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John Mack, former chairman of Morgan Stanley
Reuters/Kevin Lamarque
John Mack, then-chairman of Morgan Stanley, checks his watch after testifying to the Financial Crisis Inquiry Commission.
SECRET LOANS

Ten years ago today, Morgan Stanley owed the US government $107 billion

By David Yanofsky

Ten years ago today (Sept. 29, 2008), secret numbers representing the outstanding value of secret loans made their way onto secret spreadsheets at the US Federal Reserve. Unbeknownst to anyone at time, the numbers included the largest amount lent to a single financial institution on any day during the financial crisis: $107,292,100,000.

The bank on the hook for that money was Morgan Stanley. That information also was secret.

At the time the bank was only worth $23 billion—a quarter of the value of the loans. But there had been a run on the bank by hedge funds that took $128.1 billion out of the firm in just two weeks. Lehman Brothers had failed on Sept. 15 that year, and the funds thought Morgan Stanley would be next. On Oct. 10, following drops in the bank’s stock price, the value of the loans reached 758% of the bank’s value.

Morgan Stanley never told its investors about the extent of its borrowing from the Fed. In fact, in a press release from Sept. 29, 2008, the firm described its liquidity as “strong.”

The secrecy and obfuscation ended when a reporting team at Bloomberg News compiled the data on all of the Fed’s emergency lending, which had been acquired through Freedom of Information Act requests, court orders, and an act of Congress. (I was on the reporting team.) At its peak, the Fed had lent out $1.2 trillion to banks and other companies during the financial crisis. No single firm held loans worth more than Morgan Stanley’s.