The great fall in Wall Street and its implications

With the conversion of the two last standing Investment Banking stalwarts in Wall Street - Goldman Sachs and Morgan Stanley into full fledged Banks as opposed to the erstwhile identity of pure Investment Banks, an era has passed. The huge risk taking appetite of these Institutions and their investment products that lured investors from world over to high profits is now history. These Institutions will now on be more regulated, and this would lead to lesser profits and therefore lesser risk to investors.
The latest news shows that bond holders in beleaguered Lehman Brothers are set to lose USD 110 billion - in effect a dollar bond of Lehman trades at 18 cents. Bonds are usually secure debt instrument with underlying assets. However, severe mortgage losses have wiped out most assets of Lehman Brothers which would include, I presume, assets underlying debt instruments.
Risk Management
The big question that one should ask now - what about risk management processes within these venerable Institutions? The failure of Bear Stearns, Lehman and the huge write-offs in other Banks like Citibank, JP Morgan points clearly to a failed system of checks and controls. Whether this was a systemic failure or done purposefully should be a matter of investigation and study. Whilst these Banks / Financial Institutions were primarily answerable to their own investors, the larger picture should have been made available to the Federal Reserve. Obviously, the external auditors to these Institutions were not in a capacity to let off early warning systems of an impending collapse. Therefore all this begs another question - did not Wall Street / Federal Reserve learn from the Enron / Arthur Andersen scandal some years ago? Or, were they (Investment Banks) perceived separately from a Power Company whose business is not risk taking but power production? In any case both resulted in huge destruction of assets of their investors. All this leads to one conclusion - investor protection is nothing but a sham and auditors and risk management systems to oversee investor protection a greater sham.
The real sufferers
If you read the man the once predicted this debacle - "Dr Doom" or the economist Nouriel Roubini, he states that foreign investors who so long trusted the might, wisdom, technology and experience of the "American System" of Investment Banks / Financial Institutions have been badly let down. Their trust would have been severely eroded of the system, having invested heavily into these Institutions. I suppose the Fed bailout would help the perpetrators of this default- management within these Institutions and the mortgage home owners who may now get a reprieve on their home loans!
Lessons learnt and opportunities for India
This has some very pertinent lessons for the Indian investors and Indian Regulators - it is time to abandon the American style thinking on profits. Most of our youngsters who were fresh MBAs from IIMs have been lured in the likes of Lehman Brothers, Goldman Sachs in the past with huge salaries, incentives etc need to understand is that they imbibe the whole culture of reckless abuse of investor funds which is highly dangerous. I believe investors would have become more circumspect of higher profit and the whole nature and attitude of their advisors. This would definitely spawn a new generation of advisors and Institutions who would have to pay a higher premium for use of investor funds. Larger liabilities could befall on those fund managers who have not been circumspect with investor funds. Risk management processes will surely strengthen and investors would want a larger global footprint to invest their hard earned money.
Emerging markets would certainly benefit and more so stable ones. India should profit heavily when once again investor interest gets aroused. Having been singed by their American experience, big time funds from Saudi Arabia, Japan and Europe will seek more Indian funds and Indian investments. However, success will come only if we play the game well - bring more transparency into our investment process and provide a stable platform for investors to put in their money. The Risk Management processes should be defined and audit process more robust. This would bring in higher investor confidence. India requires huge investments in the infrastructure sector and foreign funds would be most welcome to invest into the same provided they invest on long term basis with a hope of stable returns. Indian infrastructure could offer stable returns in response to long term funds - a potential win-win situation. Some guarantees could in thrown in to assuage investor confidence.