NYT
For Playing Solitaire or Saving the Economy
By ALAN FEUER
Published: March 18, 2009
Say what you will about the Old Guard — its members knew their way around a crisis. They also knew their way around the city's better interiors — separate facts that may not be entirely unrelated.
One of last century's best, most crisis-filled interiors was J. P. Morgan's private study, now in the Morgan Library and Museum on Madison Avenue , which — shortly after it was finished in 1906 — was described as America's most beautiful single room. It was here that Morgan came, as Wall Street occupied him less, to spend long hours playing solitaire amid the Renaissance furnishings and the Circassian walnut doors. It was also here that, according to the history books, he single-handedly saved the economy during the Panic of 1907.
"There was a credit shortage, and the economic seas were rather squally," said Jean Strouse, author of "Morgan: American Financier," who took a visitor on a tour of the study the other day. The situation was grim and growing grimmer: there were bank runs in Egypt, Japanese stocks had plunged, a massive earthquake had just struck San Francisco, and Morgan — attending an Episcopal Church convention in Virginia — watched the markets crumble with a distant, nervous eye.
In the first nine months of that year, American equities had already lost a quarter of their value. Then, in mid-October, an ill-advised attempt by a rich Montanan to corner the copper market failed. The ensuing panic spread like a contagion, Ms. Strouse said: Trust companies (the unregulated hedge funds of the day) began to topple; the stock exchange nearly closed for lack of capital; Moore & Schley, a brokerage firm, was in danger of collapsing — sound familiar? — from too much leveraged debt; the city itself could barely make its payroll and faced the threat of going broke.
Enter Morgan, then 70, who took matters into his own hands, as President Theodore Roosevelt was off shooting game in the Louisiana canebrakes. On Saturday, Nov. 2, he gathered top men from New York's banks and trusts in his study, there among the smoky Flemish masters and the crimson damask walls.
He demanded they come up with $25 million (how quaint) to bail out their beleaguered financial brethren. And at nearly 4 a.m., Benjamin Strong, one of his top lieutenants, went to give Morgan a report — he was in another study — then tried to leave the building . "That was the dramatic moment," Ms. Strouse said, "when he realized that Morgan had locked the doors."
There are several ways to consider this event — none of which shine brightly on the present. The economy was eventually "saved" that night, and its longest-term effect was the creation, six years later, of the Federal Reserve Bank by President Woodrow Wilson. But the days of locked doors and single-handed rescue plans were numbered: Alan Greenspan could do it when Long Term Capital Management collapsed in 1998, but the stakes have grown too large, the balance sheets too toxic, for even Warren E. Buffett and his billions to step in and plug what is known to be a multitrillion-dollar hole.
The night in Morgan's study also says some unkind things about the democratic process — which, despite its reputation, often gets mired in a crisis. Rule by plutocrats arrives with certain risks. But absent from them is the risk of things not getting done.