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A Weak Wall Street Won't Forget

Sorry, got a little swept up in Deutsche Boerse AG’s looming acquisition of the New York Stock Exchange. What I meant to say in English was that it was a week Wall Street won’t soon forget.

Das exchange?

From potential exchange mergers to the Treasury Department’s long-awaited report on Fannie Mae /quotes/comstock/11k!fnma (FNMA 0.59, +0.01, +1.21%) and Freddie Mac /quotes/comstock/11k!fmcc (FMCC 0.61, +0.01, +1.24%) , don’t be surprised if the past seven days are remembered as a pivotal point in the history of Wall Street, a watershed moment when the last ebbs of the financial crisis receded behind a new wave of speculation and exuberance.

It began Feb. 9, when the market was still digesting a $3.2 billion merger announcement by the London Stock Exchange /quotes/comstock/23s!e:lse (UK:LSE 904.50, -0.50, -0.06%) and Toronto Stock Exchange /quotes/comstock/11t!e:x (CA:X 41.04, +0.03, +0.07%) .

Not to be outdone, the Deutsche Boerse /quotes/comstock/11e!fdb1 (DE:DB1 56.90, +0.19, +0.34%) said it was in talks to take a majority stake in NYSE Euronext Inc. /quotes/comstock/13*!nyx/quotes/nls/nyx (NYX 36.70, -1.09, -2.88%) .

/quotes/comstock/13*!nyx/quotes/nls/nyx NYX 36.70, -1.09, -2.88%
/quotes/comstock/11i!dboey DBOEY 7.77, -0.07, -0.89%

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The NYSE deal is more than a blow to our collective national pride. It reflects the stock exchange’s inability to modernize and capture the higher premium derivatives trading that has fueled growth at the German exchange and at smaller U.S. rivals, including CME Group Inc. /quotes/comstock/15*!cme/quotes/nls/cme (CME 298.24, -4.60, -1.52%) and CBOE Holdings Inc. /quotes/comstock/15*!cboe/quotes/nls/cboe (CBOE 26.08, -1.03, -3.80%) .

On the macro level, the deal reflects a turning of the tide in terms of financial might. Europe, especially Germany, is ascendant, while U.S. financial prowess is no longer the gold standard.

It’s not a stretch to see how the financial crisis set the stage for this deal. Battered U.S. companies lost trillions in value during the crisis. NYSE shares fell 50% since the start of 2008, while Deutsche Boerse shares held even.

The NYSE, without the muscle of a strong stock price, became an involuntary target, much like Anheuser-Busch succumbing to InBev’s /quotes/comstock/13*!bud/quotes/nls/bud (BUD 54.68, -0.22, -0.40%) overtures in 2008. Stock Market Forum

The end of homeownership for all

Two days later, the Treasury Department unveiled a white paper that aimed to tackle a lingering problem from that crisis: Fannie Mae and Freddie Mac, the government-sponsored entities that have absorbed $151 billion in taxpayer dollars, easily the lion’s share of losses from the $560 billion paid out in bailouts. (Banks have returned $235 billion.)

The Treasury has proposed winding down Fannie and Freddie and returning the business of home loans to banks and private investors, a process that could take several years.

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Losing Fannie’s and Freddie’s appetite for mortgages will also change the loan market in two ways. First, it will make big banks even more essential to the financial system — in other words: bigger when it comes to too-big-to-fail. Second, mortgages will become more expensive and harder to come by for many borrowers.

The second part is a game-changer. Losing government support of the mortgage markets reverses a half-century of Washington policy that began with post-World War II efforts to make homeownership accessible.

Again, it’s the public paying for the sins of big finance.

Nothing new there, but the loss of an American financial icon and the promise of homeownership for almost everyone? That’s history, folks.

It’s true that the past three years have presented us a lot of history. But the end of U.S. supremacy in the financial world, as the NYSE deal codifies, and the Treasury’s admission in calling government support of the mortgage markets a failed experiment — those are two seismic events that will reshape how the world sees us and how we see ourselves.

American financial might is being supplanted by Europe and China. The coming American generations will lose the benefits their predecessors enjoyed.

It all happened this week when we kissed it auf wiedersehen.

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