For all the hysteria of last fall's banking meltdown, it
could have turned out much, much more
chaotically.Â
I've been wondering where
The
New York Timeshas been hiding financial columnist
Andrew Ross Sorkin for the past few months. Turns out he's
writing a book on the financial crisis. (Because
no one'sdoing that these days. Have you been to a
bookstore lately? Holy moley.)
Vanity Fairrecently gave a sneak peek into Sorkin's
book, which
comes outlater this month. Sorkin writes that last fall,
Goldman Sachs (NYSE: GS) was all lined up and
ready to buy Wachovia. Soon after, a brief melee left
Wachovia with
Wells Fargo (NYSE: WFC), which outbid
Citigroup (NYSE: C) -- and
thankfully so.
The Goldman-Wachovia deal was purportedly nixed because of
a three-way incestuous relationship between dealmakers:
Turns out that papa bear Warren Buffett called out the
conflict, after
Berkshire Hathaway (NYSE: BRK-A) was asked to
help out with the deal. Not that this kind of stuff is
uncommon:
JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon
sitson the board at the Federal Reserve Bank of New York
-- the same agency that brokered and backstopped JPMorgan's
deal to buy Bear Stearns. And former Treasury Secretary
Robert Rubin was a director at Citigroup while his former
employer, the U.S. Treasury, shoveled money down the bank's
throat.
After the Goldman-Wachovia deal blew apart, regulators
gunned for Goldman to merge with Citigroup. They also
"demanded" that
Morgan Stanley (NYSE: MS) sell itself to
JPMorgan Chase, apparently telling Morgan Stanley CEO John
Mack that he "should be willing to sell his firm to J.P.
Morgan for $1 a share."Â
Sound extreme? Remember, this was a time when the
investment-banking model was completely comatose. Goldman and
Morgan Stanley desperately needed the stability of a
commercial bank's deposits, lest they both turn into the next
Lehman Brothers.
Obviously, none of this ever happened. Both deals were
eventually ditched, presumably because
becoming bank-holding companiesgave Goldman and Morgan
Stanley full access to the Federal Reserve's lending window,
commuting their death sentences before things hit the
fan.
Moving on
It's still worth asking: What would the financial world
look like today had these deals gone down? What if Goldman
bought Wachovia? Or Citigroup? What if JPMorgan bought Morgan
Stanley?
Two things would have changed: "Too big to fail" would
have been supercharged, but the odds of failure (without a
government backstop) would have been reduced.
Possible Combination
Total Assets of Combined Companies
Goldman Sachs-Wachovia
$1.6 trillion
Goldman Sachs-Citigroup
$3 trillion
Morgan Stanley-JPMorgan Chase Continued... |