Larry Beinhart’s Body Politic: Janaury 2012

A Tale of Two Citizens

by Larry Beinhart, December 28, 2011

Morgan Stanley only exists today because of the $10 billion in public money they received via TARP. Last August, Bloomberg News released a story that Morgan Stanley received another $107 billion in secret loans from the Federal Reserve as part of a $1.2 trillion secret slush fund. A later story upped that number to $7.7 trillion. This month, the Levy Economics Institute, based at Bard College, released Working Paper 698, “$29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient.” If you got lost in the zeros, that’s $29 trillion.

Citigroup got the most, Merrill Lynch was second, and Morgan Stanley, in third place, got $2,274,300,000,000 (two trillion, two hundred and seventy-four billion, three hundred million dollars).

Morgan Stanley used to be a financial services company. In 2008 it became a “bank holding company,” a company that owns or controls at least one bank, in order to qualify for bailout money. In 2010 James P. Gorman became CEO.

Gorman had been at Morgan Stanley since 2006, with a variety of executive suite titles. He was high enough up that it’s fair to say that he participated in Morgan Stanley's fiscal meltdown. Henry Paulson, Secretary of the Treasury, desperate for a private company to rescue Morgan Stanley, made a personal overture to JPMorgan Chase. Paulson said, Please, you can have them for free! Zero. For nothing. Just take the damn thing. JPMorgan said no.

Before he came to Morgan Stanley, Gorman was at Merrill Lynch & Co., Inc. From 1999 to 2005, he’d been chief marketing officer, head of corporate acquisitions strategy and research, and president of global private client businesses.

Merrill Lynch was also overexposed and overleveraged. During that crazy weekend when Lehman Brothers went under and AIG got its first big bailout, Ben Bernanke at the Federal Reserve and Paulson at Treasury bribed Bank of America with guarantees to get them to take over Merrill Lynch. When Bank of America waffled, they were threatened with regulatory retaliation.