Morgan Stanley Volckerized

Morgan Stanley's office on Times Square

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Morgan Stanley (MS) is being Volckerized. That’s the new buzz word that refers to the Volcker clause of the Barney Frank Financial Reform Bill. Morgan Stanley is shedding in-house hedge funds by Q4 2010 which means in around 60 days. Employees will be coming up  with billions to purchase equity and get Morgan off the hook.

Financial engineering reigns supreme. These guys were good but do they have a few extra billion kicking around? Watch for compliance and governance nightmares to make this one work. After the mortgage mess we will have the hedge fund mess.

The immediate secret benefit will be to reduce mega compensation off the books of Morgan Stanley and hide it on the books of a private entity. Morgan Stanley and copy cat financial institutions will achieve the necessary political optics.   

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.