(Source: Business Wire)Introducing a blueprint for the future of investment banking, TABB Group's founder and CEO Larry Tabb, the financial markets veteran industry analyst and author of "The Future of Investment Banking: Subprime and Its Impact on the Industry," published today, says that "the subprime crisis needs to be put into a more immediate perspective so banks, brokers, industry executives and the entire financial services ecosystem can begin adjusting their business models, support systems and strategies to react to the massive changes affecting the financial markets." He cautions, however, that regulators and legislators must also put these issues into perspective as they begin to implement changes that may inadvertently do more harm that good.

Moving through a statistical, forensic examination of how the subprime crisis was built on greed, not corruption, he describes in detail government initiatives, historically low interest rates, misaligned incentives, poor corporate governance structures, incorrect pricing of risk, an incomplete understanding of risk management, conflicts of interest and faulty securitization theories compounded by a faltering US economy. Pressure to make quarterly earnings forecasts put pressure on banks to keep these structures flowing, with risk managers unable to stop the runaway train, he says. "Who was going to tell the CEO to stop the goose from laying the golden eggs?"

While blame may be cathartic - Tabb says there is at least $840 billion of blame to go around - the real question is, what is next? With the independent investment-banking model temporarily on the shelf, once the markets stabilize, commercial banks, including Morgan Stanley and Goldman Sachs, now drawing on deposits and savings accounts as cheap money funding sources, will be forced by regulators, legislators and boards to become more conservative. Risk and compensation levels will drop and the more highly compensated and risk-tolerant people will leave, setting up or joining the investment banks of the future, which, says Tabb, will be structured as partnerships, be more adroit and nimble and take on much of the risky aspects of the traditional investment banks of the past.