The Wisdom of the Financial Sages

"We're all learning that leverage works both ways..."

John Mack, CEO & Chairman of Morgan Stanley, in an interview with CNBC's David Faber on October 16, 2008

Permit me this 1 irreverence: "Duh!". Is this patronizing? Contrite? Or what? Here we have the CEO & Chairman of one of the most powerful and "storied" investment banking firms the world has known, confessing that he now realizes leverage works both ways. Forgive the comparison, but that is almost like a veteran card shark working the tables at Las Vegas suddenly announcing, "Gee whiz! You mean I can actually loose money here?"

And how much was John Mack paid last year? I don't not have the figure handy, but what does it really matter? It is so far beyond what he is worth, given the magnitude of his errors as helmsman at Morgan Stanley,and what this has cost shareholders- and after all, the buck should stop "there" and not with the board or with the nouveau scapegoats, the "compensation committee". Even if we cut John Mack some slack, and assume he was treading carefully in an interview- to suggest that he / they didn't understand what the pitfalls of leverage implied (as in

40:1 leverage) is to impugn his very ability to be where he is in the first place.

This is the way of "the Street"; has been for years and despite all the tribulations of the present will be the "way it is" for as long as greed remains the driving force on Wall Street: when you "score", you get all the credit and then can appear magnanimous in parcelling out money and "perks" to the underlings that serve you and the franchise. When you screw up, you can always parcel out blame to the board, the compensation committee, "the man" and to the regulators who should have known better than to trust you, and let you do what you did in the first place.