Ruth Porat didn’t see it coming.
The Morgan Stanley banker who thought she understood the risks to the financial system in September 2008 was advising the U.S. Treasury Department on its rescue of Fannie Mae and Freddie Mac when she got a message: Would she come back to Washington to deal with the collapse of American International Group ?
Bloomberg News reports that Porat’s own bank almost vanished when hedge funds, spooked by difficulties getting money out of bankrupt Lehman Brothers pulled more than $128bn in two weeks from Morgan Stanley.
To stay afloat it sold a 20% stake, became a bank holding company and borrowed $107.3bn from the Federal Reserve on a single day.
Five years after Lehman Brothers sank on September 15th, 2008, triggering the worst financial crisis since the Great Depression, Morgan Stanley is safe enough to survive a shock that devastating, Porat said.
She and Morgan Stanley CEO James Gorman, with prodding from regulators, led a drive to cut risk and boost capital to soften the next blow.
Congressional inquiries and more than 300 books about the crisis have identified many villains: homeowners borrowing beyond their means, banks selling subprime mortgages, government-supported agencies backing the loans, Wall Street packaging them for investors, ratings firms giving seals of approval, regulators offering little objection and politicians encouraging it all to happen.
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