9,000,000 dollars that prevented a major catastrophe in the great recession

On October 28, 1929, the Down Jones index collapsed almost 13%. It was one of the most devastating days of Wall Street and the ‘Black Monday‘who marked the Great Depression of 1930. The consequences worldwide were devastating, but it is a cyclical that was repeated in 2008 and that He threatened just a month ago. The financial crisis of 2008 was one of the greatest economic shocks in recent history, and in it there was a history as chanante as representative of the operation of the banks.

The 9,000 million dollars check.

Collapse. He Origin of the recession was … United States. The banks spent years emitting massively high -risk mortgages (credits to individuals who were not going to be able to pay them) and packaged those operations as opaque products and poorly qualified by valuation agencies (they had more risk than it was said). They were the calls “Toxic assets“That banks and funds from all over the world had bought.

It is what caused rampant speculation and an artificial real estate bubble. And all the elements led to the fall of several financial institutions as powerful as Lehman Brothers. The banks stopped lending money, affecting both the entities and companies themselves. There was no money, the stock market fell into chopped jobs and governments had to inject billions to avoid the collapse of the financial system.

Aid! Between it was Morgan Stanleyone of the world’s largest investment banks (the US Big Four with Lehman Brothers, Goldman Sach and Merrill Lynch) who needed the same as the rest of the entities: a rescue. The great independent entities sought how to get billions to continue operating, and the state of Morgan Stanley It was critical.

After flirting with some banks, including a Chinese controlled by the state, they put their hopes in Mitsubishi UFJ. It is one of Japan’s biggest banks and, after intense negotiations, agreed to inject a stratospheric amount.

9,000 million. It is said soon, but with that figure they would get 21% of Morgan Stanley and an annual dividend of 10%. They would be done with a good piece of the American banking cake and Morgan Stanley could continue to operate, but there was a problem: there was no way that the amount arrived in time to avoid collapse.

In fact, everything pointed in one address: if that money did not arrive, the bank would disappear. Time ran against a Morgan Stanley who, in a matter of days, saw how his shares fell from 60 dollars to less than $ 10.

Transfer and holidays. We were in 2008 and the methods were the same as today (that does not speak well of traditional banking, precisely). The negotiation between the entities was urgently held a weekend and if you are one of those who make transfers, you already know what that means: banks do not make transfers on the weekend or holidays.

Due to Columbus dayIn addition, they were going to be closed until Tuesday and, in addition, a transfer took between two and three days. It may, by then, Morgan Stanley no longer existed. In addition, the entity needed to make the announcement of the fusion as soon as possible to relieve the load a bit and show the investors that there was light at the end of the tunnel. The solution was as archaic as effective: paper and boli.

Of joke. In the negotiation, one of the members of the Morgan Stanley team commented a “what a pity that you cannot simply extend a check. account That attendees laughed, but it was a laugh followed by something like “a moment, it can work.” And what if it worked: if Mitsubishi could face extending a check of 9,000 million dollars, nothing prevented Morgan from depositing it at the bank before the markets opened on Tuesday morning.

Thus, they could announce the fusion, they would have the money on the account, the investors would be happy and the end of the story.

Round. Japanese negotiators called the central, they found that they did have the ability to extend that check and the result was as follows:

A role that guaranteed that Morgan Stanley received an injection of 9,000,000 dollars and that caused an increase in the price of shares of $ 9.68 to $ 17.92 when the markets opened on Tuesday. The operation had gone well for both and today, Morgan Stanley has a capitalization of 190,000 million, while Mitsubishi’s investment today exceeds 40,000 million.

A round business that, rather than for history itself, is curious for how a piece of paper (the most expensive in history, could be?) It was imposed on the limitations of the Banks computer system. In fact, in the documentary that the firm made About their history a few years ago, they recognize the most important of this matter: they were lucky.

Images | Mortan Stanley

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