When the End Times come one of the first groups of people who will be rounded up and fed to the ravenous rock-leviathan will be the investment bankers, especially the extra-tasty variety that once presided over the so-called “White Shoe firms” of Wall Street. Oh yes, hungry rock-leviathans are very much agreeable to banker with a side of white shoes.
But still, as sacrifice-ready as they will be at that point, they are nowadays very much capable of getting things right here and there. And so I take this opportunity to heap Mr. James Gorman, the CEO of Morgan Stanley ($MS), with a blog post’s worth of praise for his handling of the market rumors this week in my latest piece at the Wall Street Journal:
In the wild, perception is reality and in the markets, if a bank isn’t a fortress then it’s barely a pillow fort in the eye of the beholder.
Hedge fund giant (and heroin legalization advocate) George Soros explains his Theory of Reflexivity as the ability of market action to shape economic events – as opposed to the more expected other way around. Nowhere is reflexivity more dangerous than in the share prices and CDS contracts of financial institutions – a plummeting stock tells the market that a bank is in trouble, even if it isn’t in trouble it is in trouble by virtue of the market thinking it’s in trouble. Credit lines get pulled, short-term funding is denied and counterparties shy away from having anything to do with a bank that looks shaky according to it’s stock price.
If it all sounds like very Hall-of-Mirrors-esque…well, it is. Soros has merely put into words a phenomenon that’s been a part of nature since the beginning of time. This is why injured animals have trouble finding mating partners and why Jewish girls in college don’t date boys who are perceived to be behind in their studies (trust me).
Keeping this perception-is-reality idea in the back of your mind, I ask you to consider the action taken by Morgan Stanley’s CEO James Gorman this week..