Tags: Alan | Greenberg

Greenberg: Wall Street is Dead

Thursday, 11 Dec 2008 04:26 PM

By Julie Crawshaw

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Former Bear Stearns CEO Alan "Ace" Greenberg says the investment-banking model he helped pioneer is defunct and that Wall Street is dead.

"That model just doesn't work, because it's at the mercy of rumors," Greenberg told Bloomberg. "Rumors can start and turn into a self-fulfilling prophecy."

Rumors, Greenberg notes, are what prompted a run on Bear Stearns following the collapse of two of its hedge funds. Rumors also encouraged short-sellers to beat down the stocks of Lehman, Merrill, and Morgan Stanley as worries about mortgage-backed securities escalated.

Greenberg, who is now approaching his 61st year on Wall Street, says he's "never seen anything close" to the current economic decline and turmoil in the financial markets.

Greenberg, who led Bear Stearns from 1978 to 1993, predicted that the investment firms most likely to survive the current financial crisis are those that specialize in advising on mergers and acquisitions because demand for independent opinions is growing.

Wall Street banks are now eliminating tens of thousands of jobs in the most drastic financial sector downsizing since the Great Depression.

"There was no reason for the industry to grow as fast as it did," says NYU finance professor Thomas Philippon. "The fundamentals just weren't there."

Philippon's models show the financial sector will shrink to around 7 percent of gross domestic product, ridding itself of $100 billion in annual wage costs along the way.

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