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Only the Men Survive

The crash of Zoe Cruz.
By Joe Hagan Published Apr 27, 2008

ne morning last November, Zoe

Cruz walked the length of
hallway from her executive suite at
Morgan Stanley to the office of her boss,
chairman and CEO John Mack, who’d
called her in for an impromptu meeting.
The distance, roughly 50 feet,
represented the final leg of her journey
to the highest echelons of Wall Street:
Three weeks earlier, the 63-year-old
Mack had signaled that Cruz was his
first choice to replace him as the head of
Morgan Stanley when he retired.

She had come far from the trading floor

where she’d started 25 years ago. She
(Photo: Ben Baker) had survived mergers, regime changes,
and uncertain markets, not to mention
the deeply ingrained sexism of Wall Street. With Mack’s help, she had risen through
the ranks of upper management to become, at age 52, one of the most powerful and
highest-paid women—people—in finance. She thought that she was ready for what
was coming next.

Not that things were ever predictable in a career like the one she had chosen. The
subprime-mortgage crisis was roiling Wall Street, and Morgan Stanley was getting
hit just like everyone else. In recent months, the company had suffered losses of
more than $3.7 billion, and $6 billion in additional losses were projected. But Cruz
thought Morgan would be better able to weather the storm than most other firms. It
was a tough time, to be sure, but she had seen tough times before. And she didn’t
think she had anything to worry about personally. Just the week before, she and her
husband had gone out to dinner with Mack and his wife, raising glasses of red wine
in the dark, wood-paneled Italian restaurant San Pietro.

And so that morning in November, Cruz walked into Mack’s office and took in the
view of Central Park that would one day be hers. Her destiny must have seemed
inevitable, even imminent.

Then she was fired.

“I’ve lost confidence in you,” Mack told her solemnly. “I want you to resign.” The
company’s board of directors had authorized his decision the day before. As a friend
of Mack’s characterized his thinking: “It’s you or me. And guess what? I choose you.”

Cruz was stunned. “I have to call my husband,” she said. Morgan Stanley had been

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her life. She’d worked there her entire career, made the company billions. Her son
had married the daughter of another Morgan Stanley executive. And John Mack had
been her mentor, her friend. After the ten-minute meeting, she got up and left the
building and never went back.

If that meeting in Mack’s office had been the meeting she was hoping for, Cruz
would have made history: No woman has ever been CEO of a Wall Street firm. Now
it looks like that won’t change for a very long time—there are no other high-ranking
women in serious contention for a top job. If women across Wall Street viewed
Cruz’s firing as a blow, there were men at Morgan Stanley who seemed almost
gleeful about it. The woman they had nicknamed the “Czarina,” the “Wicked Witch,”
and, most famously, “Cruz Missile” was out of the picture. They joked that it was
worth the $9 billion loss to have her gone. In her rise through the company, Cruz
had become not just one of the most powerful women on Wall Street but also the
most loathed. It’s a matter of opinion whether those two things are inextricably
linked, but for Cruz the same qualities that propelled her almost to the top also
prevented her from reaching it.

f all the recent firings on Wall Street, Cruz’s is the one that’s still vehemently
debated. It’s not just because a top executive was forced to take the fall for
her boss, though that does seem to be the case. The fascination comes from the fact
that Cruz is a woman, and that she had climbed further up the Wall Street food
chain than any other woman ever had. She was fired at a time when women on Wall
Street were starting to wonder—after more than a quarter-century of getting
M.B.A.’s and slugging it out in the firms’ trenches—when one of them was finally
going to make it to the CEO’s office. And she was fired at a time when the first
serious female candidate is running for the presidency and women’s anxieties about
competing in a man’s world are playing out on the national stage. Cruz, of course,
would prefer to be seen as an executive rather than a female executive. But it’s
impossible, at this point, to make the distinction.

From the beginning, she had the uncompromising ferocity that seems to be
characteristic of nearly all women who achieve great success. She was born Zoe
Papadimitriou, in Greece, and her parents, who moved the family to the U.S. when
she was 14, pushed her to succeed in a land where they were outsiders. After
attending high school in a Boston suburb, Cruz went to Harvard, and then Harvard
Business School, where she was one of only 168 women in a class of 755. As an
undergraduate, she had met and married classmate Ernesto Cruz, a gregarious and
equally ambitious immigrant from Nicaragua. Not long after she graduated from
business school, she gave birth to the first of their three children, Ernesto Cruz III.

