Morgan Stanley is a criminal enterprise

Well, not literally, since what they are doing is not illegal (probably).  But it ought to be.

The average employee at Morgan Stanley is taking home $262,000 in salary and bonuses this year.  I can find lots of articles saying that the bonus pool has been “reduced by 50 percent” from last year; these articles are regurgitating one of MS’s press releases.  But none of them mention how much that is in raw numbers.  I had to do some more searching to learn that the 2007 bonus pool was $16.6 billion, which means — please check my math here — that the 2008 bonus pool is roughly $8.3 billion.

Morgan Stanley received $10 billion in TARP money.

However, this is all old news. There is a more recent story which I think deserves more play.

The Federal Reserve is not the only government entity engaging in unprecedented actions to prop up banks.  Back in October, the FDIC also announced a program to guarantee bonds issued by banks.

“The FDIC is taking this unprecedented action because we have faith in our economy, our country, and our banking system,” said FDIC Chairman Sheila C. Bair. “The overwhelming majority of banks are strong, safe, and sound. A lack of confidence is driving the current turmoil, and it is this lack of confidence that these guarantees are designed to address.”

Under the plan, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. This includes promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage would be limited to June 30, 2012, even if the maturity exceeds that date.

Note the phrase “newly issued”, and keep it in mind.

In short, the FDIC is allowing commercial banks to issue debt backed by the full faith and credit of the United States of America.  (Yes, I am aware the FDIC is technically self-funding, but everybody knows it could never be allowed to fail.)  As you might recall, Goldman Sachs and Morgan Stanley have transformed themselves into “ordinary” commercial banks.   Are they taking advantage of this new FDIC program?  You bet your sweet bottle service they are.

JPMorgan, Morgan Stanley Lead FDIC-Backed Bond Sales

Morgan Stanley, the second-largest U.S. securities firm before converting to a bank in September, sold $2.25 billion of two-year, 2.9 percent notes that priced to yield 180 basis points more than Treasuries, and $2.5 billion of three-year, 3.25 percent notes at a spread of 186 basis points.

And what is Morgan Stanley doing with that government-guaranteed low-interest loan?  Why, repurchasing their existing debt, of course.

Dec. 17 (Bloomberg) — Morgan Stanley repurchased $12.3 billion of its own bonds in the past three months “at incredibly distressed levels” to try to limit the declines as investors became concerned about the company’s credit quality.

Behold your tax dollars at work.  And we are barely one year into this thing.

2 comments to Morgan Stanley is a criminal enterprise

  • snoopy

    Nice investigative work Nemo. I think we’re going to find more and more stuff like this come to light. Sometimes, I think the Marc Faber implosion scenario might not be all that bad. It would let us start over with a clean slate and hopefully a return to honesty. As of now, I feel I should not have to do any more than twiddle my thumbs in order to earn my salary…I should be having to go through all the stress/sacrifice to make fewer bucks than the clowns on wally st.

  • snoopy

    “I should be having…” -> “I should not be having…”

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