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Is Goldman Sachs (NYSE: GS) And Morgan Stanley (NYSE:MS) Next?

What in the world went on yesterday? It doesn’t look like it’s getting any better in the finance sector. As a matter of fact, it looks like it’s going to get much worse. Goldman Sachs closed Wednesday at $107.89, which is a price I thought that I would never see again. They are the leader in the industry, but obviously they can’t escape the credit crisis even with the decent earnings report that came out this week. As for Morgan Stanley, what happened yesterday was just a continuation of the trouble that stock has seen throughout this year. Morgan Stanley closed Wednesday at $21.75, which is 50% down from where they were in May of this year.
This is in part of the fact that the Feds stepped in to save AIG and many investors are dumping any stocks now that may seem vulnerable. Both companies rely on the confidence of other financial institutions staying open for business. No one is trusting that any financial company will be able to survive this turmoil.
Of course others believe that there are other factors involved. It’s being reported that John Mack, the CEO of Morgan Stanley has sent an internal memo to the firm’s staff blaming short sellers for the drop in the stock price.
“You should know that the management committee and I are taking every step possible to stop this irresponsible action in the market,” Mack wrote. “We have talked to Secretary [Hank] Paulson and the Treasury. We have talked to Chairman [Christopher] Cox and the SEC. We also are communicating aggressively with our long-term shareholders, our counterparties and our clients. I would encourage all of you to communicate with your clients as well — and make sure they know about our strong performance and strong capital position.”
What is Paulson and Cox going to do about this issue that they didn’t have the chance to do months ago. They had the chance to pull in the reigns on short selling and decided to look the other way. I believe that the letters will fall on deaf ears.

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