Having a baby did not change her career plans. Morgan Stanley recruited Cruz
directly out of school, and she went to work in the newest and smallest division at
the firm, foreign exchange. The decision to leave her young child at home did not
torment her. According to a colleague at Morgan Stanley, Cruz thought of herself as
an “alpha female”—“If we spent our whole lives at home,” she would say, “our
children would be tortured.”

Cruz was more “alpha” than most of the women she started out with at Morgan
Stanley. She wasn’t oblivious to the fact that Wall Street, especially at the time, was

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dominated by men, but she was determined not to acknowledge it. She loved the
game, and she was good at it—she didn’t see what her gender had to do with it. And
her competitive zeal would soon have her leapfrogging over men who had once been
her bosses.

She gravitated toward trading foreign currency, in part because a trader’s hours—the
closing bell rings at 4 p.m.—were better for a working mother. But the trading floor
also appealed to her personality. “I liked the markets, the energy, the noise,” she told
Fortune magazine last year. “And I like trading because of the unequivocal nature of
the report card.” Profits and losses were recorded in black and white. It was an arena
in which a woman’s success could be measured objectively.

When Cruz arrived in 1982, the trading floor was a hurly-burly of aggressive men
who marked turf with high-volume arguments, had pinup girls in their cubicles, and
socialized on golf courses and in strip clubs. “When a trader walked around a corner,
he assumed that you were a sales assistant,” says one former female Morgan Stanley
executive. Three years into her job, Cruz was passed over for a promotion that went
to a male colleague. It was a devastating defeat. She later told a group of students at
Harvard Business School that she went home afterward to “cry [her] eyes out” but
decided to “stay in the game.” She went back to work and told her supervisor that
she did not intend to make a career out of being a low-level associate.

It did not go unobserved by her male colleagues that Cruz was a petite, attractive
woman with large brown eyes and a big, dimpled smile. She bore a passing
resemblance to the actress Juliette Binoche, and she spoke with the trilled r’s of a
Greek accent. She could be charming and easygoing and funny when she chose to,
but she was not one to rely on her feminine wiles to get what she wanted. In a
testosterone-fueled environment where one trader legendarily slammed his phone
down so hard he broke his hand, Cruz learned that she had to shout down her
adversaries. When another Morgan Stanley division head, Patrick de Saint-Aignan,
started buying currency options from a competing bank with better rates than Cruz
offered in-house, she would “storm over screaming” at the bewildered Frenchman,
accusing him of “crossing the line into her turf,” says a onetime colleague, who
describes bystanders looking on awkwardly, relieved when she finally walked away.
But her ferocity paid off: After several such episodes, she forced De Saint-Aignan to
buy her higher-priced options, diminishing his profits but improving her own.

Cruz attributed her flare-ups to her “Mediterranean blood,” but they may also have
been a matter of necessity. “For women to get to the top, they have to be so much
more ruthless,” says another former colleague. “Whether it’s Martha Stewart or
Donna Karan—the most bitchy people you’d ever want to meet in your life. But they
had to be that way.”

Cruz’s brand of aggression seemed to define her more than it did her male
colleagues, partly because she wasn’t very good at—or didn’t see the point
in—smoothing over a relationship after a conflict. “A guy can say, ‘But you know I
love you, right?’ ” says a female colleague who worked with Cruz in the nineties. “She
can’t say, ‘But you know I love you, right?’ It’s the pounding-each-other-on-the-back
stuff that men do. Maybe it’s because a woman is seen as too soft and nurturing in a
man’s world. Women aren’t encouraged to do that.”

She might not have been liked by everyone, but Cruz was developing a reputation as

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a tough and savvy trader with quick and unwavering views on market positions.
“Well, what’s your gut feel?” she would ask. And she trusted her own gut implicitly,
often growing impatient with opposing views. A former Morgan Stanley executive
who admires Cruz says her cut-to-the-chase nature was her allure, especially to
clients looking for clarity amid market ambiguity. “When she walks out of the room,
you know whether her view is up or down,” he says.

