore. Corporate powerhouses like

Microsoft

(MSFT) - Get Report

and

Google

(GOOG) - Get Report

command enough capital and clout to leave investment banks struggling for relevancy.

"What are investment banks doing for the economy?" asks author and historian Ron Chernow, who wrote

House of Morgan

, the definitive history of J.P. Morgan banking dynasty. "In recent years investment banks have become more like corporate versions of hedge funds. Instead of being providers of capital they are managers of capital or even users of capital. When an investment bank is leveraged 35 times, it's more a debtor than a creditor. The history of Wall Street has been stood on its head in recent years."

Read the full version of

The Death of the Investment Bank

.

From

Mitsubishi UFJ to Buy Morgan Stanley Stake

:

In a company statement,

Mitsubishi

(MTU)

said it would acquire 10% to 20% of Morgan Stanley "as soon as practicable." The statement did not disclose a sale price of the stake, but said the agreement would allow it to appoint one director to Morgan Stanley's board.

Read the full version of

Mitsubishi UFJ to Buy Morgan Stanley Stake

.

From

WaMu in a Free Fall as It Seeks a Buyer

:

Like

Wachovia

(WB) - Get Report

, a major stumbling block for a sale is

WaMu's

(WM) - Get Report

exposure to troubled mortgages and, increasingly, to credit card defaults. The company has said that it expects cumulative losses on its assets to reach $19 billion but some analysts say it could go higher.

Read the full version of

WaMu in a Free Fall as It Seeks a Buyer

.

From

Here's What We Should Do With the Banks

:

The optimum solution for the plan is to have every bank split into good and bad banks, a la Wachovia. I

Jim Cramer believe there are many people in the private sector who would love to have a stake in these bad banks, because so many of them can come back if we get house price depreciation to subside.

Because many of the banks and enterprises that had to sell these have been saved or wiped out... or been allowed to merge... Others such as Bank of America have already written many of the assets down. They can write them up if the

Resolution Mortgage Trust

pays high enough.

Once the banks are split into good and bad, if the government buys a stake and the private sector buys a stake, then the good bank will not have capital problems and the bad bank represents a great capitalist opportunity to bet on a recovery that the Housing Index (HGX) says is about to happen.

Read the full version

Here's What We Should Do With the Banks

.

Plus, don't miss

Cramer: A Way Out of This Mess

(Video, Sept. 22). To watch the video, click the player below:

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From

Kass: Wall Street Has Sold Out America

:

It will take years, not months, for the world's economies and financial system to adjust and normalize to more reasonable levels of risk taking.

There will be more casualties.

Today, I direct my energies toward exposing the true culprit -- namely, the Wall Street firms and their executives.

Aggressive use of leverage, the risks associated with short-term funding (and long-term lending) of brokerage balance sheets and the subpar level of secular profitability (return on assets) on Wall Street have combined to expose an over-rated industry whose engineers -- namely, a small cabal of the firms' traders and executives -- bear full responsibility for the credit fiasco and it's economic ramifications.

It was an accident waiting to happen.

Read the full version of

Kass: Wall Street Has Sold Out America

.

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Financial Services section

.

This article was written by a staff member of TheStreet.com.