ONCE UPON A TIME...
At a time when the conventional wisdom is that "All Bankers are Evil", it's interesting to hark back to a time when that wasn't necessarily the case. This op-ed piece by author Jean Strouse in the New York Times this weekend takes us back to that time:
"A look back at the handling of another financial crisis a full century ago underlines the point about decisive action. You just don’t want to take the wrong decisive action. Markets today are immeasurably more complex, global, fast-moving and regulated (a lot of good that did) than they were a hundred years ago, but the need for strong leadership has not changed..."
"In October 1907, when a panic started among trust companies in New York and terrified depositors lined up to get their money out, Schiff’s dire prediction seemed about to come true. The United States had no Federal Reserve, the Treasury secretary did not have much political authority, and the president, Theodore Roosevelt, was off shooting game in Louisiana.
J. Pierpont Morgan, a 70-year-old private banker, quietly took charge of the situation.
In the absence of a central bank, Morgan had for decades been acting as the country’s unofficial lender of last resort, gathering reserves and supplying capital to the markets in periods of crisis. For two harrowing weeks in 1907, with the whole world watching, he operated like a general, deploying three young lieutenants to do leg work and supply him with information, and bringing two other leading bankers, James Stillman of National City Bank and George Baker of the First National Bank, into a senior “trio” to make executive decisions. (First National and National City eventually combined to form what is now Citigroup — are the shades of Baker and Stillman writhing over what has become of their descendant institution?)
The story does have a happy ending,
"Though Morgan had a large sense of public duty, he had not shouldered the falling church out of pure altruism. His self-interest operated on a national scale.
His clients — many of them Europeans who had invested for decades in the emerging American economy through the House of Morgan — had billions of dollars committed in the United States. In watching over their long-term interests, trying to control the excesses of the business cycle and maintain the value of the dollar, Morgan had come to serve as guardian of American credit in international markets.
His power in 1907 derived not from the size of his own fortune but from the trust placed in him by investors, other bankers and international statesman.
After Morgan died in 1913, the newspapers reported his net worth as about $80 million — roughly $1.7 billion in today’s dollars. John D. Rockefeller, already worth a billion in 1913 dollars, is said to have read the figure, shaken his head, and remarked, “And to think he wasn’t even a rich man.”
The whole piece is worth reading. Maybe history could again repeat if given half a chance.