After being made a managing director,

in 1990, Cruz moved up to co-head of
the foreign-exchange division in 1993.
But she wasn’t going to rise as quickly as
she wanted without help. “If you’re a
man who’s mediocre and you get along
with everybody, the rising tide will
Zoe Cruz at the foreign-exchange trading desk in usually save you,” says one female
1997.
Morgan Stanley executive. As a woman,
(Photo: Tony Rinaldo)
“you need a huge level of sponsorship.”

For Cruz, that sponsor would be John Mack. Mack had emerged from the
bond-trading division in the seventies to become a company star. He was known for
being confrontational and intimidating (he broke several telephones during his days
in sales and once threw a chair at a wall), but he was also a sensational salesman
who could “charm the eyes out of a rattlesnake,” in the words of one confidante.

While Mack and Cruz had known each other since she began at the firm (he’d
interviewed her in 1982), they became closer when Mack was made president of the
fixed-income division, which encompassed bonds, commodities, derivatives, and
currencies, in 1993. Associates say Mack saw in Cruz things he liked about himself.
He too was the child of immigrants, raised by Lebanese parents in North Carolina.
He too had a reputation as a volatile but decisive leader who enjoyed taking risks.
“John always liked people that were brash and not afraid to tell you to go fuck
yourself to your face,” says a onetime Morgan Stanley employee who knows Cruz
and Mack. “There was a personal thing there.”

But Cruz also served a larger purpose for Mack. As he rose in the company, he came
to see women’s advancement as a major part of his legacy. By the late nineties, sex
discrimination had become a thorny issue for the company. A Morgan Stanley
executive named Allison Schieffelin was making waves, claiming that her boss
denied her promotions and discouraged her from participating in “men’s events
such as golf outings, football games, and ‘boys’ nights out.’ ” Vikram Pandit, the head
of the equities division where Schieffelin worked, hosted a dinner for her and five
other women to hear their grievances. Pandit told them that pervasive sexism was a
“cultural thing,” and while it was “unfortunate,” he suggested they “look forward”
and build a foundation of equality for the next generation. The women were not
satisfied: It was “obvious [Pandit] is going to do nothing to help us in this
generation,” said one. In 2001, Schieffelin and the Equal Employment Opportunity
Commission filed a lawsuit claiming women had been denied opportunities for
advancement. (In 2004, Morgan Stanley settled the suit for $54 million, which was
distributed among 67 female employees.)

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Long before the suit was filed, Mack made an effort to get out in front of the gender
issue by inviting female executives, including Cruz, on women-only golf retreats. If
his intentions were noble, his idea for leveling the field was flawed. Rather than
encouraging male supervisors to interact with their female employees on neutral
territory, Mack tried to teach the women the skills he thought they needed to
compete—namely, a good backswing. Few of the women took up the sport, however.
As one current Morgan Stanley employee puts it, “There are some women who try to
be a guy’s girl. I never saw that be successful.” For her part, Cruz tried golf once,
played poorly, and decided it was too time-consuming.

A former female associate says Cruz was important in articulating the challenges of
women to Mack. “We start men and women at the same line, but we make women
jump over the log and through the trees and over the hoop,” she told him. For Mack,
says the associate, “that was just totally eye-opening.”

But Cruz was not a feminist. While she attended internal meetings about women’s
issues at the company through the years, she could hardly be considered an
advocate. She argued against such programs as “flex time” for women who wanted to
have children. And when asked by Pandit in 1998 what the company should do
about Schieffelin’s discrimination complaints, Cruz told him he should simply pay
her off and make the whole thing go away.

For Cruz, the bottom line on gender politics at Morgan Stanley was literally the
bottom line. “She was incredibly results-oriented. She wouldn’t promote somebody
because she was a woman,” says a former female associate. “She was not someone
who every woman could feel, ‘Okay, she’s on my team because she’s a woman.’ ”

After orchestrating a controversial merger with Dean Witter in 1997 and rising to
president of the company, Mack promoted Cruz to be head of the $2 billion fixed-
income division that he had once run, choosing her over a well-liked executive
named George James. Cruz had had some dramatic successes, growing the foreign-
exchange division’s profits from about $170 million a year to $670 million, but
foreign exchange was still a small business, whereas James had run the much larger
debt-derivatives division. The company was divided over whether Cruz was rising on
merit. “Half the people said, ‘What the hell is going on?’ ” says a former executive at
the firm. “The other half said, ‘She’s a bright woman.’ ”

