New republic: your work tax, Wall Street style.


New republic: your work tax, Wall Street style.

Noam Scheiber, senior editor of the new republic, writes about politics and the Obama administration’s economic policies.

When we left Morgan Stanley, the company was taking various forms of abuse, with the biggest IPO of bot the millennium. Alas, this is proving to be the least problematic. Is more urgent, moody’s could be slashed, Morgan Stanley’s bond rating, which could make the company lose billions of dollars (probably tens of billions of dollars of collateral and increase the cost of borrowing.

Then yesterday’s “financial times” brought worse news. In order to save some cash when downgraded, Morgan Stanley, hope most of its $52 trillion derivatives portfolio on their bank – part of the company in the subsidiary is old-fashioned loan makers, rather than a hedge fund or investment bank. The reason for this is that it lowers the cost of borrowing, or the cost of borrowing rises when credit ratings fall. Why is that? Because being a bank means you have a lot of customer deposits, most of which are insured by the federal government, and you can get really cheap loans from the federal reserve. For example, if you suddenly derivatives bets on you spent billions of dollars of money laundering, uncle Sam will be there to absorb losses, or at least help you to manage them, and the bondholders lend you the money won’t feel the pinch. And, of course, the bondholders know in advance, that’s why they might borrow money at a reasonable interest rate first. So borrowing costs are low.

Sounds like a clever plan – as long as the taxpayer subsidizes the riskiest part of your operation! And it is. As Britain’s “financial times” points out, Morgan Stanley’s American rival, one of the main, Goldman sachs has in their bank subsidiary has 90% of the derivative reference books, and today the proportion was only 3% of Morgan Stanley.

Unfortunately, Morgan Stanley’s people cannot rest. As they were about to follow in the same way as in the United States federal government, the federal government (may be the federal deposit insurance corporation, the insurance fund will pay for these losses) decided to taxpayer standing between the creditor and the trillions of dollars derivatives bets may not be the world’s greatest ideas. According to the FT:

No decision has been made on the request. In the Dodd – Frank (Dodd – Frank) financial reforms introduced a more lengthy process, the fed needs to formally with the Federal Deposit Insurance corporation (Federal Deposit Insurance corp.) is such a move, complicate the problem.

The federal reserve, which sees Morgan Stanley as a financial group and maintains a broader financial system, has a different mandate from the FDIC, which is worried about protecting bank deposits.

What does a man – Wall Street company have to do recently to take a break?

I take these two years of dodd-frank very seriously. But if all this stops the prank, there is clearly something to be said. , on the other hand, if the fed made progress in this regard, the federal reserve to try to shield is famous for its bondholders loss, then it will prove to be a truly no value of the legislation. I don’t hold my breath.


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