The bank didn't mention the Fed loans in a press release about its financial condition that day. Two weeks later, in another filing, the firm disclosed it was benefiting from "expanded sources of funding and liquidity resulting from the Fed's current policies," without specifying the amount.
Staffers at the Federal Reserve Bank of New York were astonished at how quickly Morgan Stanley's cash dwindled, e- mails released by the crisis commission show.
At 11:05 p.m. on Sept. 15, 2008, William Brodows, a bank supervision officer at the New York Fed, wrote to colleagues that Wong, 44, the Morgan Stanley treasurer at the time, and two other executives had called him at home that night. They wanted "to express their concern that MS had experienced some adverse funding flows late in the day from prime brokerage accounts," Brodows, 61, wrote.
Free Credit
Executives had already begun estimating Morgan Stanley's potential use of the Fed's Primary Dealer Credit Facility, a program created that year to supply emergency funds to securities firms. Such companies lacked access to the central bank's discount window, its last-resort lending program.
"In their 'dark' scenario, they felt their PDCF usage would increase to $10-$15 billion," Brodows wrote in the e- mail.
At 6:59 a.m. the next morning, the concerns were echoed in an e-mail by Matthew Eichner, 46, then an assistant director at the Securities and Exchange Commission, to Brodows and other New York Fed employees.
"Definitely some major outflows of PB balances at both GS ($5 b) and MS ($7 b)," Eichner wrote, referring to prime- brokerage balances at Goldman Sachs and Morgan Stanley. "Not pretty."
It got uglier. At 10:18 p.m. that night, a New York Fed "on-site primary dealer update" stated that Morgan Stanley's prime brokerage had suffered "free credit withdrawals of $20 billion over the last two days, contributing to a $23 billion decline in the parent company liquidity pool to $106 billion." Free credit is an industry term for hedge-fund cash balances, according to Lindsey.
'Catastrophic Scenario'
Two hours later, at 12:30 a.m. on Sept. 17, New York Fed Senior Vice President Til Schuermann forwarded the update to Brodows. Under Morgan Stanley's "catastrophic scenario," Schuermann wrote, "they expect to lose $21.5 bn over the first 2 weeks -- not 2 days -- from PB!"
Jack Gutt, a spokesman for the New York Fed, declined to comment. Eichner now works for the Fed in Washington.