Morgan Stanley Posts $2.36 Billion Loss

I pass on this news from the New York Times for two reasons. But first the link: Morgan Stanley Posts $2.36 Billion Loss

Now my two points:

One: I think that Morgan Stanley and Goldman Sachs are both going to face a much tougher road to survival than the so called ‘experts’ have suggested. This earnings report is evidence of the huge hole in Morgan Stanley’s balance sheet and the damage it will continue to inflict on the company’s earnings for the next few quarters. I don’t care how clever the people at these two ex-investment banks are, or think they are, making the transition from investment bank to commercial bank will be rocky and painful. the two businesses are not very similar. Plus the huge profits and bonuses that the investment banks made over the last few years were based upon an almost ludicrous business model that allowed them to pile on assets in a ratio of over 30 to 1 of capital. Commercial banks are not allowed that kind of leverage. As a result the new versions of Goldman Sachs and Morgan Stanley will have to earn their profits the old fashioned way. That is a learning curve they will have to negotiate over the next few years during which time they will undoubtedly make mistakes.

Second: I love the stupid comment from some analysts called Ada Lee. This clueless specimen is exactly why we all got into this mess in the first place. She obviously has no idea of what went on over the last few months, nor has she any idea of the changes that Morgan Stanley is trying to execute. her daft and drippy comment is a sad testimony to, and example of, the utter nonsense spewing forth from the mouths of the supposed analysts who covered the financial industry over the last decade. If just one of them had done some analysis other than the superficial reprocessing of the press releases they received from the investment banks they might have noticed the tidal wave of real estate losses building on bank balance sheets.

But that would have taken original thought. Something in dire short supply on Wall Street and in the hangers on in the diaspora of Wall Street analysts, rating agencies, and commentators.