Cruz’s elevation temporarily allayed concerns that women were being marginalized
at the firm. She had become a role model to other female executives whether she
wanted to be or not. They looked to her to see how to present themselves—she kept
her hair short and wore no makeup, but she wore stylish slim suits and fashionable
Narciso Rodriguez dresses. They also looked to her as an example of how to advance
your career while raising kids. Cruz had had two more children by this point, and
each time she returned to work within a few weeks of giving birth. When she was in
labor with her daughter in 1988, she fielded a call from the trading desk to discuss
positions in a particularly volatile market. Like many Wall Street executives, she
sometimes worked sixteen-hour days, getting up at five in the morning and to work
by six. But she found time to do traditional motherly tasks. When her daughter
needed to bring cookies to school, for instance, Cruz got up at 4 a.m. and made them
herself before going to the office.

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She was one of those amazing women who seemed to be “doing it all.” But she didn’t
want to advertise herself that way. There would be no appearances on Oprah or
articles in women’s magazines. “No, my family comes first,” she told one female
colleague. “And I will not subject anybody to this. I love my job, but I’m not here to
broadcast it.”

Besides, publicizing her power only invited scrutiny from her enemies, who were
growing in number every year.

ucceeding in the upper echelons of a Wall Street firm is as much a matter of

nuanced power politics as anything else. You need to be good at the actual job,
to be sure. But you also need to be good at favor-trading, strategic maneuvering, and
convincing the board of directors that you’re good at your job. If Cruz had loved the
black-and-white objectivity of being a trader, she was now stumbling into gray
territory.

“He gets ‘Mack the Knife’ and that’s cool, and she gets ‘Cruz
Missile’ and that’s bad?”

With Mack around, she was seen as a “protected species,” said one Wall Street
woman. But Mack’s position at the company was shaken when hundreds of millions
of dollars were lost in a series of bad high-yield-bond trades, and his influence was
thwarted by CEO Phil Purcell, the former chief executive of Dean Witter who had
taken control of the combined company after the merger. In July 2001, Mack left to
become CEO of Credit Suisse. He tried recruiting Cruz to go with him, but she
declined, citing loyalty to Morgan Stanley. That she would have found herself
working with her husband, who was by then head of equity-capital markets at Credit
Suisse, also had to weigh on the decision. The Wall Street power couple was already
an anomaly; to share a home and an office might have made things too complicated.

And the situation was complicated enough at Morgan. Cruz’s new boss was Vikram
Pandit, the Indian-born executive who was now co-president and COO. Pandit was
not a fan of Cruz’s. They were cultural and constitutional opposites: she the vocal
risk-taker, he the professorial conservative. He had come from the equities division,
not fixed income like Mack and Cruz. And in the struggle for capital allocation
among division heads, Pandit tended to favor the head of equities, John Havens.

But with equities rocked by the bursting of the Internet bubble, Cruz’s division
became the growth engine at Morgan Stanley despite Pandit’s lack of support. In
2003, she increased revenues by 65 percent over the year before. Her compensation
that year, with bonuses, was $16.1 million—larger than both Purcell’s and Pandit’s
takes. By 2004, her division had grown revenues to $5.6 billion, constituting 14
percent of Morgan Stanley’s total income.

Pandit still wasn’t sold on Cruz. He pointed out that she wasn’t making as much as
her competitors at other banks, namely archrival Goldman Sachs. Cruz argued that
she could improve the bottom line if the company were comfortable with taking on
more risk. “I’d be more than happy for Zoe to take more risk,” Pandit told a friend,
“if I felt comfortable that she understood the risk she’d be taking.”

Throughout this period, Cruz was dogged by suggestions that she was unqualified to

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head her division. According to a person who attended several meetings with them,
Pandit would antagonize Cruz in front of the other managing directors, causing her
to shake with anger and frustration, wiping tears from her eyes. And during the
annual managing directors’ dinner in 2002, a gathering in which employees
performed vaudeville skits to poke fun at the leadership, Cruz’s division was
described as breaking down into two parts: the “she gets it” part and the “she doesn’t
get it” part. “It got the biggest wince and laugh at the same time,” says an attendee.

