Wednesday, December 31, 2008

Connecticut Bank Drawn Into Madoff Scandal

According to lawyers in Florida, reports The New York Times, Westport National Bank may have played a role in steering money to Bernard Madoff:
According to the lawyers, their clients believed for more than a decade that they had an account at the Westport National Bank, a division of Connecticut Community Bank in Westport, from which they had received statements for many years. Early last week, they learned their money had actually been entrusted to Mr. Madoff, the lawyers said.
The lawyers' clients are said to have received statements from the bank showing charges for custodial and record-keeping fees of 4 percent a year.

A related press release from the lawyers is here.

Jan.3 update: From a Stamford Advocate article:
In 1999, at the request of an unidentified local company, Westport National Bank replaced another financial institution as the custodian for a number of individuals and entities that were investing with Bernard L. Madoff Securities, [Richard Cummings, president of Westport National Bank] said.

"Nearly all of these individuals and entities had been investing with Madoff long before the Bank was founded in 1998," Cummings said.

The custodial agreement "reflected the fact that each custodial client directed the Bank to give Madoff 'full discretionary authority' to invest the custodial client's funds," he said.

"Each custodial client specifically acknowledged in writing that the client had not relied on the Bank in choosing to invest with Madoff," he said.

Tuesday, December 30, 2008

Chief Risk Officer Named

The Ragged Neck Division of the Trust and Wealth Management Marketing blog is pleased to announce the appointment of P. S. Oliver Storm as Chief Risk Officer.

Though still a young kitten, Storm explored every inch of the perimeter of our kitchen and dining areas the other evening. Commendable due diligence.

As for risk assessment, Storm demonstrated extraordinary skill. When a human tapped her finger on the kitchen counter above him, Storm instantly understood the invitation. He crouched, tensed his muscles, crouched even lower, then . . .

"I'm still a little kitten. No way can I jump all the way to that counter top. And when I fall back down, I might not even land on my feet." Storm straightened up, flicked his tail and walked away.

Don't you wish the chief risk officers of our leading financial institutions had possessed Storm's skill at risk analysis?
• • •

We humans lack Storm's finely-tuned instincts. Still, we have a rough idea of physical risks and limitations. Financial risk is what does us in.

To weigh financial risk requires the gathering of facts and figures, the computing of various potential outcomes and then the judging of whether the better potential outcomes are worth risking the bad outcomes. And we humans, most of us, aren't up to the task.

Peter Applebome in the NY Times contemplates what boobs we are:
Can anyone doubt that the demands on people to make reasonably intelligent choices with their money has so far exceeded their wisdom to do it, that maybe we should at least try to figure out some way to close the gap? If many presumably sophisticated Madoff investors were ruined, what chance do the rest of us have?
"One lesson of this year," Applebome concludes, "is that these days, no one, even the most financially secure, can afford to be stupid." True enough. But from the times of Tulip Mania and The South Sea Bubble, human stupidity and investing have gone hand in hand.

Isn't that why trust officers had to be invented?

Monday, December 29, 2008

After the Madoff Mess, What?

In the Wealth Report, Robert Frank sees a post-Madoff flight to big-bank investment services. But he says the fleeing investors won't be happy about it:
Big banks call it “flight to quality.” But it is more like flight to a lesser evil. You can go to “your guy” and risk losing everything. Or you can go to a big name and risk losing just part of it.

Some choice.
What's more, some of the big names may have themselves led clients into Madoff's clutches. Ben Stein in the NY Times tells how a wealth-management team from "a major investment bank" tried to get him to move his money to Madoff two years ago. Was the team naive or greedy?

Jim Gust suggests
that the trust and investment pros at community and midsize banks should be well positioned to gain new clients. New and persuasive marking strategies will be needed. Let's look for worthy ideas in the new year.

Laughing Stocks (and Bonds and CDOs)

“Financial Planner Advises Shorter Lifespans.”

Judging from that sample, today's financial humor won't have you rolling in the aisles, but it is plentiful.

Sunday, December 28, 2008

Vaiva Vebra

In Terminal event, below, Jim Gust told of the impending death of his wife, Vaiva, on December 13. Vaiva was one of the leading Lithuanian-Americans of her generation, most recently serving as Counselor for Education Matters to Lithuania's President. Her obituary is here. You should also read Jim's addendum, Six degrees of separation.

Friday, December 26, 2008

We Need a Little Stardust

The year ends, for too many of us, in loss and disappointment. We need a little stardust, right this very minute. . . .

Artless angels spreading cheer have arrived in our mailbox for many a Christmas – each handcrafted and made special by the person who created it.

Louise Cuddihy was the founder's young secretary when I joined The Merrill Anderson Company. She was among the legion of gals who entered advertising and other areas of the New York business world after World War II via the only jobs available to them. Each was determined to type her way up. Most didn't.

