Goldman, Morgan Stanley abandon investment banking model

Mon Sep 22, 2008 5:31am EDT
By Kevin Drawbaugh and Mark Felsenthal

WASHINGTON (Reuters) – Goldman Sachs and Morgan Stanley sought shelter with the Federal Reserve to survive a financial storm that has destroyed their rivals, effectively killing off the Wall Street investment banking model of the past two decades.

The move is Washington’s latest effort to restore calm to chaotic markets and follows frantic talks between the Bush administration and Congress on a $700 billion bailout to prevent the crisis from pushing the economy into severe recession.

By agreeing to much tighter Fed regulation as bank holding companies, Goldman and Morgan Stanley moved to avoid the fate of rivals that either collapsed or were taken over in the worst financial crisis to sweep Wall Street since the Great Depression.