“If you ask a woman now if it’s different than it used to be, they say it’s the same or
worse,” says Linda Bialecki, who runs a Wall Street search firm. “It’s worse because
it’s gotten so much more subtle. It’s hard to argue about subtle. But it’s a thousand
cuts.”

What was happening to Cruz didn’t seem all that subtle. She was seen as a
ballbuster: “We understand that she is very fierce and enjoys shredding inflated
reputations into small packets of confetti,” wrote a financial-gossip columnist
around the same time that the pejorative “Cruz Missile” first appeared in the press.
She was seen as overly emotional, her voice sometimes cracking in contentious
meetings. (“Having an emotional reaction to things is where I’ve made most of my
mistakes,” she told a group of students at Harvard.) Much like Hillary Clinton, she
was accused of crying for the purposes of manipulation. “She wanted to compete
with the guys, but she was not beyond crying when it was useful,” says a onetime
male colleague.

Most critically, she was not taken at all seriously by a number of her male
colleagues: “She’d give these speeches, and the eyes would roll,” says one former
executive. The attitude toward attending meetings headed by Cruz was “take [the]
pain and move on,” says a current Morgan Stanley employee. During a year-end
management meeting in 2004, one mid-level executive interrupted Cruz’s speech to
ask, “Are you high? Because I really don’t know what you’re talking about.”

“High?” Cruz asked. “You mean stoned?”

“Yeah, exactly,” he said. “Smoking it.”

Everyone in the room laughed—except Cruz. (She fired the man for unrelated
reasons six months later.)

In 2004, Pandit wrote a critical evaluation of Cruz, including charges that she was
dismissive of shareholders and board members. Angered, Cruz sent Pandit a
rebuttal to his evaluation and traveled to London to seek the support of Laura
Tyson, then dean of the London Business School and the sole female board member
at Morgan Stanley. Tyson was “a strong advocate of Zoe’s,” says a friend of Cruz’s.

But Cruz’s battle with Pandit was about to get much bigger than the two of them. As
Morgan Stanley’s stock foundered and the firm fell behind its competitors, a group
of dissident outside advisers began to plot CEO Phil Purcell’s ouster. This veteran
gang of eight former Morgan Stanley executives—the so-called Group of Eight, or
the “grumpy old men”—felt Purcell’s risk-averse management style had dragged
down their net worth.

The “G8” sought insiders—among them, Pandit and Havens—who would join with

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them for an all-out insurrection. There was already dissent brewing internally.
During a fateful off-site meeting attended by both Pandit and Cruz in 2004, one
senior executive, Joe Perella, had argued that they all had to band together if they
wanted to wield influence. “If we lock arms, there’s nothing [Purcell] can do,”
Perella said, according to Blue Blood & Mutiny, a recent book about the 2005 power
struggle at Morgan Stanley.

For Cruz, it was a tricky situation: There was pressure from the other senior
executives to align with the G8 and force Purcell out. But that would leave Cruz at
the mercy of Pandit, who was popular with the dissident group and considered a
favorite to one day run Morgan Stanley. Cruz decided to go against her colleagues
and back Purcell, which at first looked like a good move. Purcell cut the legs out
from under Pandit and Havens, effectively forcing them out by giving Cruz the
co-presidency and a chair on the board of directors. But her new position of power
had come with a price: The G8 branded her a traitor, and so did the many members
of the equities division who remained loyal to Pandit. It was an intense time. Though
her office was full of congratulatory flowers and messages—“It looks like a funeral
home, my office!”—Cruz told a group of investors in London that week, “If the
electricity were any higher in New York, I think my hair would catch on fire.”

Occasionally, the pressure got to her. When she forgot her security pass and was
asked for her identification at Morgan Stanley headquarters, she unloaded on the
guards, screaming, “Do you know who I am?” But other times she wielded her new
power with a pert confidence. During a company gathering shortly after Pandit was
pushed out, she declared the company the “United States of Morgan Stanley” and
acted as the bulldog for Purcell’s embattled regime. “It is actually enheartening [sic]
to see how many people within Morgan Stanley are getting angry, and I think that’s
good,” she said. “We need to stay united, and we need to fight this.”

