The article incorrectly said that the government has a majority stake in Citigroup. The government is the bank's largest shareholder.
In Shift, Wall Street Goes to Washington
Sunday, September 13, 2009
J.P. Morgan Chase for the first time convened its board in Washington this summer, calling the directors to a meeting at the downtown Hay-Adams hotel, then dispatching them to Capitol Hill for meet-and-greets.
Last month, a firm run by the billionaire investor Wilbur Ross hired the head of Washington's top mortgage regulator to pick through the wreckage of the housing bust looking for bargains.
And the world's largest bond fund, Pimco, which has traditionally assessed the risk of any new investment according to five financial criteria, recently added one more: the impact of any change in federal policy.
As financial firms navigate a life more closely connected to government aid and oversight than ever before, they increasingly turn to Washington, closing a chasm that was previously far greater than the 228 miles separating the nation's political and financial capitals.
In the year since the investment bank Lehman Brothers collapsed, paralyzing global markets and triggering one of the biggest government forays into the economy in U.S. history, Wall Street has looked south to forge new business strategies, hew to new federal policies and find new talent.
"In the old days, Washington was refereeing from the sideline," said Mohamed A. el-Erian, chief executive officer of Pimco. "In the new world we're going toward, not only is Washington refereeing from the field, but it is also in some respects a player as well. . . . And that changes the dynamics significantly."
Washington has become a dominant player. Over the past year, the Federal Reserve and the Treasury have injected trillions of dollars into frozen financial markets, snapping up unwanted bonds, extending guarantees to banks and slashing interest rates.
Three times as much U.S. taxpayer money has gone into propping up a single firm, insurance giant American International Group, as the world spent a decade ago during the financial rescue of South Korea, then the world's 11th-largest economy. And the emergency bailout of financial firms that Congress approved last year has cost nearly as much as the first five years of the war in Iraq.
Now the Treasury and the Federal Reserve are embroiled in everything from credit cards and home loans to auto manufacturing, from overseeing executive pay to shaping boards of directors.
In response, senior executives of major financial companies are traversing the Beltway to meet lawmakers in person for the first time. Firms such as Fidelity Investments, BNY Mellon and even Goldman Sachs, which has prospered in the crisis relative to many other banks, are opening additional offices or bulking up their staffs in the capital.
For decades, the federal government has played a key role in financial markets through regulation, public spending and monetary policy. But the government has now established itself as never before as the most dynamic actor in the still ailing economy. That prominence is sure to fade as the rescue programs wind down. Yet Wall Street executives say the legacy could be enduring.
The relationship "has changed in the sense that it's clear that every one of the firms, including Goldman Sachs, recognizes that they would not exist today had the government not stepped in when it did," one former senior bank executive said.