Circular Strategy

WASHINGTON, September 23, 2008 (AFP) – The conversion of Goldman Sachs and Morgan Stanley to regulated commercial banks marks the end of an era of independent Wall Street investment firms and a separation in the industry since the 1930s.

The change, announced late Sunday by the Federal Reserve, closes the door on the last two major Wall Street firms as independent, largely unregulated entities.

The two firms will easier access to credit and help them ride out the financial crisis. But their conversion also ends an era of clubby and massively profitable “white shoe” investment firms operating on Wall Street.

The announcement completes an overhaul of the structure of the banking industry, which had been broken up in the 1930s into commercial and investment banks under the Glass Steagall Act, to help restore confidence in the Great Depression.

“This is really the end of Wall Street as we have known it for decades if not for a century,” said Nouriel Roubini, a New York University economist who has argued that the Wall Street firms were part of an unregulated “shadow banking system” that led to speculative market excesses.

“Two decades of development of the shadow banking system — as a way to arbitrage the tighter reg