Louise did. After work she went to school to study art and design, got her degree, then got another. Merrill gave her a job in the art department. In time Louise became assistant art director, a gal you could rely on for a practical solution to any graphics problem.

When Earl Bergendahl, the art director who created the Mondrian-esque signature format for U.S. Trust's ads, retired, Louise became Merrill Anderson's art director.

Personal note: In 1981, when my wife volunteered us to create and publish a history of the Norwalk Youth Symphony, Louise chipped in with all the layout work.

Louise has been retired for many years. She's enlivened quite a few of them with travel, but I'm glad she hasn't given up art. Her card arrived in today's mail.

Have a little stardust, folks. This year we need it.

Saturday, December 20, 2008

The Madoff mess goes global

Madoff Scheme Kept Rippling Outward, Across Borders the New York Times reports. It's like an onion, just keep peeling off layer after layer, except there is nothing in the center.

Another great argument for trust departments? How should we make the case?

Friday, December 19, 2008

Oh, so now taxes do influence taxpayer behavior?

Whenever changes to the tax code are "scored" for their impact on federal revenue, estimates are based upon static economic models. Although everyone concedes that tax changes influence taxpayer behavior, no one can agree on how to estimate that change. Tax cuts boost the economy and, ultimately, tax revenue, a vindication of the Reagan vision that those who promote more government spending are unwilling to acknowledge. So, for example, cuts to the capital gains tax rate are always scored as losing revenue, when in fact they have always generated revenue increases as more investors become willing to unlock their gains.

Now one of the long-time opponents of lower taxes and dynamic tax scoring, the New York Times, is asking Did ’97 Tax Break Worsen Housing Bubble? It turns out that when you lower taxes on something, you get more of it, and when you raise taxes on something you get less of it. I wonder who said that first?

Wednesday, December 17, 2008

Creative Destruction?

In The Wall Street Journal. John Steele Gordon recalls an earlier Ponzi scheme that led to financial ruin . . . and to "the finest work of military history of the 19th century."

Tuesday, December 16, 2008

Even Yale's Endowment Falters

Like Harvard, Yale has found the investment climate chilly since last June. Estimated shrinkage of Yale's endowment: 25%.

Could have been worse. Neither the Cantabs nor the Bulldogs turned their money over to Madoff.

Update: Geraldine Fabrikant theorizes that Yale may have fared somewhat better than Harvard because David Swenson allocated less to liquid commodities and may have hedged his positions. Also, a lesser portion of Yale's endowment was in foreign equities, and the Bulldogs used no leverage.

Sunday, December 14, 2008

Can limits on charitable gifts be enforced?

The New York Times reports on a settlement between Princeton and the heirs of the Robertson family. The heirs had claimed that Princeton stopped following the requirements attached to a $35 million endowment made in 1961. The fund was intended to promote education for those going into government service, and had grown as large as $900 million.

In the settlement, Princeton agreed to pay the heir's legal fees of $40 million, interest of $11 million, and they returned $50 million to the heirs to set up a new foundation. The school keeps the balance ($500 million or more) to use as it pleases, free of the restrictions of the original gift.

Both sides claim victory here, but it seems to me Princeton is really ahead. The message to donors seems to be, stipulations attached to the usage of your charitable gifts will only be advisory. If you really want to control how your money is spent, don't give it away.

Saturday, December 13, 2008

Terminal event

No, it's not something that happens in an airport, it's the phrase that the Surgical PA (which I presume means "surgical physician's assistant") uses to lay the psychological foundation before telling you that you must decide if your beloved wife is going to die.

The management of breaking the bad news would be interesting to study and reflect upon if it wasn't happening to me. They used a committee approach, consisting of the surgeon, his PA, the oncologist, and a social worker. The latter was a woman, to add a dash of estrogen to deliberation. They were pretty efficient and practiced without being too cold or detached. They needed to put rational and emotional into synch, while not appropriating decisional authority to themselves. Not a trivial achievement, especially on regular basis.

The financial crisis explained

Scott Adams captures perfectly the logic that drove the subprime mortgage mania.

(I originally embedded the strip, but couldn't figure out how to adjust the margins.)

I hope Dogbert the Financial Advisor becomes a regular.

Thursday, December 11, 2008

No panic, yet

In contrast with this item below, InvestmentNews reports on a survey suggesting that Investors are keeping faith with advisers. No one likes losses, but a majority of those working with advisors believe that their asset allocation planning "held up as well or better than expected" during the market downturn.

At least so far.

Wednesday, December 10, 2008

Coping With Scary Times

Whether or not it's a Great Recession, it's scary – for investors and for investment advisers.

How to cope? You might consult a shaman, like the spiritual-healer/wealth-manager The Washington Post magazine profiles in Voodoo Economics. (Read the Editor's Note, too.)

