What a wild two weeks it's been!

The United States financial crisis has caught the attention of just about everyone around the world. The effect it's having on the global economic picture is truly astounding. And it will definitely go down in the history books as one of the worst financial crises of all time.

First, rewind and take a look at last week: In the first three trading days of the week, the global financial system was threatened by the collapse of investment bank Lehman Brothers, the possible collapse of insurance giant American International Group (AIG) and the poor financial condition of former Wall Street giants Merrill Lynch and Citigroup.

While all of these events are detrimental to the financial system, the situation at AIG had me worried the most. With over $1 trillion on its balance sheet, AIG was a key player in the credit default swap (CDS) market, and it's the largest insurance company in the world. So if it failed, a domino effect of failing financial institutions would ensue, putting the global financial system on the brink of collapse.

Thankfully, the Treasury Department and Federal Reserve stepped in, recognizing the systematic risk and bailing out the world's largest insurer with an $85 billion bridge loan (see also, "Profit from the Market Meltdown").

While AIG was spared a complete collapse, the events of last week took their toll on the global markets. Volatile is the only way to describe the drastic swings higher and lower. And unfortunately, I don't think we'll see the end of this volatility any time soon.

A Historic End to Wall Street

Now fast forward to this week. After last week's events, investment banking giants Morgan Stanley and Goldman Sachs found their shares under pressure. So on Sunday night, both concluded there was no future in investment banks, and with the Federal Reserve's approval, Morgan Stanley and Goldman Sachs became banks (see also, "Time to Buy Goldman and Morgan?").

In additions, the Fed increased these financial institutions ability to take out direct loans from the central bank and to be more flexible in account for some assets. The Fed noted that this ability to access direct loans will "provide increased liquidity to support these firms as they transition to managing their funding within a bank holding company structure."

While the Fed's decision saved these two securities from demise, it also marked the historic end of Wall Street. That's because Morgan Stanley and Goldman Sachs were risk-takers, and now that they are bank holding companies, the two firms will no longer be able to take the same level of risk as they had in the past. That means the profitability of these two firms will likely decrease.

The survival of Morgan Stanley and Goldman Sachs is critical to the stability of the global financial system and stock markets everywhere. Without their influence, we cannot have a major stock market rally. But now that both appear back on a path towards a more successful future, we're likely to see more market improvements in the weeks to come (see also, "Why the Treasury Hit the "Reset" Button").

I actually think things are looking up already…