As the Chinese say may we live in interesting times. It’s without question interesting times on Wall Street.

Fed backed buyout of Bear Stearns by JP Morgan Chase
Fed Takes Over Freddie Mac and Fannie Mae
Lehman File Bankruptcy
Bank of America Buys Merill Lynch
Fed Takes over and lends 85 Billion to AIG

I certainly have never seen these type of actions unfold over such a short period time. The question is what does this all mean? The most obvious is that alot of people are losing a lot of money. This is true of shareholders (Bear, Lehman, AIG), and investors in general. The stock market is well into Bear territory. Some of the biggest losers are the employees at these firms. Many of them will lose their jobs, a number will lose big bonuses. Bonuses are more often than not paid in stock rather than cash. Those shares are virtually worthless. I’m not feeling too sorry for the fat cats who have profited handsomely in the last few years. However, most employees are not fat cats.

Ultimately the problem with Wall Street has been one asymetrical risk. Too many people on Wall Street are rewarded enormously for taking risk and making money. In the good times, everyone is happy. However, when the times turn sour, these high flying risk takers are left without a job, and forgo some bonus amount, but they still keep the money they earned in the past, nor do they take the losses because they’ve bankrupted the company. Pay packages are great at lining up short term interests, but absolutely awful in lining up long term interest. Someone else is left holding the bag.

I have no complaints about Bernanke or Paulson stepping in and doing what they feel like they need to do. I doubt either relish the idea of the Government effectively nationalizing AIG, but the damage was done much earlier. Regulation has been too slack. None of these financial institutions should’ve been allowed to take the amount risk that they did. That is the great failure.