For those seeking a more scientific approach, neuroeconomist Gregory Berns explains how fear impairs decision-making. We're up against what Berns calls "the 'endowment effect,' the innate tendency to value things you own more highly than everyone else does."
The cause and effect have not been fully sorted out, but the implication is that when our brains sense pain, or anticipate loss, we tend to hold onto what we have. When everyone does this at once, the result is a downward economic spiral.
To help their clients cope, investment advisers should avoid undue pessimism and help clients tune out "media that fan the emotional flames." For clients in their 40s and 50s, times when stocks are marked down 40% should logically be greeted as a rare opportunity, not cause for panic. Do they really believe the stock market is Going Out of Business?

Berns advises against waiting for the economy to get back to normal:
I don't care what your business is, but if you think it will eventually come back to what it was — your brain is in the grips of the fear-based endowment effect. What I am doing is looking for new opportunities.
What opportunities should corporate fiduciaries be exploring? The answer may involve finding ways to bring fiduciary-standard investment service to more people or different organizations. Or maybe it means becoming a provider of education and insight rather than mere portfolio management. Or . . . [you fill in the blank].

Grantor Retained Annuity Trusts

In Get It While You can, Martin Shenkman discusses leveraging family gifts via GRATs, including rolling GRATs.

Monday, December 08, 2008

The History of Money-Market Funds, Condensed

All but the most senior Boomers probably assume money-market funds have been around forever. Not so. Bruce Bent co-founded the first one in 1972.

In the long life and messy death of Bent's flagship Reserve Primary Fund, as recounted in The Wall Street Journal, young wealth managers can read just about all the money-market history they need to know.

Sunday, December 07, 2008

The best source for trust referrals

Merrill Anderson is surveying the users of its Investment and Trust Newsletter to develop the calendar and editorial direction for the coming year. We ask about conditions in the industry as well, and share the results with our clients.

We asked what the best sources of trust referrals are. 100% of the respondents so far have checked off centers of influence (attorneys and accountants), while 36% mention internal referrals and 18% get good referrals from existing clients.

Trust departments are well positioned to gain market share from the current financial mess. 90% agreed that Clients are now looking for traditional values, such as ours.

The survey remains open this week. Click here to take the survey and get a preview of our newsletter program.

This makes too much sense

Via TaxProf Blog: Gingrich Backs Two-Month Tax Holiday to Replace Further Wall Street Bailout.

Remember last year's tax rebate checks? Congress passed the law early in the year, but IRS had to handle the tax filing season first, so no checks could be cut before May. Then we had all sorts of complications, and tremendous IRS resources wasted just answering taxpayer questions. Ultimately the "stimulus" fell short of the promises made for it.

A tax holiday is simpler, and it's immediate. No IRS overhead in implementation. It would inject real stimulus into the economy, but there' s no chance for Congress to manipulate who gets what. I expect the proposal therefore to be DOA.

At the taxprof link is a collection of additional links on the topic.

“A Financial Falcon and Virtuouso Flimflammer”

In Lost and Found New York, James Stevenson sketches Charles Wyman Morse, who started business in shipping and ice and emerged as a prominent figure in various banks and trust companies at the start of the 20th century. Morse triggered, or at least helped trigger, the Panic of 1907. See How J. P. Morgan Tamed the Trust Companies.

In 1908 Charles W. Morse was sent to jail for his escapades, but he didn't stay long. One of his fellow prisoners would raise flimflamming to new heights: Charles Ponzi.

Why Investors Should Stay the Course

From an article in the WSJ Sunday Journal:
History shows that the best way to rebuild portfolios is to stay in the stock market. Over the past nine recessions, the Standard & Poor's 500-stock index has gained 13%, on average, during the second half of a downturn and another 13% the year after it ended.

Thursday, December 04, 2008

The Bigger They Are . . .

Harvard's investment return for the twelve months ending last June exceeded Yale's. Now the owner of the largest university endowment is preparing to tighten its belt because of a 22% loss in the subsequent four months. Also, Harvard and less wealthy universities are striving to divest themselves of various alternative assets.

Can Yale escape a similar fate? No word as yet.

Do You Know the Top Tax Rate on Long-Term Gain?

Careful! It's a tricky question.

Last year, when the family needed to add to its cash reserves, we sold shares of Apple. The shares had been purchased for under $10 per share (split adjusted) back in the dot.com bust, so the capital gain was humongous.

We had little in the way of investment losses to offset the gain (remember those days?). Still, the federal income tax on long-term gain is no more than 15%. Could be worse.

It was worse. At tax time we discovered that, except for people with exceptionally large incomes, long-term gain is not truly exempt from the Alternative Minimum Tax. The result, as explained here, was to boost the tax on our Apple gain to around 22%.

Oh, well. It could have been worse.

And it is. As senior citizens, my wife and I recently received polite notes from a Social Security computer, announcing a boost in our retirement benefits to offset inflation, negated by a significant cut in the benefits we would actually receive in 2009.

