Morgan Stanley's Miscue-Bank fund blows up on senior execs.

[babylonsister]

http://www.forbes.com/2009/04/22/morgan-stanley-hedge-funds-compensation-personal-finance-retirement-morgan.html

Morgan Stanley's Miscue
Anita Raghavan, 04.22.09, 01:10 PM EDT
Bank fund blows up on senior execs.


The towering geniuses of Wall Street played poker with other people's money and lost big last year. Turns out, they didn't do so well with their own money either.

Three years ago, Morgan Stanley gave its employees a choice: Put their deferred pay into Morgan Stanley stock or into the firm's Leveraged Co-Investment Plan, which spreads it among a smörgåsbord of hedge funds, private equity, venture capital and real estate investments. Today, those investments are worth virtually nothing.

Typically, diversifying offers safety in the investment world. Not so when it involves using borrowed money to invest in funds that are already playing with--you guessed it--borrowed money.

Like everything else in the financial world of late, the Morgan Stanley plan turned out to be a house of cards. For every dollar an employee put into the plan, Morgan Stanley lent him or her $2 more. That means if the net asset value of the shares dropped 33%, the Morgan Stanley employee's entire investment was wiped out.

"It's way too early to conclude that any investment, except for cash, would have been a better bet,'' sniffs a Morgan Stanley spokeswoman. The point of the plan, she says, was to "allow senior employees the chance to voluntarily diversify their investments--not to take less risk but to take different risk.''

Perhaps when markets look up, the employees can get jobs at Citadel Group or Goldman Sachs ( GS - news - people ). Chicago-based Citadel recently altered a plan similar to Morgan Stanley's, in which employees had suffered big losses investing their pay, again on a leveraged basis, in the hedge manager's flagship fund. In that case, the honchos at Citadel, who normally love gambling with other people's money, decided to get rid of the leverage. For its part, Goldman recently extended loans to employees whose personal investments soured to the point of imperiling their lavish lifestyles.

All that suggests the Morgan Stanley crowd has a legitimate gripe: It is, after all, a bit much to expect the guys running the Wall Street casinos to play by the same rules as their customers and live with the losses.

[aquart]

1. Poor things. Poor, poor things.

[leftofthedial]

2. "I will be putting your money into a diversified array of toilets...

airport toilets, public toilets, my own toilet, the toilet at Wendy's, hotel-room toilets, US toilets, Japanese toilets, French toilets, latrine trenches, porta-potties...

Diversified investing is guaranteed to grow forever and ever for eternity!"

Love,
Capitalism




back when I was a capitalist, this was called "eating your own dogfood"