USING OTHER PEOPLE'S MONEY...

makes it a LOT easier to take risks. The large investment banks have become less cautious after they went public.

Wall Street Shareholders Suffer Losses Partners Never Imagined
By Christine Harper

Feb. 11 (Bloomberg) -- Less than a decade after Wall Street's last major partnership went public, stockholders are paying the price for bankrolling the industry's expanding risk appetite.
Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, data compiled by Bloomberg show.

The private partnerships that once dominated Wall Street guarded their capital, used less leverage and limited their risk to trading blocks of stock for clients and shares of companies in mergers, said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs Group Inc. Since raising money from the public, many of the biggest firms have abandoned that caution.

``We're essentially running all these investment banks and even the large universal banks on the same basis as if they were hedge funds,'' said Smith, the NYU finance professor. Executives ``make big gains on any gains in the firm's income, whereas they're not exposed, they don't have to pay it back in the loss.''


``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' said Anson Beard, 71, who retired from Morgan Stanley in 1994 after 17 years at the New York-based company, where he ran the equities division and helped with the initial public offering in 1986. ``You think differently if you're paid in cash and not in ownership. It's heads you win, tails you don't lose.''

``Shareholders share in the downside and not necessarily in the upside, that's the whole story,'' said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. ``It's OPM: Other People's Money.''