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Morgan Stanley’s Deep Secret Is Now Revealed

By: capt_nemo in WRGO | Recommend this post (0)
Thu, 10 Jan 13 2:59 AM | 822 view(s)
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Bernanke's secret bailout flashback.

This ray of transparency was not provided by Bernanke, rather it's been sitting unnoticed on the FCIC website, having NOT been included in the final report. What's another $3.5 billion surreptitious bailout among friends courtesy of the comely Federal Reserve.



By Jonathan Weil

Here’s a little secret the Federal Reserve Board doesn’t want you to know. On Sept. 24, 2008, while financial markets were collapsing, Morgan Stanley borrowed $3.5 billion through the Fed’s oldest lending program, the 98-year- old discount window.

The Fed has long claimed that releasing this type of data could trigger bank runs, public hysteria, death spirals at financial institutions large and small, and other horrible outcomes. Yet I’ve got a hunch Morgan Stanley somehow will survive this revelation. Mass panic will not ensue. The world will not end.

This is the kind of information the late Bloomberg News reporter Mark Pittman was seeking when he filed a Freedom of Information Act request with the Fed in May 2008, nine months after the financial crisis began. Among other things, he asked for documents showing which banks had borrowed money under the Fed’s emergency-lending programs and the details of those loans.

The Fed blew off his request. Bloomberg LP, the parent of Bloomberg News, responded by suing the central bank. The company won both at the district court level and on appeal. This week, the Supreme Court decided to let those rulings stand. And so almost three years after Pittman sent his original FOIA letter, the Fed finally will have to comply with the law.

The discount window functions as a lifesaver through which qualifying borrowers can secure emergency liquidity during times of severe stress. Historically the Fed had kept the names of borrowers confidential on the grounds that disclosure could stigmatize them in the public’s eyes, even though it was the public’s money the Fed was lending.

As it turns out, the information about Morgan Stanley (MS)’s $3.5 billion discount-window loan has been sitting on the Financial Crisis Inquiry Commission’s website since last month. The panel didn’t mention it in its final report. And nobody had written a story about it before. So there: Now it can be told.

You can see the raw data by clicking here. The link takes you to a Morgan Stanley spreadsheet showing the company’s day- to-day liquidity changes during a two-week period in September 2008 when the New York-based bank was fighting for survival. (You may need to magnify the pages 400 percent to see all the numbers.)

The loan came three days after Morgan Stanley said it had received Fed approval to become a bank holding company, giving it access to the discount window for the first time.

A Morgan Stanley spokesman, Mark Lake, confirmed that my reading of the spreadsheet is correct. The bank had stamped the document “confidential treatment requested” when it handed it over to the crisis commission. The panel released it anyway, apparently seeing no harm.

The Fed’s arguments for keeping this sort of data secret were transparently bogus. One Fed economist, Brian Madigan, said in an affidavit that disclosing discount-window borrowers’ names “can quickly place an institution in a weakened condition vis- a-vis its competitors by causing a loss of public confidence in the institution, a sudden outflow of deposits (a ‘run’), a loss of confidence by market analysts, a drop in the institution’s stock price, and a withdrawal of market sources of liquidity.”

Continue reading at Bloomberg...



Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.

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