Morgan Stanley endured $46 billion in September money market redemptions, forcing the firm to buy $23 billion in instruments from the various money market funds hit by the cash siphon. One presumes that these instruments were then to be laid off onto the world's largest sovereign wealth fund.
This leads us to believe that the "greater fool theory" has been flawed all these years. Clearly there is a trump card in the deck of greater fools. Specifically, there are greater fools and then there are governmental greater fools.
Morgan Stanley bought the fund assets to ``ensure that redemption obligations were met amidst illiquid trading markets,'' Erica Platt, a spokeswoman for the firm, said in an e-mailed statement. Fed spokeswoman Susan Stawick declined to comment on whether Morgan Stanley had used central bank financing to aid its money-market funds.
This sounds suspiciously like code for "we aren't taking any chances having these instruments marked with transaction prices we don't control," but we are rather notorious cynics on this particular topic. There's also the issue of reputation. A clearing failure by a firm of this magnitude would be disastrous. As it is, Morgan Stanley is likely to take a bath on the transaction, if prior experience is any measure.
Morgan Stanley reported $10 million of third-quarter losses on securities it previously purchased from structured investment vehicles, or SIVs. Over the past nine months, the bank has recorded $283 million of losses related to SIVs.
Note also: "Individuals and institutions use money-market funds to earn a yield until the cash is needed. They are considered the safest investments after bank deposits and U.S. Treasuries, in part because they buy only highly rated fixed-income securities with an average maturity of 90 days or less."
...is the new...
"Credit Default Swaps are insurance-like instruments which give the insured (the holder) protection against default on debt instruments. Such protection is paid out by the insurer (the writer) when certain default conditions are met."
Morgan Stanley Supported Money Funds With $23 Billion [Bloomberg]
Morgan Stanley Funds Hit By $46 Billion Withdrawal [CNBC]