Bailout datapoint of the day, Morgan Stanley edition

By Felix Salmon
December 2, 2010
ProPublica is my favorite one-stop shop for presenting the Fed data dump in an at-a-glance format. The main thing that jumps out is that three banks, more than any others, were the primary recipients of the Fed's lending facilities:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

ProPublica is my favorite one-stop shop for presenting the Fed data dump in an at-a-glance format. The main thing that jumps out is that three banks, more than any others, were the primary recipients of the Fed’s lending facilities:


I’ve included the banks in positions 4 and 5 just to make clear how big the gap is here: Citi, Merrill, and Morgan Stanley each borrowed more than $2 trillion from the Fed in total. No one else borrowed even $1 trillion.

Of course, a lot of these were overnight loans being rolled over day after day: it’s not like the Fed ever lent this much money at any one time. But the sums involved are still astonishing, especially for Merrill Lynch and Morgan Stanley. We all know what happened to Citi and to Merrill, but this underlines just how rocky Morgan Stanley was at the height of the crisis.

The only time I’ve ever got a genuine death threat from my blogging was when I wrote this, on October 9, 2008:

It looks like we’re getting close to one of the market’s vicious syllogisms here: without the market’s trust, Morgan Stanley is nothing. The market doesn’t trust Morgan Stanley. Therefore, Morgan Stanley is, well, toast.

My guess is that at some point over the weekend, Hank Paulson will announce that he’s using his new authorities under the TARP to effectively nationalize Morgan Stanley, following Gordon Brown’s lead in the UK. And Morgan Stanley will only be the first of many banks to suffer such a fate.

I was right about the government stepping in to save Morgan Stanley from a vicious market where it couldn’t stand alone; I was just wrong about which arm of the government would be intervening. It wasn’t Treasury, it was the Fed.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

felix – take a look at the increasing amount of collateral that BAC was posting to borrow the same amount each day… kinda interesting…

Posted by KidDynamite | Report as abusive

“looks like we’re getting close to one of the market’s vicious syllogisms here: without the market’s trust, Morgan Stanley is nothing. The market doesn’t trust Morgan Stanley. Therefore, Morgan Stanley is, well, toast.”

That is true of all broker/dealers. They are always at the mercy of the funding markets. When confidence goes, they’re goners. Even the mighty Goldman Sachs had to go hat in hand to Warren Buffett and pay 10% for a preferred investment.

That’s why Goldman and Morgan Stanley (and maybe others althoug I don’t remember) became became banks. So they could take insured deposits and not rely on the credit markets for funding.

Posted by Bernanke | Report as abusive

“That’s why Goldman and Morgan Stanley…became became banks. So they could take insured deposits and not rely on the credit markets for funding.”

They became bank holding companies so they could access all of the Fed’s lending facilities and guarantee permanent liquidity. BHC status also allowed them to avoid mark-to-market accounting for assets. I wouldn’t be surprised if their insured deposits are immaterial to their balance sheet.

Posted by SteveHamlin | Report as abusive

Is not this another Casablanca moment – I’m shocked, shocked?
Everybody knew what was up, or in this case, down. MS was a basket case, and Merrill, well, it wasn’t robust. LEH was dusted (the sacrificial lamb given public sentiment)and the others were saved by allowing them to convert into banks. Lehman’ death was a bit like an old fashioned lynching if the truth were known – although given the apparent holes in its balance sheet, perhaps deserved in the end. But man, was it messy).
The sums provided to the world’s financial system were enormous – this is not a surprise, though, perhaps in retrospect the actual amount underlines how close we came to armageddon. Perhaps some of the dodgy assets the Fed took as collateral didn’t follow Baghot’s rules, but given the haircut applied to some of BofA’s offerings, someone at the Fed has a live finger on the market pulse.
So now that the system is still functioning, do we go back and pretend that Dodge City lynching mobs will bring justice to the world?

Posted by spragus | Report as abusive

Bernanke, the deposits insured by the FDIC were utterly utterly irrelevent to GS and MS, right?

Mr Salmon, you realise of course that there is a difference between lending 2 trillion and lending an average of 8 billion overnight? The “bailout” never went above 40bn overnight to MS. Bit of advice, stop read Propublica, based on the sample of articles you have quoted they clearly hire clueless dimwits.

Posted by Danny_Black | Report as abusive

Also, you are of course aware that the Fed was CREATED to be lender of last resort in the aftermath of the Pecora hearings after the 1907 panic.

PS post above was wrong, MS lending hit 61bn overnight. But it is a clear cut spike during the furore about TARP passing and obviously a liquidity crunch. I wonder when ProPublica is going to publish a list of companies “bailed out” when the Fed underwrote the CP market?

Posted by Danny_Black | Report as abusive

Also not sure why are using propublica given the Fed broke it down and helpfully gave spreadsheets for you to do any type of analysis…. Of course, then you’d be aware that with MS and the PDCF, fed was taking a 10% haircut on overnight lendings at the peak of the crisis, that the maximum lendings were far less scarey and that MBS/ABS were less than 10% at the max. Better to have a wildly misleading headline “backed up” by data so misleading to be borderline mendacious, not like anyone is going to care about the facts right?