The cut results from a surcharge – the SS computer calls it "an income-related monthly adjustment amount" – on the premium we pay for Medicare Part B. The surcharge is based on MAGI:
We ask the Internal Revenue Service (IRS) for your tax [sic] income. We then add your adjusted gross income together with your tax-exempt interest income to get an amount that we call modified adjusted gross income (MAGI) . . . .

MAGI may include one-time only income, such as capital gains . . . . One-time income will effect your Medicare Part B premium for only one year.
Thanks to the humongous capital gain, our MAGI results in surcharges for 2009 equal to another two-percent tax on the gain. That brings the overall tax rate to 24%.

During the election campaign, weren't the Democrats talking about a 20% capital-gains tax? Sounds good to me!

Monday, December 01, 2008

Christmas Price Index Up 8%

Forget deflation. PNC's Christmas Price Index, based on the cost of partridges, pear trees, French hens, etc., jumped 8% this year.

Biggest increase: a whopping 33% rise for Seven Swans a-Swimming.

Old Sayings for a New Recession

Gosh, the recession turns out to be a year old already. Can we declare a recovery starting New Year's Eve?

Meanwhile, Ben Schott has gathered some sayings to see us through. A sampling:


Wednesday, November 26, 2008

Newman's Own will

The New York Times reports that Paul Newman's will has been admitted to probate. Good news, he used trusts, which will keep most of the estate plan private and provide grist for Merrill Anderson newsletters.

Mr. Newman really doesn't want his image abused. His will bars any
virtual performance or reanimation of any performance by me by the use of any technique, technology or medium now in existence or which may be known or created in the future anywhere in the universe.
The universe is a pretty big place, but Newman was a big guy.

Happy Thanksgiving to all!

Our nomination for best illustration of the season goes to Teresa Fasolino's vegetarian turkey in The New York Times. You can see other examples of her work here.

In 1623, when the Pilgrims held a second feast to celebrate a narrow escape from starvation, the main dish was probably fish. Miles Standish saved them by sailing to what is now Rye, New Hampshire and placing a large order for cod with the state's first settler.

Those first Thanksgiving feasts must have been pretty grim by modern standards. Even the lowliest wealth manager should eat a lot better tomorrow.

Let us all count our blessings!

• • •


Wild turkeys now flourish in New England. The New Hampshire birds shown here take the state motto literally: "Live Free or Die!"

Monday, November 24, 2008

Why the Citi Never Slept

Citi's sleepless nights – and now its bailout – resulted from nightmares about Collateralized Debt Obligations. Yesterday's New York Times tells the story in depth.

Citigroup's risk management failed because of disorganization and cronyism, the Times reports.

But Citi has plenty of Wall Street company in its failure to manage risk. Here's one theory why:

Once a large corporation appoints a risk-management officer, the rest of the management team figures it can ignore risk.

And that's assuming management understands the monsters created by its financial engineers. Citi's shareholders aren't amused when they read that former CEO Chuck Prince "didn’t know a C.D.O. from a grocery list."

Sunday, November 23, 2008

Friday, November 21, 2008

Dividing the Estate

After an Off-Broadway run last year, Horton Foote's "Dividing the Estate" has been tuned up and shined up as a Broadway production. NY Times drama critic Ben Brantley applauds the result. He finds Foote's portrayal of a haute-bourgeois Texas clan squabbling over an estate to be dead on:
Literature is filled with people who find greatness in crisis. Mr. Foote’s strength lies in drawing characters, with a gaze as clear and fresh as spring water, who remain as doggedly small as they always were.

* * *
[Hallie] Foote, the playwright’s daughter and frequent interpreter, makes Mary Jo a figure worthy of Molière, a small-boned, ineffective though tenacious bird of prey with ravenous eyes and a jutting neck. When it comes to dividing the estate, leave it to Mary Jo to say bluntly what’s really on everyone’s mind: “I want everything — what about you?”
By serendipitous coincidence, the family turmoil has been intensified by . . . a real-estate bust.

Thursday, November 20, 2008

Deflation? Inflation? It's all SAD

The financial and investment crisis is stressing people out, therapists tell Marketplace. You might call it Societal Anxiety Disorder.

SAD to say, wealth managers and their clients can't even be sure of what to be anxious about.

Deflation has reared its fearsome head. Mark Trumbull in The Christian Science Monitor explains why increasingly valuable dollars lead to SAD:
Back in the Depression era, economist Irving Fisher coined the phrase "debt deflation," to refer to a period when many debtors are trying to reduce their liabilities, or leverage. When borrowers are de-leveraging all at once, prices for assets such as homes or stocks can fall below what would ordinarily be their fair value.

Moreover, if deflation becomes a broad-based trend that consumers expect to see in everyday goods, they may delay purchases in the hope of getting an even better price later.
Long term, inflation seems inevitable. As this educational chart from Wikipedia shows, deflation was mainly a feature of the hard-money era. Ever since the Great Depression, paper money has been printed fast enough to keep inflation alive and well.

