Burning the Village in order to save it?

The WSJ has a strong Op-Ed piece this morning that takes a look at Federal tactics used to force BofA to complete the Merrill acquisition last December. They look at the BofA case and see Paulson and Bernanke forcing Ken Lewis to "blow up" Bank of America (maybe this is how Lewis earned his "mulligan" while Rick Wagoner caught one between the eyes...). Spreading systemic risk in the name of containing it....ordering the deception of shareholders, killing financial confidence in the name of restoring it...The Journal appears sympathetic to BofA and goes on to say that the Merrill-related bullying fundamentally increased systemic risk by "transplanting" risk from a Wall Street brokerage to one of the country's largest deposit-taking institutions. In addition, the WSJ states that Bernanke and Paulson undermined the transparency so vital to investor confidence in the capital markets. The collateral damage here seems to be the lukewarm response from most of the investor community and Wall Street to the latest federal initiatives like TALF and PPIP...For Caroline Baum's take on the same, check this out.

Here's word that Goldman Sachs is increasing risk taking at the fastest pace on the street. This should not be that surprising, although given Morgan Stanley's apparent pullback in risk taking, it is important. According to Bloomberg News, Goldman's VaR jumped 22% to $240 million in the 1st quarter - 2x that of Morgan Stanley. Consequently, GS reported 1st Quarter revenue of $9.4B to MS reporting $3.04B.

While the NYT reports Wall Street is unfazed by stress test details, many investors are simply waiting for the results to be released on May 4. Get the Fed white paper disclosing the stress test methodology at GlobalRiskJobs.