The death the the US investment bank is greatly exaggerated, says Lynn Carpenter in Investor’s Daily Edge. Raymond James (NYSE:RFJ), Piper Jaffray (NYSE:PJC), Canaccord Adams are still in business. Some of the others didn’t really disappear. They’re either now paired with a commercial bank, like Merrill Lynch (NYSE:MER) or have turned themselves over the the Fed for regulation, like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). This, says Lynn is no bad thing…

This pairing is great for stability. Commercial banks take deposits and make loans. They have a capital base to offset the riskier stuff that goes on in investment banks that underwrite securities and engage in trading.

The pairing also brings these investment banks within commercial banks and insurance companies under Federal Reserve regulation. That’s very good. The Fed sets capital requirements that limit how much risk a bank can take. Had these rules, or even some slightly more generous version, applied to investment banks like Lehman Brothers (OTC:LEHMQ), they would not have taken on so much risk that they destroyed themselves in the process.

Don’t count me among the totally anti-regulation crowd. It’s true that sometimes government interference strikes me as particularly stupid. The current ban on short selling is a perfect case in point. But the day-to-day guidelines that keep rogue traders within bounds are useful.

It comes down to this: when a business is so big that the government needs to step in if it fails, then that business should be monitored and held to sensible standards before it takes itself to the destruction point.

Leaving a business alone to do anything it wants and get into as much trouble as it desires then standing ready to bail it out is about as wise as handing your 16-year-old hothead the keys to the Porsche and your credit card and telling him there’s no curfew, either.

Source: The Keys to the Porsche Should Come with Limits

Last 5 posts by Lynn Carpenter

• Going Against the Evidence - Who Says Stocks Make Money? - January 23rd, 2009
• Treat Small-Caps With Extreme Care - January 16th, 2009
• A Cheap Luxury for a Dreary Economy (SBUX) - December 19th, 2008
• A Consumer Economy Can’t Run Without Its Consumers - December 5th, 2008
• What You Need To Know About Corporate Pension Plans - November 13th, 2008