Posted by Danny_Black | Report as abusive

for those who want the actual data:  /reform_pdcf.htm

Posted by Danny_Black | Report as abusive

Yeah the net amounts rather than gross amounts are really far more useful, and the haircuts are interesting to say the least. Goldman borrowed a peak of $18bio from the PDCF but at one point 82% of that was sub-investment grade/equities and it was only getting a 7% haircut?? 7%?? That is some funding I would love to have.

Posted by drewiepe | Report as abusive

drewiepe, the interest rates were also very low given the blowout in OIS around that time. Would be interesting to work out what the market rate would have been for these loans and the difference which would give you the real bailout amount.

Posted by Danny_Black | Report as abusive

Danny Black is correct as usual… adding up the total of overnight loans that were just rolling over really is not a useful data point. It would almost be like saying my bank lent me 83 million dollars on my house. (230,000×365 days/year.)

Posted by y2kurtus | Report as abusive

My guess is that commentary like yours is why the Fed did not want to publish their lending. Reporting an overall figure of over 2 trillion is just plain silly as many comments have done. You know better than that. From the data you present alone, it may well be that the Fed’s exposure to Bear was larger than that to Citigroup at any given time. Bad analysis

Posted by uwtisch | Report as abusive

Remember Bank of American bought Merrill Lynch on Sept. 15, 2008, with the merger due to close Jan. 1 2009 (which it did, after Bank of America blackmailed the government into paying them to close, at least according to Cuomo’s complaint) so Merrill was an independent company in law according to the stats until January 1, 2009. And remember who bought Bear.

Posted by Eastvillagechic | Report as abusive

I dunno about overall exposure, but lending those amounts to banks who were later professing they weren’t in trouble and offered to give backk money from TARP… is astonishing to me.

And for those of you saying we ‘dummies’ would all read it to be singular one time loans, umm we can read there were 370 separate loans to citygroup to make the final total loaned.

There are 5 pages of bank loans. How many small banks disappeared while the ‘major’ banks survived? here is an interesting stat to give perspective while those large banks are flourishing and the bonuses bursting forth. Nearly 200,000 banking jobs have been lost in the past three years – about 8.5 percent of the industry’s work force. Analysts expect that number to grow.

Here’s the failed bank list to October: ed/banklist.html

Here is some break down from the Wall Street Journal of loans before TARP was introduced:

on September 29, 2008, when the U.S. House of Representatives failed to pass the bailout package. On that day alone, banks borrowed $155.8 billion.

The Fed had set up a lending facility called the Primary Dealer Credit Facility (PDCF) to lend money to banks. As the crisis spread, borrowing increased almost daily. The Wall Street Journal lists day-by-day borrowings:

* Borrowings accelerated after September 15, 2008.
* By September 22, borrowings had reached $99.4 billion, with Morgan Stanley (MS) taking more than $38 billion.
* As the week went on, the bailout package failed.
* On Wednesday the PDCF first topped $100 billion, as Morgan Stanley took $35 billion.
* Merrill Lynch took $20 billion.
* Barclays (BCS) took $14 billion.
* Goldman Sachs (GS) took $11 billion.
* On September 23, lending increased to o$125 billion. Bank of America (BAC) took $6 billion.
* On Friday, Washington Mutual was seized. Borrowings totaled $152.6 billion.

The following Monday when the House failed to pass the bailout package, the Dow plunged 777 points. Morgan Stanley took $61 billion, Merrill took $36 billion, Citigroup (C) had $15.5 billion, while $15 billion each went to Barclays and Goldman. Bank of America. took $8.3 billion. UBS (UBS) got $4.1 billion, and Mizuho Financial Group took $343 billion.

When Congress passed the bailout, loans fell back to $138.8 billion. By the end of October PDCF was down to to $89 billion.

What we had was the Fed desperately printing money and loaning it to banks, hoping to stop the financial crisis. In all, the Fed pledged or spent an incredible $12.2 trillion during the financial meltdown. The numbers above only show a fraction of this total.

Posted by hsvkitty | Report as abusive

hsvkitty, I guess you are glad your bank bailed you out for millions of dollars – aka gave you a mortgage.

I particularly love this bit:

“What we had was the Fed desperately printing money and loaning it to banks, hoping to stop the financial crisis. In all, the Fed pledged or spent an incredible $12.2 trillion during the financial meltdown. The numbers above only show a fraction of this total.”

a classic… a madeup figure and along with what is a presumably a zionist-capitalist-imperialist plot to hide the “real” figure. You thought about applying to write financial articles at ProPublica? You already have the requisite single digit IQ, complete ignorance about finance and the ability to “back up” your arguments with sources that say the exact opposite of what you are claiming.

