Thursday, September 25, 2008

Strange Case of Morgan Stanley

Big Wall Street investment houses packaged and sold junk for years. They purchased each others junk securities, even selling "peace of mind" to back them up in the form of credit default swaps. Last week they quit buying each others crap, at least not without significant assurances of recouping their money. Look what happened to the price of Morgan Stanley's peace of mind:

9-10 $300,000
9-15 $450,000
9-18 $900,000
9-19 $560,000
9-22 $498,000
9-24 $790,000

Last summer, the cost of a Wall Street investment house credit default swap ran about $100,000 for $10 million in debt, and that was considered junk status. Such huge price increases indicate the unregulated credit market is very worried about Morgan Stanley's ability as an ongoing concern.

Who did the Treasury hire to help with A.I.G.? Morgan Stanley, who itself was in deep trouble. Consider Morgan announced its sale of 20% of the company to a Japanese bank on 9-21 for $8.4 billion. One might expect that to reduce their credit risk substantially, but instead it soared 290 basis points.

The big money boys are no longer lending to each other. They see their peers as credit worthy as a payday loan applicant. Beware the welfare tycoon, now driving his Rolls Royce because he had to let the butler go. They're are nowhere near as many as those welfare moms, but they expect a whole lot more than a Cadillac and big screen TV. It looks like Capital-lackeys and the CorporaWhorehouse will come through with the rich man's bailout. I believe they're calling the bi-paritsan agreement "Fostering Corporafornication."