Comments on: Morgan Stanley Stock Hammered; Firm Has Talked With Wachovia About Possible Merger

By: bluemax

bluemax — Thu, 18 Sep 2008 11:49:00 +0000

What nonsense that this is caused by short-selling. Short sellers have to borrow stock, and if a bank wishes to protect itself can it not join the borrowers and keep hold of the stock ? Borrowing cost is low, about 1% p/a, and all the lower when market cap is low. Why don’t MS and GS simply outbid every other borrower for their own stock ? If they can’t legally do it themselves, an SPV could.

Or is it nothing to do with shorting…

By: Stevie b.

Stevie b. — Thu, 18 Sep 2008 07:00:00 +0000

“stop short-sellers” = shoot the messenger.

By: Hu Flung Pu

Hu Flung Pu — Thu, 18 Sep 2008 05:13:00 +0000

Anonymous 11:46

Then perhaps these investment banks (and huge money center banks) shouldn't be in businesses that are so levered and opaque that their lenders/depositors/customers/clients have no ability to understand their financial position. Transparency and a lack of leverage will generally lead to that confidence that everyone seems to want so badly.

No one seems to be doubting the strength of Berkshire Hathaway these days, and BH is largely a financial company itself at its core.

By: Anonymous

Anonymous — Thu, 18 Sep 2008 03:46:00 +0000

The issue with the stock price isn’t even access to capital. An investment bank may have all of the capital in the world, but it ceases to be viable if nobody is willing to do trasactions. If customers ask to pull their funds, and when the traders call around the street no other desks will do the trades to liquidate the customer’s positions (because they are worried they won’t settle), then they are toast. This extends beyond trading to underwriting, etc., with no confidence, no business can get done. Confidence can’t be measured in dollars of capital or risk adjusted ratios. Clearly, no financial institution can survive if ALL of their customers pull cash and nobody will by assets from them (a run).

By: Richard Kline

Richard Kline — Thu, 18 Sep 2008 02:54:00 +0000

“The horror, the horror . . . .”

By: Anonymous

Anonymous — Thu, 18 Sep 2008 02:40:00 +0000

Sy Krass said…

I’ve been thinking about an analogy to describe what is going on…the best I have come up with is this… think of the entire financial system as a body. The IB’s are diseased cells threatening to take down the whole system. The short sellers are the white blood and killer cells doing their job of excising the cancerous cells…

By: Anonymous

Anonymous — Thu, 18 Sep 2008 01:48:00 +0000

7:23>> Why can't Morgan do a management buyout with the bonus pool?

8:59>> 7:23, lots of reasons: first, the bonus pool is nowhere near big enough even in a good year, let alone this year, when it is probably near empty. Second, no one would finance such a maniacal transaction.

0.1% downpayment with the Morgan bonus pool; 99.9% central bank financing. Presto Chango! MBO

By: DaddieMac

DaddieMac — Thu, 18 Sep 2008 01:34:00 +0000

Ruetheday

One could make the argument that the broker/dealer model is still viable but that it’s size (leverage) and growth would eventually have to be limited. New products (financial or otherwise) for any business is crucial to its future growth. In the future brokers will only be able to sell gov’t approved products and we will have a “product safety commission” for them. The new brokers will be about as sexy as the dairy industry IMO

By: Tim

Tim — Thu, 18 Sep 2008 01:22:00 +0000

A disturbing trend that we are seeing are “strong” banks being used to bailout the weaker banks. Imagine if Bank of America had never bought Countrywide. They would have the losses from their investment last year but now they have the whole pile. Now Merrill’s portfolio. If Wells is to take on Wamu that would serious drag them down. These initiatives are not helping. Let them fail or weaken the entire sector further.

By: Hu Flung Pu

Hu Flung Pu — Thu, 18 Sep 2008 01:21:00 +0000

ruetheday – exactly. The prime broker for my private equity fund (I also have some public positions) is a small regional broker/dealer. They do brokerage and investment banking and keep very minimal inventory in the stocks in which they make markets. The problem isn’t with the brokerage and investment banking, it’s with the internal hedge funds, esoteric financial products, and massive leverage of the large firms. Small brokerage firms that keep it simple have nothing to worry about and will continue to thrive. The large firms are abominations that deserve to fail.