Posted by Danny_Black | Report as abusive

A classic? What it says is that the numbers above, where it shows daily amounts of large loans, were only portions of what were handed out in loans over the course of the financial ‘crisis.’ EG: Goldman wasn’t lent just 11b in that one single day. BTW as I said those numbers are from the WSJ…

Here Is a classic… Danny, a self professed Goldman and Wallstreet apologist, says everyone but he, is wrong (you worked in THE UK version of Wallstreet and by your posts throughout the internet, have the same tone that everyone but you is wrong and the media is wrong and everyone’s figures are wrong… and so you must be right.

The Fed wouldn’t have even released these figures has there not been a new law requiring disclosure. As it is they are incomplete. The Fed admits the interest rates were low or zero without adequate collateral and was making loans to borrowers all over the world. Saying they all paid back with interest after offering zero interest is a bit of a misnomer, wouldn’t you say? i would!

Nice try though… I am sure my mortgage can be compared very easily to the billions loaned out with nothing coming back in return! *laughs heartily*

Posted by hsvkitty | Report as abusive

hsvkitty, as has been repeatedly explained over and over there is a difference between lending 2trillion and lending an average of 8 billion overnight 270 times. I am sorry you have difficulty with what is should be a rather easy concept. The good news is apparently you are not the only person too thick to understand it – lazy, incompetent financial churnalists have cut and pasted the same figures too from each other.

It is EXACTLY the same as your mortgage except that the risk the Fed was taking that the bank would go bankrupt overnight AND that the collateral would not cover the loan – which happened exactly zero times. Of course the bank is taking a far far far bigger risk on you because they are lending for a longer time and have exactly one bit of collateral. Your bank is also taking a risk on your uncollateralised loans such as credit cards and overdraft. Sorry you are too stupid to understand elementary finance. As I said, the good news is that makes you a perfect “journalist” for ProPublica. Jesse Eisinger should watch out – apparently there is someone even more clueless and retarded than him and proud to show it off publicly!!

Posted by Danny_Black | Report as abusive

In fact we can get a ballpark figure for “bailout” that Morgan Stanley got from the Fed under the PDCF. Lets assume the collateral is worth zero. Lets assume the max amount borrowed overnight is what they borrowed the entire time. Lets also assume that the OIS rate which peaked around under 4% stayed that level the entire year. Lets assume the lowest loan rate is the rate MS got the entire year – which was 0.5%. So the spread is 3.5%, so the interest saved by MS on each overnight lend is roughly 4million, done 270 times is 1.1bn – which I assume even hsvkitty can work out is not 2.2 trillion. Of course the real number is far lower because the collateral was not worth zero, OIS was that high for one month and MS didn’t borrow anything like 51bn every night. But hey who cares about facts right?

Posted by Danny_Black | Report as abusive

Well, you are obviously poking fun, but drop the assumption that the collateral is worth zero and it’s not a meaningless calculation. Talking PDCF, Goldman took an average of $11.31bio out of it. Let’s say insteaad of the average interest rate of 2% at a haircut of 7%, they’d borred at 4% with a haircut of 20% (more suitable for equities). The total interest cost would then be around $85mio across the 52 days instead of the $35mio that Goldman paid. It’s a big number but it’s not billions. For MS it’s going to be about $200mio, at a guess.

Posted by drewiepe | Report as abusive

@ Danny_Black

I see you are enjoying putting words in my mouth, but I already said people are NOT stupid and thinking they gave that amount at one time. They can read! I don’t mind your comments having meat, but putting words in my mouth as you call me names is very aggravating.

Calling me stupid and lazy is not going to make me feel stupid or lazy because i am neither. I think you have a banker’s complex. You know little about anything other then banking so you get a thin skin when banks are challenged.

Reply, but don’t make it up as you go along under the guise that you are smarter then anyone here…

You remind me of the bank manager who was tallying up on a calculator and as I noticed his errors (me reading upside down and doing the figures in my head) saying I was incorrect because he kept punching in the wrong numbers… and was getting more and more annoyed… even though it was my mortgage and my figures he was dealing with.

And it is nothing like my traditional mortgage loan. I am required to have collateral, a down payment and a good credit score and could pay in interest twice the original loan. And they didn’t let me use my rubber duckie (worthless junk bonds) as collateral, so just stop the nonsense.

The whole point here is that the FED took on a lot of risk with little collateral and little to no interest and gave extremely large loans at one time. Seriously, your objections to the article not breaking it down and objections to my added figures from the WSJ that broke it down to 2 days of pre-bailout loan amounts are ridiculous.

Your last paragraph also reminds me of bankers making calculations using ballpark figure, using the word assume 5 times and then castigating others for not using facts! Thanks so much for that! If the spreadsheets are entirely accurate and detailed and include proper collateral and interest, why are you not using them?

Posted by hsvkitty | Report as abusive

drewiepe, the point was to come up with an absolute upper bound based on the figures to hand. It goes without saying that the real bailout figure was much lower. Even with 1.1billion, it shows the gulf between the meaningless figures quoted and the real amounts at risk.

hsvkitty – I did use the figures from the spreadsheet. I picked the lowest interest rate MS got charged against the highest rate the OIS hit, I also took the highest loan amount to give a ballpark ***upper*** bound. Apparently, despite your genius like mental arithmetic skills this passed you by….

Posted by Danny_Black | Report as abusive