Wall Street is rebuilding its culture a brick at a time. It has been a little more than a year since the global financial crisis, the markets retreading and the economic recession and the street is starting a return to normal.
Aarron Lucchetti wrote an article that appears on the front page of the Money & Investing section of the Wall Street Journal on July 22, 2009. The article reports on Morgan Stanley’s second quarter loss of $159 million and contrasts that with Goldman Sach’s record second quarter profits. The article attributes the difference to one cause – Goldman’s willingness to take on more risk. Luchhetti quotes Morgan’s competitors as saying that the company has let opportunities ‘slip by.’
It is easy to see the rebuke of Morgan Stanley and its decision to manage risk throughout the article. Given the competitive nature of traders and their customers, the message is clear – traders need to capture more opportunities through taking on more risk.
There is nothing wrong with prudent risk taking and the article discusses the various parts of Morgan’s business – among the more traditional investment banking lines. There is little discussion of the use of derivatives or other synthetic assets as the means to greater earnings.
The fact that Wall Street is getting back its confidence and willingness to take risk is a sign of economic recovery and unfreezing the credit markets. That is a good thing.
The thing that makes me wonder is, how the Wall Street Journal would cover the opposite situation. What would be the message if Goldman was on its back, seeking federal bailout because its risks turned sour and Morgan was hailed for its prudent risk management.
As we come out of the recession and opporunities increase, keeping a level head will be even more important.
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