CLICK ON CHART FOR LARGE IMAGE


What about it? Should wealthy investors worry about deflation, inflation or both?

Celebrate small banks

They are doing very well, reports Washington Monthly. Key points:
Easily overlooked amid the crisis of big banks today, small-scale financial institutions are, for the most part, holding steady—and sometimes even better than steady. According to FDIC data, the failure rate among big banks (those with assets of $1 billion or more) is seven times greater than among small banks. Moreover, banks with less than $1 billion in assets—what are typically called community banks—are outperforming larger banks on most key measures, such as return on assets, charge-offs for bad loans, and net profit margin.
How will these banks be affected as the giants are bailed out? Wouldn't we be better off with thousands of strong small banks than a handful of powerhouses? An analogy to chain mail comes to mind.

Advertising Lesson From a Master: David Ogilvy

Reproduced below, as it appeared in The New Yorker five decades ago, is one of the most famous ads from Madison Avenue's glory days. Created by David Ogilvy, this Rolls Royce ad used a quirky quote from a motoring magazine for its headline, followed by body copy that was twenty times too long by conventional standards.

The headline became a catch-phrase of the day. The body of the ad reflected Ogilvy's heretical belief in the power of lengthy copy. If that copy is sufficiently readable, interesting and informative, it can leave the reader salivating for a product or service.

Tuesday, November 18, 2008

Rich Cut Their Lovers' Funding

When recession hits the rich, the rich get stingier. So report after report from the megamillionaire front keeps telling us. This Wealth Report post suggests that the trend has already arrived at Silly Season.

One helpful factoid noted by Robert Frank:

"[I]n a time of financial crisis, it is better to be a kept man than a compensated woman."

Monday, November 17, 2008

Mrs. Astor's Staff Was Listening

The New York Post has published excerpts from Meryl Gordon's Mrs. Astor Regrets. The new book seems unlikely to gladden the heart of Mrs. Astor's son and daughter-in-law:
Secret journals kept by Brooke Russell Astor's staff reveal tragic scenes, including one in which the society doyenne was literally dragged into a meeting against her will to sign over $60 million to her only son after she slammed her cane against the floor shouting, "Do you hear me?"

When they weren't caring for her in person, Astor's maids, nurses and butlers were listening to her private meetings via a baby monitor. They filled 30 journals over four years…
Meanwhile, the estate struggles to dispose of Brooke Astor's homes in a down market. Her palatial New York apartment is now offered at $34 million, down from $46 million.

Perhaps a better buy is her beloved Holly Hill in Briarcliff Manor. Sotheby's has listed the stone home, on 64 acres, at a mere $12.9 million. Judging from the photo at right, Holly Hill was a bright and cheery place. Hope the late owner was able to comprehend and appreciate her last days there.

HOLLY HILL

Sunday, November 16, 2008

Why Young Men Shouldn't Manage Money

Corporate fiduciaries may function better if they hire women and older men as wealth managers. Why avoid young men? According to research cited by The New York Times, it's all a matter of the endocrine system.

Friday, November 14, 2008

What Next for Retirement Plans?

Edward Zelinsky, the professor Jim Gust mentions in the preceding post, authored The Origins of the Ownership Society: How the Defined Contribution Paradigm Changed America. The ownership society seeks to help people build wealth through 401(k) plans, HSAs, etc. (The Ownership Society is not to be confused with the late and unlamented Buyership Society, which encouraged people to buy homes on credit, then borrow again on any increase in value.)

Events have not been kind to 401(k) plans of late. Critics have attacked the expense of some plans. High annual fees and expenses virtually insure subpar investment results. Reportedly, some wealth managers advise their executive clients to invest no more in their 401(k)s than is matched by the employer.

In the last 15 months participants in 401(k) plans have lost an estimated $2 trillion. Also, the recession threatens 401(k) matching funds. Reportedly, 20% of participants in some plans have stopped adding new money, either for lack of employer matches or because they feel stocks are too cheap to be worth buying.

Meanwhile, some of the last traditional pension plans – at GM, for instance – are dying.

Do we need a new approach to building financial independence at retirement? Roger W. Ferguson Jr., a former Vice Chairman of the Federal Reserve and CEO of TIAA-CREF, thinks so. He proposes combining the best of traditional pensions and new savings vehicles. Features would include automatic enrollment, unbiased investment advice for every participant and a requirement that participants put at least some of their money into a low-cost annuity at retirement.

Could it work?

Here's an alternative, heretical thought. Consider these excerpts from Amazon's description of The Origins of the Ownership Society:
We save for retirement, health care and educational savings through IRAs, 401(k) accounts, 529 programs, FSAs, HRAs, HSAs and other individual accounts which did not exist a generation ago. In its own way, the emergence of these accounts has been a revolution…. The Origins of the Ownership Society describes the defined contribution revolution, its causes, and implications. For lawyers, the book provides useful insights into the network of individual accounts which are now central features of the U.S. income tax….
Nobody but a tax lawyer understands all the variations, limits and withdrawal requirements of all those accounts. Why not keep our current tax-favored treatment of dividends, capital gains and interest on state and local bonds, then let everybody save and invest, simply and economically, for whatever purposes they desire?

