At $8.8 billion, Morgan Stanley's global property fund was the biggest among Wall Street banks. Of course, $8.8 billion is not what it once was, especially where real estate is concerned.
According to fund documents reviewed by the Wall Street Journal, the global property fund known as "Msref VI" expects to lose in excess of 60 percent, or a dollars equivalent of 5.4 billion. On the positive side, Morgan Stanley hopes to recoup $3.4 billion of its initial investments.
Founded in 2007, Morgan Stanley’s global property fund arrived at the height of the global property market bubble that the one-time investment bank helped to inflate. Though just one in a series of notable flops, the fund expects to lose 90 percent of its $77 million investment in the Frankfurt Eurotower, which serves as headquarters to the European Central Bank.
The property-related losses suffered at Morgan Stanley offer yet another glimpse at the reckless behavior that helped fuel the worst global economic crisis since the 1930s (forgive the cliché). While one hopes that lessons have been learned and changes made, many of the same policies that led to the crisis remain in place today.
Of particular concern is the Federal Reserve's free money policy, which encourages risk taking behavior where it is least needed -- among ordinary Americans. Meanwhile, America's financial institutions have understandably shunned risk altogether in favor of the risk free returns to which Fed policy has made them privy.
Federal Reserve Chairman Ben Bernanke warned yesterday that growth in the U.S. will continue at a "moderate" pace for the forseeable future. One only hopes that Mr. Bernanke will soon wake up to the fact that his policies are among the key contributors to the moderate pace of growth of which he warns.