Only the Men Survive

Photo: Ben Baker

One 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 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 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.

Of 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 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 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.

Zoe Cruz at the foreign-exchange trading desk in 1997.Photo: Tony Rinaldo

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 usually save you,” says one female Morgan Stanley executive. As a woman, “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.)

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.

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.

Succeeding 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 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 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 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.

Mack’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 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 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.

In 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.

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.

A Chart of Cruz’s Career Trajectory

Only the Men Survive