But Purcell couldn’t withstand the G8 attacks, and he announced his resignation two
months later. Having cast her lot with the fallen CEO, Cruz was now more
vulnerable than ever. The other co-president, Steve Crawford, was offered a $32
million exit package, and he took it and ran. But Cruz refused hers, waiting instead
to see if she could survive the transition. Some suspect that as a newly appointed
board member, Cruz was lobbying the other directors to rehire John Mack, who had
been forced out at Credit Suisse after losing a power struggle with his co-CEO.

It’s unclear whether she was responsible, but the board did rehire Mack—to the
annoyance of the G8, who had wanted one of their own, Bob Scott, to replace
Purcell. With Mack back, Cruz hoped that she might not simply survive but thrive.
“Zoe was lobbying hard to be appointed the sole president,” says a former insider,
rather than continue with the title of acting president.

As he explored what to do, Mack was barraged by Cruz’s critics, who suggested that
she had “developmental issues” as a manager, says a senior executive at Morgan
Stanley. She could be imperious, they claimed, refusing to consider other opinions.
To allay concerns, he brought in a management coach to help smooth out some of
Cruz’s rough edges. (Cruz’s supporters say the coach was her idea, to help her team
communicate better.) He also began meeting with Pandit and the other ousted
executives to discuss bringing them back into the fold. They told him they would

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come, but only if Cruz were gone.

Cruz could be imperious, refusing to consider other opinions.

“You cannot disagree with Zoe and continue to be successful
at this firm.”

Mack refused the ultimatum. “John kept her on when everyone knew the ranks
would have all come back,” says a person close to Pandit. “They couldn’t believe
she’d done what she’d done. John must have had his reasons.” Cruz was kept on as
co-president, with a new co-president, Robert Scully, to manage alongside her. That
summer, Forbes named her No. 16 on a list of the 100 most powerful women in the
world.

ack’s return was a time of excitement and big money for Cruz. Both of them
had what Cruz called “a healthy appetite for risk,” and they went in search
of “alpha”—outsize returns that surpass market indexes—in the form of complex
new investment vehicles called mortgage-backed securities. Revenues in Cruz’s
divisions rose by 110 percent in 2006, earning her $30 million that year. In the first
quarter of 2007, the firm earned $1 billion by shorting subprime mortgages and beat
Goldman Sachs for the first time in several months—an achievement that thrilled
Cruz.

At the same time, Mack was becoming more vocal about something he had
mentioned as far back as 2001: Zoe Cruz would one day lead the company. At the
shareholders meeting in April 2007, Mack noted that the company’s “all-time highs
in revenues, in income, and in earnings per share” were “in large part due to Zoe
Cruz and the institutional-securities group, which manage a tremendous amount of
risk in a very smart and disciplined way.”

But even as she was riding high, the events that would bring about her downfall had
already been set in motion. It all started with a special trading group Cruz had
approved in 2006 to profit from a bear market. A young trader on a hot streak
named Howie Hubler had developed a complex trade that, put simply, involved
“shorting” (betting against) low-quality subprime mortgages while taking “long”
positions (betting on) on the high-quality triple-A mortgages that most analysts
considered stable.

The mortgage business constituted about 15 percent of Cruz’s overall balance sheet
of roughly $1 trillion and operated three managerial layers below her. Hubler’s top
boss was Neal Shear, a well-liked former commodities trader who privately resented
Cruz. Shear’s division had made much of the firm’s money in the previous year
(earning him a bigger bonus than hers), and some believed that he was hoping to
skip over Cruz to run the company some day.

Having convinced Cruz that Hubler had a golden touch, Shear—along with the
company’s risk manager, Tom Daula—advised her to stay in Hubler’s trade through
the spring of 2007. “They weren’t motivated to unwind these positions because they
thought they could make more money on them,” says a person familiar with the
situation.

It was in May, after a trip to California, when Cruz started to worry. She had met

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with a veteran executive in real-estate markets who told her the entire mortgage
market—not just subprime—was headed for disaster: “We’re going to have double
the default rates and one-half the recovery of the past.” If the triple-A securities got
hit, Morgan Stanley would see major losses. Cruz began personally extracting the
company from several billion dollars in other mortgage investments, as well as
telling clients that they should head for the exits. “She was clearly a bear and clearly
extremely concerned, and she called me every couple of weeks,” says one of her
former clients, Stanley Druckenmiller, a veteran hedge-fund manager who once
operated funds for George Soros.