No rules, no regs, no restrictions!

Thursday, November 13, 2008

Is Warren Buffett hypocritical on estate taxes?

Professor Edward Zelinsky asks the question, if Warren Buffett is such a fan of federal estate taxes, why has his own estate planning been arranged to dodge those taxes? He could have instead shared some portion of his immense wealth with the federal government, rather than give nearly all of it to Bill and Melinda Gates. Who, by the way, also are advocates for the federal estate tax who won't be paying it.

Evidently, Professor Zelinsky and I are in ageement.

Hat tip to Gerry Beyer's blog.

Fall of the High Net Worths

In a Florida gated community for the more-or-less retired, The New York Times finds Tarnish on the Golden Years. High-Net-Worth residents worry about returning to the ranks of the Mass Affluent.

The Panic of 2008 is the stock market's most shocking fall since 1973-74. But this time it's different. No harbor seems safe:
“Older middle-class people have made plans based on a set of assumptions of how the world works, and the world has gone crazy,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Those assumptions once included the notions that bank accounts and corporate bonds were secure . . . .
High-net-worth investors have learned they can't even trust money-market funds. ("Help! My cash is being held hostage in the Reserve Primary Fund!")

Will mistrust of virtually all "financial products" make wealth management a whole new ball game?

Wednesday, November 12, 2008

"This must be how the Politburo felt"

NYTimes reports on the lobbying frenzy over the $700 billion in bailout money. No surprise, it isn't just banks looking for government capital infusions.

Sunday, November 09, 2008

“Three-Year Rule” Updated

Jonathan Clements and others used to advise retirees to keep enough ready cash to meet their living expenses for three years. These days, Jane Bryant Quinn observes, the advice is to play it safer:

"In general, the planners who answered my questions said retirees should have enough money on hand to pay their bills for the next five years."

Wealth-Building as “Risk Management”

The Sunday New York Times offers crisis-solving thoughts from several economists. Yale's Robert Shiller comes up with two outside-the-box ideas:

1. When people build their financial independence through saving and investing, they are successfully managing risk – their risk of not having enough to live on when they become old and feeble (or unemployed):
Traditional mutual funds and retirement saving plans, as well as insurance plans for loss of one’s home due to fire or flood, or of one’s income due to disability, are actually risk management vehicles that help reduce inequality. The new president’s important mission should be to broaden these plans.
2. The federal government should subsidize programs to encourage and spread investment literacy:
[W]e need to subsidize financial advice for the common man. The crisis we are in is largely due to investor ignorance. Some emergency measures, like the Hope Now Alliance, have been set up essentially to offer such help, but these will presumably be dismantled after the crisis, and they are not well designed for serving investors’ broad needs. We need some permanent subsidies to get the full scope of financial advice out to the people.
Cool idea! Tens of thousands of "Wall Street banking and investment experts" are unemployed. A new version of the depression-era Works Progress Administration could quickly form and deploy several brigades of financial advisers. Worth a try?

Saturday, November 08, 2008

Getting Mr. Market to Settle Down

Really! Mr. Market has got to stop rampaging around the Stock Exchange, bumping into floor brokers and knocking over computer terminals. In today's Wall Street Journal, Jason Zweig surveys possible control mechanisms. The German technique: Volatilitätsunterbrechung.

Thursday, November 06, 2008

The Year That Changed The Investment World

The year was 1958. Half a century ago.

Elvis Presley, three years after his debut album for RCA Victor, was inducted into the U.S. Army.

Sputnik fell to earth.

And the relationship between stocks and bonds underwent a profound, fundamental change.

Peter Bernstein, who saw it happen, describes the unprecedented shift in the relationship between equities and bonds in this column, reproduced by John Mauldin:
In the second quarter of 1958, the dividend yield on stocks was 3.9% and the yield on 10-year Treasuries was 2.9%. Three months later, dividend yields were down to 3.5% while Treasuries had climbed to match them at 3.5%. The next three months made history, as stock prices kept rising and pushed the dividend yield down to 3.3% while bond prices kept falling and drove the bond yield up to 3.8%. *** The two yields had come close in the past but had always backed away at the critical moment. In 1958, they reversed their historical positions and have never looked back.

When this inversion occurred, my two older partners assured me it was an anomaly. The markets would soon be set to rights, with dividends once again yielding more than bonds. That was the relationship ordained by Heaven, after all, because stocks were riskier than bonds and should have the higher yield. Well, as I always tell this story, I am still waiting for the anomaly to be corrected.
Could Mr. Bernstein's long wait be almost over? Though the yield on the S&P 500 remains lower than the 10-year bond yield, that bond yield is equaled by JPMorgan's dividend yield, and AT&T pays almost 6% at today's closing price. GE, 6.2%. Dow Chemical, 6.7%. Pfizer, 7.5%.

