StockJockey discusses the Bloomberg story of John Mack, CEO of Morgan Stanley, and particularly Mack’s efforts to ban short selling of financial stocks. 
Hypertension at Morgan Stanley
For the hard working employees of Morgan Stanley’s (MS-NYSE) prime brokerage division, the disclosure that John Mack was behind the lobbying effort to ban financial shorts hit like a ton of bricks -dazed clients pulled money out fast and furiously, as Hedgistan fought for survival, enraged at Mack’s decision which came after the prescient among them narrowly avoiding having funds locked up at Lehman:
“Wednesday (September 17th) was an absolute disaster,’” says (MS CFO) Kelleher. “I don’t mind admitting it — in prime brokerage, we had a run on the bank.”
The prime brokerage unit lends money and securities to hedge funds. When some funds learned that money they had parked at Lehman was now frozen in legal proceedings, they decided to pull cash and assets from Morgan Stanley. Bloomberg
The decision to ban shorts in perhaps 15% of U.S. equities set off a chain of unintended consequences that are still reverberating – Lehman’s demise was bad, but the short ban threw more fuel on the fire.
Mack’s desperate efforts to save his beloved firm made him one of the most hated men in Hedgistan, although his public image held up far better. In Main Street’s eyes he is no Fuld, Cayne, Thain or Rubin, but those in the know on the BuySide will probably never warm up to the man.
It is a shame that a few hours in September tainted a career that was largely considered a success, although insider trading allegations in Le Affaire Pequot (pardon my French) continue to rattle around.
I have nearly finished reading Blue Blood and Mutiny: The Fight for the Soul of Morgan Stanley which paints a largely sympathetic portrait of the power brokers who ran Morgan Stanley in the old days leading up to the Purcell fiasco.
Mack is a survivor if nothing else….but he saved his firm at the expense of everyone who owned domestic equities coming into mid-September. Mack’s final chapter at MS has yet to be written (and I might be going soft) but the book and the account below have generated a bit of sympathy for Mack in my mind.
And while I will not likely shed any tears when he passes, I have come grudgingly to respect the man, and have an idea for his tombstone.
Because John Mack loves that firm, perhaps just a bit too much. Maybe even more than his wife.
Too, Morgan Stanley is still standing. Although, holding meetings over the blood pressure monitor in John Mack’s office is one helluva way to go through life.
The account below, in Bloomberg, is probably the finest account, thus far, of those days that turned many a grumpy old man’s blueblood eyes red. With Morgan Stanley’s institutional business a shadow of what it once was, perhaps Phil Purcell would find it is ironic that the firm will soon be the retail powerhouse he once envisioned.
Stocks and socks? Not quite, but once they integrate the Smith Barney brokers, a retail powerhouse will emerge. Mack survived events that killed lesser Wall Street CEO’s, and almost finished off several of his top lieutenants:
Three managing directors, including Nides, went to hospitals after using Mack’s blood pressure monitors.
Crazy.
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Mack Tells Wife He May Lose Firm Before Brokerage Bid
Bloomberg
