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June 29, 2015

Morgan Stanley: Too-Big-To-Fail & Too-Big-To-Learn

Washington, D.C. – Dennis Kelleher, President and CEO of Better Markets, issued this statement in response to reports that Morgan Stanley is considering getting back into the risky fixed-income trading business nearly seven years after it almost went bankrupt during the 2008 financial crisis:

“Too-big-to-fail Morgan Stanley is apparently also too-big-to-learn. High-risk derivatives gambling in fixed-income, currencies, and commodities compounded by other reckless – if not illegal – conduct caused Morgan Stanley to lose tens of billions of dollars before and during the 2008 financial crisis. Indeed, just days after Lehman Brothers went bankrupt on September 15, 2008, Morgan Stanley informed the New York Fed on September 19 that it could ‘not open on Monday.’ The only reason Morgan Stanley (and Goldman Sachs) did not go bankrupt was due to the generosity of massive bailouts by taxpayers and the U.S. government.

Having learned somewhat from this near-death experience, Morgan Stanley has since reduced its dangerous high-risk gambling operations and refocused on wealth management and traditional banking. Shareholders have rewarded Morgan Stanley with a stock price that outpaces competitors like Goldman Sachs, which has seemingly learned little if anything from the crash.

It is reported that Morgan Stanley is now going to ignore the lessons of recent history and increase their dangerous high-risk derivatives gambling. Regulators at the Fed, FDIC and elsewhere need to subject Morgan Stanley to much greater scrutiny to ensure that it does not again require bailouts in bad times while stuffing themselves full of bonuses in good times. Returning to the failed practices of the past is bad for taxpayers, the economy, shareholders, and, ultimately, Morgan Stanley itself.”

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Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure thereby eliminating or minimizing the need for more taxpayer funded bailouts. To learn more, visit www.bettermarkets.com.

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