Top investment banks by dint in part of their strong capital bases have not generally raised concerns by the big debt raters. While their CDS spreads have soared, none have been downgraded. Morgan Stanley even earned an upgrade. But a mere change in outlook by S&P about Bear Stearns has provoked quite a response. S&P had upgraded Bear as recently as October. No one expects the top banks to experience any serious trouble here. My take is that any loans they are forced to eat can be moved with sweetened terms. Just look at Chrysler. We're assuming that warehouse lines to CDO packagers have been reduced as has lending to credit-oriented hedge funds. So I think we're seeing more fear about the banks than is warranted. S&P has pointed out that there is slightly more risk over the next two years, but not a lot--that stems from Bear's relatively small capital base and not as well diversified revenues. The top banks are in even better shape.

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