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Notes to Chapter 20 621

31. Jonathan Stewart, FRBNY, internal email, September 17, 2008.
32. One year later, the Senior Supervisors Group—a cross-agency task force looking back on the
causes of the financial crisis—would write, “Before the crisis [at the investment banks post-Lehman],
many broker-dealers considered the prime brokerage business to be either a source of liquidity or a liq-
uidity-neutral business. As a result, the magnitude and unprecedented severity of events in September–
October 2008 were largely unanticipated.” Senior Supervisors Group, “Risk Management Lessons from
the Global Banking Crisis of 2008,” October 21, 2009, p. 9.
33. Jonathan Wood, Whitebox Advisors, interview by FCIC, August 11, 2010.
34. The FCIC surveyed hedge funds that survived the crisis. Those in the three largest quartiles
ranked by size received investor redemption requests averaging 20% of their assets in the fourth quarter
of 2008 (the first available redemption date after the Lehman bankruptcy).
35. IFSL Research, “Hedge Funds 2009,” April 2009.
36. David Wong, treasurer of Morgan Stanley, interview by FCIC, October 15, 2010.
37. Mack, interview.
38. Wong, interview.
39. Patrice Maher (Morgan Stanley), email to William Brodows (Federal Reserve BNY) et al., Septem-
ber 28, 2008, with data in an attachment. Hedge fund values are the Prime Brokerage Outflows (NY+In-
ternational).
40. Wong, interview.
41. Matthew Eichner, internal email, September 16, 2008.
42. Angela Miknius, email to NY Bank Sup, September 18, 2008.
43. Amy G. White, internal NYFBR email, September 19, 2008.
44. Morgan Stanley, “Liquidity and Financing Activity: 08/28/08,” “Liquidity and Financing Activity:
09/18/08,” “Liquidity and Financing Activity: 10/03/08,” reports to the New York Federal Reserve.
45. Morgan Stanley Corporate Treasury, “Meeting with Federal Reserve: September 20, 2008,” attach-
ment to Morgan Stanley email to NYFRB, September 20, 2008, including “Forward Forecast.”
46. Morgan Stanley Corporate Treasury, “Liquidity Landscape: 09/12–09/18/2008,” in attachment to
Morgan Stanley email to NYFRB, September 20, 2008; Amy White, internal NYFRB emails, September
16 and 19, 2008.
47. Lloyd Blankfein, testimony before the FCIC, First Public Hearing of the FCIC, day 1, panel 1: Fi-
nancial Institution Representatives, January 13, 2010, transcript, pp. 34–35.
48. Bernanke, closed-door session.
49. Thomas Baxter, interview by FCIC, April 30, 2010.
50. The switch to bank holding company status required a simple charter change. Both Morgan and
Goldman already owned banks that they had chartered as industrial loan companies, a type of bank that
is allowed to accept FDIC-insured deposits without having any Fed supervision over the bank’s parent or
other affiliated companies.
51. Federal Reserve, “Discount Window Payment System Risk: Getting Started,” last updated Novem-
ber 17, 2009.
52. Mack, interview.
53. Mack, interview.
54. Wong, interview.
55. Amy G. White, internal FRBNY email, September 19, 2008.
56. It should be borne in mind that lack of regulation of this market rendered it extremely opaque.
Shortcomings in transparency, lack of reporting requirements, and limited data collection by third par-
ties make it difficult to document and describe the various market trading problems that emerged during
the crisis.
57. Michael Masters, testimony before the FCIC, Hearing on the Role of Derivatives in the Financial
Crisis, day 1, session 1: Overview of Derivatives, June 30, 2010, transcript, p. 26.
58. Depository Trust and Clearing Corporation data provided to the FCIC.
59. “The Global OTC Derivatives Market at End-June 1998,” Bank of International Settlements press
release, December 13, 1998; “OTC derivatives market activity in the second half of 2008,” Bank of Inter-
national Settlements press release, May 9, 2009, p. 7.