JP Morgan was a financier who saved the American economy twice, first during the Panic of 1893 and second during the Panic of 1907. Morgan was well known for his ability to turn around troubled companies and was a master at brokering deals. If two companies couldn’t come to an agreement on a deal, he would invite the Presidents/CEOs of the companies out on his boat and sail them around Manhattan until they came to a deal.

In the Panic of 1907, America was in a recession, stocks fell close to 50% below the New York Stock Exchange’s (NYSE) peak only one year prior, there were runs on the banks and trust companies, many banks and businesses were filing for bankruptcy, there was a lack of consumer confidence, and banks quit lending to each other due to a lack of liquidity. Sound familiar?

Morgan and his team reviewed the books of banks and determined which were viable enough to survive and which were insolvent. He put up huge sums of his own money to support the banking system and convinced other New York bankers to do the same. In one instance, he raised $23.6M (approximately $519M in today’s dollars) in 10 minutes to avoid a collapse of the NYSE. Through his actions, Morgan restored calm in the markets.

Within days of averting the stock market crisis, a new issue arose. Moore & Schely, one of the NYSE’s largest brokerage firms, was drowning in debt and on the verge of collapse (note that this is the “are they too big to fail” debate that we’ve been having in this country for months now). Their stock was trading at a very low price and their debt issuers were going to start calling their loans. Moore & Schely had purchased the Tennessee, Coal, Iron and Railroad Company’s (TC&I) stock and was using it as collateral. If their loans were called, they would have to liquidate their TC&I stock, making the stock price plummet, ultimately causing another panic in the market. Once Morgan caught wind of this, he called an emergency meeting in his library that Saturday morning. To avoid the crisis, Morgan brokered a deal for the US Steel Corporation to acquire TC&I and loan Moore & Schely $5M.

In the meantime, another issue came to Morgan’s attention. Bankers were becoming increasingly concerned that the Trust Company of America and Lincoln Trust would not open for business the following Monday. That Saturday evening, about 50 New York bankers went to Morgan’s library to discuss the impending crisis. He told the Trust Company Presidents about the Moore & Schely situation and would not agree to finalize the deal unless the trust companies could come to an agreement on how to assist the struggling trust companies. Morgan literally locked them all in a room and pocketed the key until they could come to an agreement, which they finally did early Sunday morning.

Just over 100 years later, we’re in almost the exact same situation. The only real difference is technology and the speed at which we receive information, which certainly complicates things.

Obama is too busy politicizing the use of bail out money and making the banks into the bad guys to resolve the situation. I have no idea what Geithner has been doing since he was tapped last November to become Treasury Secretary because he still hasn’t managed to give more than a vague outline of his “plan”. I’ve been holding out hope for Warren Buffett, since he’s the only one that has cash these days, but he seems content to just talk about how bad the economy is, except for the one loan he did make to Goldman Sachs last year.

So who has the guts to stand up and say, “Stop the nonsense and let’s find a solution to this problem”? Who will be our next JP Morgan?

Comments

  • Red State Eddio

    George Soros wants to be. Wouldn’t be surprized if he’s behind some plan to short sell the market until he “rescues” it.

    • Alaina Segovia

      My vote if for Jack Welch…

  • East of Eden

    Alania, I really enjoyed this post. It’s sad that no one really KNOWS the history of the financal markets, if we did, or if we had some one willing to lock everyone in a room till they worked it out, we’d have private solutions for this problem.

  • nobama

    Starbucks?

  • Gil Rice

    Sad to say, I’m not sure there is a JP Morgan left today. As we have evolved into such an avaricious society and with the socialistic leaning leaders now in control, I do not believe they would stop and listen if JP himself tried to help.

    • Sartho

      I sadly think I agree with you.