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How Did Morgan Stanley Lose That $9.4 Billion Anyway?

Yves Smith considers a mystery:

naked capitalism: So How Did Morgan Stanley Lose That $9.4 Billion?: I usually rely on public information, but I've had two not-so-public (well, one is public but second-hand) data points converge, and they are consistent with the MSM information on the matter at hand, namely, how Morgan Stanley came to post a $9.4 billion loss on the actions of one trading desk, which in turn led to a first time quarterly loss of $3.85 billion. The reports in the press are not terribly specific but consistent. For instance, from the Guardian:

The outcome is particularly galling for Morgan Stanley because it spotted early signs of the looming sub-prime mortgage crisis and took steps to hedge its trading positions to protect itself against financial damage. But poor execution allowed these hedges to fall away – a failure which prompted internal soul-searching and the recent departure of the bank's co-president, Zoe Cruz....

I heard tonight from a Morgan Stanley employee... [that] the losses... resulted from error, pure and simple. Someone made a mistake and put a BBB hedge on an AAA subprime position... no one notice[d] that the hedge was incorrect.... Mind you, I only got the sketchiest of outlines of what transpired, but the part that was very clear was "mistake" and specifically that someone, somehow misread BBB for AAA (or vice versa). The fact that short mezzanine was described as a hedge for long AAA whas been confirmed in the press. I'm sure real traders who have access to real data can interpolate better.

Then we get to the more interesting question of what sort of managerial failure this represents... bad management information systems... that didn't closely or clearly show how long positions and supposed hedges relate... overly large desk limits... failings in firm-wide risk management processes Even if the trade was put on incorrectly, how in God's name was it allowed to keep going south until the losses reached $9.4 billion?...