How To Save Morgan Stanley Without Blowing More Taxpayer Billions (MS)

In case you hadn’t noticed, Morgan Stanley (MS) appears to be going out of business again (the stock’s down another 15% today). This after a $10 billion injection from Mitsubishi and another $10 billion commitment from US taxpayers, both of which were supposed to save the firm.

The government won’t/can’t let Morgan declare bankruptcy, but with the car industry, the insurance industry, and countless other industries lining up to be saved, the government also can’t afford to toss more 10-billion-dollar checks down the Morgan Stanley rat hole.

So it’s time for a new kind of bailout:

  1. Seize the company
  2. Nuke the shareholders
  3. Write the assets down to nuclear-winter levels
  4. Convert enough debt to equity to give the New Morgan Stanley a bombproof capital ratio

There. You’ve just fixed the problem–without costing taxpayers untold more tens of billions of dollars. You’ve also fixed the problem now, once and for all, instead of the way we’re currently fixing it (plugging whatever hole Morgan Stanley is willing to own up to that day).

Yes, the precious debtholders take a hit (or at least get manhandled into equity), and, yes, this might send LIBOR back to the stars. But banks aren’t lending any money to anyone anyway. The sooner we flush all the bad news, the sooner we can begin to mend the system and economy. And the current “here’s some more temporary life-support for you” system just ain’t working.

See Also: Don’t Look Now, But Morgan Stanley Going Out Of Business Again


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