Fifty years ago, prudence for investors living on their capital was routinely boiled down to one simple rule, beloved by trust officers across the land:

"Never dip into principal."

Could that concept be about to make a comeback?

Lanchester Explains Derivatives

A surprising number of visitors to this blog are drawn by a post from last June: Mortgage Derivatives Explained. The post links to a whimsical poem by Shel Silverstein – enlightening, but probably lacking the information the visitor seeks.

Here's a better bet: Melting into Air, John Lanchester's New Yorker article, explains the abstractions known as derivatives and why we are not meant to understand them:
[F]inance, like other forms of human behavior, underwent a change in the twentieth century, a shift equivalent to the emergence of modernism in the arts—a break with common sense, a turn toward self-referentiality and abstraction and notions that couldn’t be explained in workaday English. In poetry, this moment took place with the publication of “The Waste Land.” In classical music, it was, perhaps, the première of “The Rite of Spring.” Jazz, dance, architecture, painting—all had comparable moments. The moment in finance came in 1973, with the publication of a paper in the Journal of Political Economy titled “The Pricing of Options and Corporate Liabilities,” by Fischer Black and Myron Scholes.
Lanchester points out that some people did foresee the collapse of the "financial economy." They even wrote books about it.

Do the rich prefer higher taxes?

According to The Wealth Report - WSJ.com, the Obama victory margin came from two income groups: those earning less than $50,000 annually and those earning more than $200,000. John McCain won among those in the middle, from $50,000 to $200,000. This success among the high earners is somewhat surprising, given Obama's promise to sharply raise taxes on this group.

The Journal speculates the wealthy may have discounted the tax threat, knowing that it is hard to raise taxes during a recession, or they may really agree with Joe Biden and believe that it will be more patriotic for them to pay more.

I suspect the answer is more subtle. Like Warren Buffett, many of the rich like to say that they favor higher taxes. All the while they know that, whatever happens to the tax code, they have the sharp lawyers and accountants to find ways around any tax increase. Buffett has famously defended retention of the federal estate tax, while publicly sharing his own estate plan that eliminates death taxes for his own estate (through transfers to the Gates charitable foundation.)

The best example of a failure to successfully tax the rich was the luxury tax on yachts and other high-priced items, enacted in 1990 when Bush I was forced to break his "no new taxes" pledge. The projected revenues for 1991 were $31 million. Just $16.6 million was collected. Obviously, the rich simply stopped buying boats. (Revenue estimators are barred from taking even obvious behavioral responses into account.) An estimated 7,600 jobs were destroyed in the boating industry, according to a later analysis by the Joint Economic Committee, with a short-term cost of $24.2 million in unemployment benefits and lost income taxes. The long term cost was the loss of the American boat building industry, which never recovered, even though the disastrous luxury tax on yachts was quickly repealed in 1993.

It doesn't take much time for a toxic tax to do permanent damage.

In an ironic coda, in 1999 Rep. Patrick Kennedy proposed a 20% tax credit for purchasers of American built yachts. That would be $200,000 for the buyer of a new $1 million boat. The credit was capped at $2 million per taxpayer. We don't know if the tax incentive would have helped the boat builders, because it was never enacted.

Interestingly, in its guide to surviving the Obama tax hikes, the Wealth Report recommends "Sell. Sell. Sell." before the end of the year. How much of the selling pressure on stocks during September and October came from people trying to lock in a 15% tax rate on their remaining capital gains? Perhaps more than we think.

As evidence of the widespread anticipation of higher taxes, my son, who is much more a football fanatic than I am, told me last night that the agents for high-dollar players are already working to get bonuses paid during this year, to avoid the higher tax rates they expect next year.

Sunday, November 02, 2008

Woman Who Killed Husband Could Inherit $1.2 Million

From the Stamford, CT Advocate, news of a ghoulish probate case in the offing:
Although a jury found Mary Ann Langley guilty of killing her husband by throwing gasoline on him and lighting him on fire, she could still inherit his $1.2 million estate, family members and attorneys said.

This turn of events was made possible by a jury of eight women and four men who did not convict Langley of murder two weeks ago after a seven-day trial at state Superior Court in Stamford. The jury was unable to find beyond a reasonable doubt that Mary Ann Langley intended to kill her husband by throwing the gasoline on him, and instead found her guilty of intentional first-degree manslaughter in the December 2006 death of her husband, James, 55.

State statutes prohibit only murderers from inheriting from their victims, not individuals convicted of manslaughter.
* * *
Known in legal circles as a "slayer statute," the law in Connecticut and in 42 other states prohibits murderers from inheriting from their victims' estates, according to a state Office of Legislative Research report on the topic from February.

