Commentaries

Now raising intellectual capital

Mack is no Blankfein, thankfully

-

John Mack is being pilloried by some on Wall Street for not being more like Goldman Sachs’ Lloyd Blankfein, after Morgan Stanley reported a larger-than-expected second-quarter loss largely because of several onetime expenses.

But the “Be like Lloyd” rallying cry is mainly coming from traders with Twitter-like attention spans, who simply want Mack and Morgan Stanley to engage in the same kind of government-backed risk-taking that Blankfein’s Goldman Sachs is doing when it comes to proprietary trading.

Just how much less risk is Morgan Stanley taking on compared to Goldman?

Simply compare both firms’ so-called value at risk, an estimate of how much money a firm could conceivably lose in a day if all of its trading bets and hedges went awry. At quarter’s end, Morgan Stanley’s VaR was $154 million, compared with $245 million at Goldman.

Admittedly, the VaR is a highly imperfect way of measuring risk. If anything it underestimates risk, otherwise Lehman Brothers and Bear Stearns might still be with us. That said, however, the numbers speak for themselves: Goldman is an infinitely more risky firm than Morgan.

  •