Discover Financial, the “cash back” credit card company, has just flushed more than $1.6 billion down the toilet.

Earlier today, Discover announced it would sell its troubled British “Goldfish” credit card business, which has about 2 billion pounds in loans, to Barclays Plc for $70 million. Less than two years ago, Discover, then owned by investment bank Morgan Stanley, paid $1.68 billion for the same business.

While the headlines and the tsk-tsking will fill focus on Discover, some of the blame falls on Morgan Stanley and its chief since June 2005, John Mack. This fiasco of an investment marks the latest dent in Mack’s track record as an acquirer.

A bit of background: Mack supported the merger of blue blood investment bank Morgan Stanley with Dean Witter, Discover & Co.  in 1997, a deal that gave Phil Purcell the reins and four years later Mack’’s own ouster from the bank he loved. Flash forward to 2005, when Mack replaced a Purcell whom investors complained lost ground to Goldman Sachs because Morgan had grown too cautious.

Morgan Stanley spokeswoman Jeanmarie McFadden declined to comment.

Over the past two and a half years, Morgan took on more risks in its trading (the fallout from that strategy has been well documents), launched a private equity business and began making more proprietary investments.

So far, the bank’s purchases of several hedge fund manager stakes, FrontPoint Partners, energy transport company TransMontaigne and some other deals have performed well. Mack also deserves some credit for spinning off Discover in June 2007, an ideal time since credit markets tumbled immediately after. 

But the Goldfish deal — and Morgan’s acquisition of subprime mortgage company Saxon Capital in 2006, just ahead of the subprime meltdown – illustrate that even modest “bolt on” deals can go belly up.