Play-by-play accounts from essential players of the 2008 financial crisis are still riveting reads a decade later. That is definitely true of Morgan Stanley CEO John Mack’s new memoir Up Close and All In: Life Lessons from a Wall Street Warrior.
The book covers far more than September 2008, when Morgan Stanley, and the entire global financial system, stood on the brink of collapse, but as Mack noted in his introduction, one of the two defining moments of his career came during that fateful month.
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Morgan Stanley had already suffered record losses from betting on mortgage-backed securities in 2007 when the firm lost $9.4 billion. “The results we announced today are embarrassing for me, for our firm,” Mack said on a December 2007 earnings call. “I want to be absolutely clear: As head of this firm, I take responsibility for performance.”
Mack had already instituted a number of changes at Morgan Stanley to reduce the firm’s exposure to risk and to educate senior management better on what risks were being taken by the time that earnings call was made, but the firm’s experience with the global financial crisis was just beginning.
On Friday, Sept. 12, 2008, Mack was ordered by the New York Federal Reserve Bank’s then-President Tim Geithner to attend a meeting with other financial leaders at the New York Fed’s headquarters. The assembled executives were told to figure out a way to save Lehman Brothers from bankruptcy. As a group, the executives failed. Lehman declared bankruptcy the following Monday.
Mack knew markets were anxious, but he thought he could calm them by moving up Morgan Stanley’s quarterly earnings call, which would include good news: The firm pulled in $8 billion in revenues that quarter. But that Sept. 16 report was not enough to quell market anxieties, and Morgan Stanley stock continued to fall. More importantly, hedge funds spooked by Lehman’s collapse were demanding their money all at once, meaning that even though Morgan Stanley was a viable business, it was about to run out of cash unless it could find a capital infusion.
Mack and his team spent the next week searching the globe for possible partners, but Geithner and the Bush administration wanted him to sell the firm to JPMorgan Chase as soon as possible. By Sunday afternoon, Mack was preparing for a phone call with Mitsubishi UFJ Financial Group when Geithner called with Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke.
“You need to call Jaime and get a deal done,” Geithner ordered Mack. “You should call him again. He’ll buy Morgan Stanley.”
“Yeah, he’ll buy the firm for a dollar,” Mack shot back. “Look, I have the utmost respect for the three of you. What you do for this country makes you patriots. But I have 45,000 employees. I won’t do it.” With that Mack hung up the phone.
When Geithner called back 30 minutes later demanding to speak to Mack again, Mack was already talking with Mitsubishi. He told his assistant, “Tell Tim to get f***ed.”
Hours later, Mack had secured an agreement from Mitsubishi to buy 20% of the firm for $8.5 billion. Morgan Stanley was saved.
The rest of the book, which follows Mack’s rise from an immigrant Lebanese family in North Carolina, to Duke University, to starting as a salesman at Morgan Stanley in 1972, is all equally entertaining. His upbraiding of a Morgan Stanley trader who made a food delivery man wait for half an hour is every bit as memorable as his exchange with Geithner.
Could Mack have done more to prevent the financial crisis? Of course. At one point in the book, he recounts a cab ride where the driver told him about his burgeoning real estate empire. “I didn’t connect the dots,” Mack admitted. But when Morgan Stanley’s own trades went south, Mack fixed the problem and took accountability. Not every finance CEO can say that.
