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The New York Fed Has Some Explaining to Do Over Morgan Stanley’s Unreported Trading Losses

Courtesy of Pam Martens

James Gorman, Chairman and CEO Morgan Stanley, Testifying Before the House Financial Services Committee in April 2019

James Gorman, Chairman and CEO Morgan Stanley, Testifying Before the House Financial Services Committee in April 2019

James Gorman is the Chairman and CEO of Morgan Stanley. He also sits on the Board of Directors of the Federal Reserve Bank of New York (New York Fed), one of Morgan Stanley’s regulators.

The New York Fed is one of 12 regional Federal Reserve banks – but the only one willing to turn on a multi-trillion dollar money funnel to Wall Street’s mega banks when they need a secret bailout. Since September 17 of this year, the New York Fed has pumped upwards of $3 trillion in revolving loans to trading houses on Wall Street, without naming which firms are getting the money and why they’re getting it. From December 2007 to the middle of 2010, the New York Fed turned on its money funnel to Wall Street to the tune of $29 trillion – a fact it battled in court for years to keep secret.

Today, the New York Fed will only say that it’s making these new loans, which tally up to hundreds of billions of dollars each week, to some of its 24 “primary dealers.” For the most part, those “primary dealers” are the high-risk trading units of big commercial banks in the U.S. and abroad. (See list below.)

One of the primary dealers that is eligible to be taking these multi-billion dollar loans from the New York Fed is Morgan Stanley & Co. LLC. Morgan Stanley describes that unit as follows: “Its businesses include securities underwriting and distribution; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; sales, trading, financing and market-making activities in equity and fixed income securities and related products, and other instruments including foreign exchange and commodities futures; and prime brokerage services.”

At 11:36 a.m. on Thanksgiving Day, when households across America were either watching the Macy’s Thanksgiving Day Parade on TV or hustling in the kitchen, Bloomberg News dropped the bombshell report that foreign currency traders at Morgan Stanley had hidden a trading loss of upwards of $140 million. Two of the traders involved in the losses were based in London, according to the Bloomberg report.

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