Cruz also ordered Daula to run “stress tests” on the Hubler positions by calculating
potential losses in the most extreme market scenario. How much did they stand to
lose if the whole mortgage market imploded? Cruz was at her vacation home in
Aspen, Colorado, for the Fourth of July weekend when she got her answer: Daula
called to say he’d concluded they could lose Morgan Stanley $3.5 billion, but he still
considered that an unlikely scenario. According to a person briefed on her story,
Cruz told both Daula and Shear, “I don’t care what your view of probability is. Cut
the position.” The risk was too great, even for her.

But whether Cruz actually gave that order is in dispute. Shear and Daula have
denied she told them to cut the position. And by August, with the market in free fall,
the Hubler bet had gone badly sour. Shear and Daula had managed to extract the
company from $1.8 billion of the trade but had missed a crucial window of
opportunity to untangle another $1.5 billion, a position that would metastasize into
much more severe losses. In Cruz’s view, the two men had ignored her orders and
put the company in an untenable position. They “deferred to Howie [Hubler] instead
of listening to Zoe,” says one Cruz ally. Jay Dweck, a former Goldman Sachs
executive who had recently joined Morgan, was heard by three people to say, “At
Goldman, this isn’t happening. When they say get out, they get out. At Morgan
Stanley, when Zoe says get out, people start negotiating.”

Now that the markets were virtually frozen, there was nothing anyone could do. As
the reality of the situation began to sink in, Cruz became agitated. She left the
building frequently for smoking breaks (asking others for cigarettes, since she wasn’t
a habitual smoker). And the arguments over the trades got so heated that nearby
secretaries “put their heads down and looked at their feet,” says a person familiar
with the situation. “Right now, that’s a billion-dollar loss,” Cruz would yell at Shear.
“If it turns into a $5 billion loss, that’s your job.”

Still, Cruz tried not to panic. In August, according to a witness, she told the board of
directors, “We’re going to be the best house in a deteriorating neighborhood”
—meaning Morgan Stanley would outperform the other companies on the mortgage
crisis. Some have argued that Cruz underplayed the extent of the losses. But in
reality, no one—not Cruz and not Mack—really understood how bad things were. As
the situation continued to fall apart, Mack got more directly involved, leading
risk-management meetings and investigating what went wrong. When he asked Cruz
whom to blame, she urged him to fire Daula and Shear.

Cruz appeared to retain Mack’s confidence through the fall. In early November, the
New York Times reported that she was still Mack’s leading choice to one day lead the

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company. But in truth it seemed that the paper had forced Mack’s hand. Cruz heard
about the pending succession story and hovered over Mack, awaiting his answer. So
Mack answered yes.

Little did Cruz know that being publicly anointed Mack’s heir apparent was the
worst thing that could have happened to her at that moment. For her detractors, it
was the last straw. After the story appeared, several senior executives complained to
Mack that Cruz was having an insidious effect on the company. A longtime Mack
associate, recruitment manager Jerry Wood, said that if Mack made Cruz the next
CEO, their old colleague Vikram Pandit, who by then was running the institutional
clients division at Citigroup, would raid the company for disgruntled Cruz
antagonists. “Vikram has a paycheck in one hand and a voodoo doll of Zoe in the
other, and we’re going to lose all these people if they think the future is Zoe Cruz,” he
said, according to two people familiar with the conversation.

Mack’s reaction, they say, was, “Listen, I’m working with her, she has some rough
edges, but she’s a really talented leader.”

But as Mack interviewed the parties involved, it became clear that the blame was
coalescing around Cruz. When Hubler’s trading manager, Tony Tufariello, told Mack
he had never liked Hubler’s mortgage positions, Mack asked why he hadn’t spoken
up. “You cannot disagree with Zoe and continue to be successful at this firm,”
Tufariello said, according to someone briefed on the conversation. “The more
[Mack] dug into it, the more he realized [Cruz] wasn’t in touch with the situation as
much as she should have been,” says a person familiar with Mack’s thinking. Plus,
Mack was under intense scrutiny himself. He knew the choice he had to make.

