Bear Bailout Is Vintage J.P.
Saturday, March 15, 2008
Yesterday's rescue of Bear Stearns was not the first time J.P. Morgan helped bail out Wall Street.
A little over a century ago, the real-life John Pierpont Morgan ponied up $3 million of his own money and directed $35 million more in federal aid to stave off the little-remembered Panic of 1907.
The mustachioed mega-millionaire -- so self-conscious about his rosacea that he assaulted paparazzi with his walking stick -- was the nation's de facto central bank at the turn of the previous century.
In nineteen-aught-seven, a shadowy attempt to corner a copper company failed, leading to the resignations of prominent bankers. When exposed to jittery investors -- worried about the U.S. money supply -- the scheme caused a run on the trust companies. The trusts were largely unregulated quasi-banks that dealt in ventures that banks would not, such as high-risk mortgages. (Sound familiar?)
Trusts fell like dominoes and threatened the markets. In October 1907, Morgan convened round-the-clock meetings of power brokers at his Manhattan townhouse, deciding which firms would live -- those he would help bail out -- and which would die. His godlike power was made possible by an era in which the federal government's power was minuscule; Morgan controlled perhaps 40 percent of America's industrial and financial economy through various levers, historians estimate.
The Panic abated. But Morgan's colossal power over the U.S. economy spurred lawmakers to create a real central bank -- the Federal Reserve.