The New Fixers

The New Fixers
Daniel Gross
Oct 04, 2008

http://www.newsweek.com/id/162269

In 1907, one man saved us from financial collapse. Today it takes a troika.

"This is the place to stop this trouble!" J. P. Morgan said on the afternoon of Oct. 23, 1907. After the failure of several trust companies (unregulated banks, kind of like today's subprime lenders), the banker had decided that the collapse of the Trust Co. of America would cause too much damage to America's fragile financial system. He pulled together leading bankers and pooled funds to bail out the firm. Over the course of two weeks, as a fevered crisis gripped Wall Street and Washington, Morgan acted time and again: saving brokerage firms, rounding up $25 million in cash in 20 minutes to help the New York Stock Exchange stay open, underwriting municipal bonds for New York City, bringing in gold from Europe to bolster the dollar and replenish Washington's coffers. "He essentially singlehandedly saved New York City from failure," says Sean Carr, coauthor of "The Panic of 1907."

One of the troubling features of our current, rolling crises on Wall Street has been the absence of a single, Morganesque financial statesman-someone who can put a stop to the trouble. President Bush is essentially AWOL, and Federal Reserve chairman Ben Bernanke doesn't command the respect of the global markets the way his predecessor, Alan Greenspan (who, it is now clear, helped create this mess), did. "I don't think any one man in today's immense and immensely complex markets could play the role J. P. Morgan played in 1907," says Jean Strouse, author of the Morgan biography "American Financier." Indeed, the best we have is a troika of unrelated executives who are performing different components of Morgan's historic role.

John Pierpont Morgan, all paunch and haughty jowls, owner of a rhinophyma-ridden nose that launched a thousand caricatures, was the dominant banker of America's gawky financial adolescence. Today the most powerful banker in Gotham is Jamie Dimon, the CEO of a firm that descends (historical irony alert!) from the House of Morgan itself. Like J.P., he is aloof and willing to play hardball. In March, Dimon's JPMorgan Chase picked up the failed investment bank Bear Stearns, and in September he snagged the banking operations of ailing Washington Mutual, both for a nominal price. As a result, Dimon now commands a mammoth bank with more than $2 trillion in assets, 5,400 branches and $900 billion in deposits.

At his core, Morgan was an investment banker-a seeker of order, a dealmaker and adviser. Today the investment banker in chief is Treasury's Henry Paulson, the former CEO of Goldman Sachs. Morgan was known to bring feuding railroad executives aboard his yacht, the Corsair, and sail it around New York harbor until they made a deal. Paulson has repeatedly summoned Wall Street executives and political leaders to the offices of the New York Federal Reserve and the Treasury Department for marathon deal meetings.

Paulson has the balance sheet of the Federal Reserve and the taxpayer behind him. Morgan had only his name. But in his day, that was more powerful than any guarantee Uncle Sam could provide. Now it is Warren Buffett, the proprietor of Berkshire Hathaway, whose name commands such respect. With his folksy ways and desire to share his wealth and wisdom with the public, Buffett may appear to be an anti-Morgan. Yet a line from Alice Schroeder's new doorstop "The Snowball: Warren Buffett and the Business of Life"-"He was a man who loved money, a man for whom the game of collecting it ran in his veins as his lifeblood"-could just as accurately have described Morgan. In recent weeks, Buffett has stepped in with his own cash and reputation to stop runs on the bank at Goldman Sachs and General Electric (Buffett is a director of NEWSWEEK's parent, The Washington Post Company). Of course, like Morgan, who profited on some of his system-saving maneuvers in 1907, Buffett was also out to make a buck.

There are important differences between Morgan and his modern-day successors. Morgan was willing to save the financial sector without the government's help. Dimon and Buffett made their investments only because of the prospect of federal assistance. And all three lack his imperium: Morgan would never have strummed a ukulele to entertain shareholders, as Buffett does, nor gotten down on his knees to beg a congressional leader for support, as Paulson did to House Speaker Nancy Pelosi.

But mostly, the difference is that the financial world has changed. "When you look at the complexity of the system and all the interconnectivity and size of these institutions, that is the challenge," Henry Paulson told NEWSWEEK in September. J. P. Morgan, sitting in his fortress-like office at the corner of Wall Street and Broad Street, could easily survey the entirety of the U.S. financial system and get his arms around the problems. Today, as his modern-day imitators look at a chaotic, interconnected global economy, all they can do is play whack-a-mole.

WaMu is largest U.S. bank failure

WaMu is largest U.S. bank failure
Elinor Comlay and Jonathan Stempel (Reuters)
Sep 25, 2008

http://biz.yahoo.com/rb/080925/
business_us_washingtonmutual_jpmorganbiz.html?.v=3

Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.

The rescue marks a historic step to clean up a U.S. financial system littered with toxic mortgage debt.

Seattle-based Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The nation's largest previous banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

The transaction gives JPMorgan roughly 5,400 branches, and fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States.

It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price.

Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.

These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc, the bankruptcy filing of Lehman Brothers Holdings Inc, and Bank of America Corp's planned purchase of Merrill Lynch & Co.

JPMorgan, based in New York, ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches. Washington Mutual had 2,239 branches and 43,198 employees.

Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading after news of a JPMorgan transaction surfaced. JPMorgan shares rose $1.04 to $44.50 after hours.

Thursday's transaction makes JPMorgan close in size to Citigroup, now the largest U.S. bank by assets.

JPMorgan has surpassed Bank of America in size. That bank would become the largest U.S. bank once it completes its planned purchase of Merrill Lynch, expected in the first quarter of 2009.

Once a golden child at Citigroup before his mentor Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has carved for himself something of a role as a Wall Street savior.

Some historians see parallels between him and the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.

Bank of America Chief Executive Kenneth Lewis has also been credited with helping reduce damage on Wall Street with his acquisitions this year of Merrill Lynch and Countrywide Financial Corp, the nation's largest mortgage lender.