When he went to the board for approval to fire her, he didn’t have to argue very
forcefully. Most of them didn’t much like Cruz either. During a committee meeting
in September, when a board member attempted to interrupt her, Cruz stuck her
hand up and snapped, “I’m not finished yet!” But in reality, she was.

n the debate over Cruz’s firing, some say her subordinates were responsible, and
some argue that Mack should have taken the fall. Some say Cruz deserved to
lose her job, although there was something disturbing in the way she was so
singularly blamed. “It’s grotesque to pin this all on Zoe,” says a former Morgan
Stanley executive who happens to be a man. “She broke the rules in the boys’ club.
She got promoted over all the boys. They want to prove she was never up to it when
it all crumbles.”

Wall Street women, by and large, were not surprised. In tough financial times,
female executives tend to be the first to go. “In a bull market, women are fine,” says
Janet Hanson, a former Goldman Sachs executive who runs the women’s
networking group 85 Broads. “When the shit hits the fan, these guys probably don’t
even trust each other. Could you theorize that more women get chucked when things
start going deadly? They sacrificed her.” Women got slaughtered during the dot-com
bust in 2001, says Linda Bialecki. The gender breakdown of the Wall Street
workforce, according to a Securities Industry Association study, went from 43
percent women in 1999, just before the peak of the tech boom, to 37 percent in
2003, after the layoffs.

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More important than the number of women in the field, however, are the positions
they hold. There are very few women in the highest levels of management at any of
the big Wall Street firms. Goldman has three women on its management committee
of 29, but only one of those positions wields any real power—the others are general
counsel and a hedge-fund liaison. Similarly, the two women in upper management
at Merrill Lynch work in public affairs and as general counsel. Respectable jobs,
certainly, but not jobs that lead to CEO. Citigroup’s Sallie Krawcheck was recently
moved from CFO to a less high-profile position. Morgan Stanley and Lehman
Brothers have one woman each in upper management, JPMorgan has two, Credit
Suisse has none.

There are any number of reasons why women don’t often reach the promised land of
power: They lack the networks of their male counterparts; some of them leave work
to raise a family; there are simply fewer women getting M.B.A.’s and going into
finance in the first place. Then again, perhaps those factors would reverse if there
were more women in positions of power. The real problem is that the proverbial
glass ceiling is self-reinforcing. The traits that a woman must develop to duke it out
on the trading floor will come back to haunt her as she ascends the ranks of
management. As a current Morgan Stanley woman puts it, “He gets ‘Mack the Knife’
and that’s cool, and she gets ‘Cruz Missile’ and that’s bad?”

Inevitably, given the current cultural context, Hanson compares the attacks on
Cruz’s personality to those against Hillary Clinton, who has also been characterized
as harsh and humorless. “I worked with some of the greatest people ever to play the
game at Goldman,” says Hanson, “and I don’t think anybody would have described
them as the most fun at the party.”

In the end, Cruz simply couldn’t win. Subprime losses or not, the idea of her running
Morgan Stanley was like sacrilege to her enemies. To add insult to injury, Howie
Hubler and Tom Daula left with nary a press release, and Neal Shear was only
demoted (eventually departing of his own accord). And Vikram Pandit, her old
adversary, was made the new CEO of Citigroup twelve days after she was fired.

Cruz’s insistence that Morgan Stanley would hold up better than other banks in the
“neighborhood” turned out to be more or less right. Citigroup, UBS, and Merrill
Lynch have continued to post extraordinary losses, while Morgan Stanley has largely
regained its footing, beating analysts’ expectations in the first quarter of 2008,
which in part reflected Cruz’s performance.

Today, Cruz is recovering from the only professional life she’s ever known. She tells
friends she accepts responsibility for the losses that happened on her watch, and she
remains uncomfortably aligned with her former employer as they face shareholder
lawsuits. But she still feels the way the company laid the blame at her feet—the way
Mack betrayed her—was unjust.

She’s starting to weigh her options for a return to Wall Street—perhaps at a private-
equity firm or a hedge fund. Though according to her friends, retirement seems to
suit her. She’s grown out her hair and started wearing makeup. “She looks
beautiful,” says a friend. One can’t help but notice it’s an observation that wouldn’t
be made about a male executive in exile.

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