Why Does John Mack Hate The Volcker Rule When MS Prop Was Responsible For The Single Biggest Prop Loss In Wall Street History?
A few days ago a smug John Mack, enjoying his premature retirement from Morgan Stanley, was shooting the ...breeze with Charlie Gasparino, in an interview in which he explicitly denounced prop trading as being any concern whatsoever to Wall Street. Gasparino asked: "It is known as the "Volcker Rule" and he claims that proprietary trading was one of the reasons or the major reason for the financial crisis. I don't believe that is the case. Do you believe that was the case?" To which Mack responded: "Charlie, I don't believe it and I think you laid it out really clearly in your book."... "so, you obviously don't agree with the Volcker Rule." - "I don't agree." And in continuing the air of camaraderie in which nobody dared to ask anything too damning, Mack proceeded to discuss Charlie's work out routine. All fine and swell... too bad John Mack lied. Enter Howie Hubler, who singlehandedly lost Morgan Stanley $9 billion on a prop trade gone horribly bad, and this was still at a time when $9 billion was a fair amount of money. In fact, according to Michael Lewis, the former Morgan Stanley prop trader lost "more than any single trader has ever lost in the history of Wall Street." Maybe it is time for a repeat appearance of Mr. Mack on Fox Business, this time with some more probing questions by his fans.
Max Abelson discusses the blatant contradiction between Mack's presentation of reality... and facts:
Halfway through this month’s 60 Minutes interview with the
financial journalism deity Michael Lewis, a snapshot of a half-grinning
banker in a pinstriped suit filled the screen. With a thick neck and
soft face, mouth turned tightly upward, the former mortgage bond trader
Howie Hubler smiled out unknowingly at 12 million viewers.
In his nice New Orleans drawl, Mr. Lewis said that this banker lost
Morgan Stanley about $9 billion. “More than any single trader has ever
lost in the history of Wall Street. And no one knows his name.”
Yes, prop trading is fine and well, and just waiting for the next massive loss, although not so much at Morgan Stanley, which under Mack's watch was downgraded a third-tier investment bank, after Mack decided to not take any risks ever again... and was summarily booted.
Some more details on Hubler:
By the end of 2004, he was skeptical of the subprime mortgage
business, and craved new ways to bet against it. He found Morgan
Stanley customers willing to sell him credit default swaps on pools of
subprime mortgage loans, which, though there are many poetic ways of
putting this, was like taking out an awesome insurance policy on a
house you’ve built in quicksand.
But the economy’s fall took a while to begin, which was a problem
for Mr. Hubler—who in April 2006 was put in charge of his own Morgan
Stanley hedge fund, called the Global Proprietary Credit Group. To make
up for the millions of dollars that it cost to carry his subprime bets
until the bad times hit, he sold insurance on slightly better
mortgages. He wagered on a disaster he clearly saw coming, and then
against a worse disaster he was blind to—agreeing to insure the house
next door, prettier but in the same sand. And because insuring
something that’s less risky is less lucrative, he had to sell several
times the amount of swaps that he himself had bought
And just in case you thought someone may not make a million dollar bonus after losing his firm's shareholders almost ten billion, you would be dead wrong.
“What happened to Howie Hubler?” Steve Kroft asked this month on 60 Minutes.
“He’s allowed to resign from Morgan Stanley and he takes with him
millions of dollars in back pay,” Mr. Lewis answers. “Tens of millions
of dollars in back pay.”
Not only that, but Hubler is back to his old antics, not so much collecting pennies in front of a rollercoaster this time, as preying on the broke.
Across the Hudson River, in an office suite in Rumson, N.J., Mr. Hubler
has quietly slipped back into the mortgage business. According to
marketing materials, he started a firm with former Morgan Stanley
colleagues to advise mortgage lenders whose borrowers are threatening
to walk away from homes that are worth less than what’s owed on them. They’re called the Loan Value Group. Loan Value Group charges fees to lenders in exchange for organizing a
reward that provides incentive for homeowners not to default. Because
simply leaving can make financial sense, the company says, the solution
is to target a borrower’s pocketbook.
Some other utter failures who works with Hubler are other than NetJets' recent departure Rick Santulli, as well as the former CEO of now bankrupt J.G. Wentworth.
Mr. Hubler would not speak for this article. “He’s pretty much adamant
about not talking about this,” a spokesperson said. Neither would
Richard Santulli, the company’s newly appointed chairman, who was CEO
of the fractional aircraft ownership company NetJets until last August;
nor the board member Michael Goodman, the former CEO of J.G. Wentworth,
the lump-sum payment firm (“we understand it is hard to wait”!) that
filed for bankruptcy last year.
Failed mediocrities of the world unite! Oh yes, and the Volcker Rule is an aberration. God forbid something prevents idiots from blowing up their firms once again in the pursuit of the non-elusive Wall Street bonus, only to ruin their shareholders and have taxpayers bail them out over and over again.