Because Mary Ann Langley, 59, was convicted of manslaughter and not murder, the question of whether she is eligible to receive proceeds from the estate is set to play out in Norwalk Probate Court or in state Superior Court in Stamford.

Friday, October 31, 2008

We'll Wait 'Til Next Year


May Halloween 2009 bring us fewer financially-engineered tricks, more stock-market treats.

Thursday, October 30, 2008

Can the Broker and the Fiduciary be Friends?

Brokers work the sell side; asset managers in bank trust departments represent the buy side. Never the twain shall meet?

Don't be too sure. As brokers seek more fee-based business, via managed accounts and such, the gap is narrowing.

This Bank Investment Consultant report on bank "book brokers" spotlights top producers who mostly emphasize fee business. Many are affliliated with Sun Trust, including Tom Gletner:
Gletner became the poster child for Sun Trust's team approach, which enables him to bring in private bankers, trust and estate officers, insurance experts, financial planners and lenders whenever he meets with a new client.

Wednesday, October 29, 2008

Your tax dollars at work

Here's an online video game intended to teach someone--videogamers?--the basics of credit management: US Treasury - Bad Credit Hotel. I discovered the reference to it in this NY Times article.

Can this possibly work? I really doubt it, but then I'm not a perfeshunal edjamakater. Plus, I couldn't get out of the phone booth--just figuring out how to dial the rotary phone was my main accomplishment.

Tuesday, October 28, 2008

Unhand Those Little Old Banks!

Community banks fear the nation's largest banks may use the billions of dollars they are getting from taxpayers to buy smaller banks rather than make new loans, The Wall Street Journal reports.

The Washington Post seems to like community banks well enough. Recently we mentioned The Post's write-up of small banks in the D.C. area. Here The Post profiles Farmer's Savings Bank, a thriving little old bank in Iowa. Summarizing personal trust and investment services on one web page isn't simple; Farmers does a concise job.

The last little old bank in Portmouth, New Hampshire, has revved up its marketing. Piscataqua Savings Bank is running a nice series of testimonials from happy customers (including trust customers!). The bank also has revamped its web site. Take a look and admire two marketing strategies worth emulating:

1. Keep it simple. Anyone can understand the links in the menu across the top of the home page: LOANS • DEPOSITS • TRUSTS & INVESTMENTS. You can't imagine how refreshing that is. No "Private Client Services," "Legacy Planning" or –worst of all – that inscrutable phrase, "Personal Financial Services."

2. If you've got it, flaunt it. Many of us bank with organizations that change names and/or managements every few years. Wouldn't you like to have your trust handled by a little old bank that's been around since 1877 and still going strong?

Monday, October 27, 2008

Mad Men's Weirdest Ad?

In the same issue of The New Yorker that carried the Vintage Trust Ads appeared this baffling ad for Springmaid. Click on the thumbnail to view the apparition full size.

A parody, obviously. But of what? Why the red and green glasses, presumably swiped from some theater showing a 3-D film? Why were references to a Stutz Bearcat supposed to be funny? (My father and a friend once co-owned a Bearcat; must have been about the time he set out to conquer Wall Street via a job on the Cocoa Exchange.)

Can anyone explain?

The Age of Prosperity Is Over (?)

This Wall Street Journal op-ed by Arthur Laffer is deeply disturbing. Mainly because I think he was right about the "Laffer curve," and I sure hope he is wrong about the economy's prospects. I like these observations:
Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk.
and
Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
The larger thesis is that the Bush administration has fully botched this economic crisis, and will be rightly remembered as the heir to the Hoover administration. Meanwhile, according to Laffer, Clinton was the true heir to Reagan!

Read the whole thing.

Saturday, October 25, 2008

Therapy for the Formerly Richer

In the NY Times, Eric Konigsberg profiles Charles A. Lowenhaupt, the third generation of his family to run a family office that now serves four clans. Predictably, Lowenhaupt has a lot of hand-holding to do these days.

Where do Ultra High Net Worth folks turn for therapy if they don't have a family office? To a psychologist who specializes in financial angst, says The Wealth Report.

Vintage Trust Ads

Generally, The New Yorker magazine of half a century ago ran only one or two trust-company ads each week. If, say, Bank of New York was advertising one week, Chase had to wait until the following issue, and vice versa. Surprising, then, to find three ads in the October 11, 1958 New Yorker. Click on each thumbnail for a larger image.








Wednesday, October 22, 2008

Should Asset Managers Become Credit Counselors?

Consumers are maxed out. Businesses large and small founder because they can't borrow money as usual. Unless credit, a.k.a. liquidity, starts flowing again, everybody is done for.

Except . . . .

Apple sold almost 7 million iPhones last quarter, outselling Blackberries. Sales of Mac computers rose another 21 percent. But here are the truly amazing statistics:

Apple's debt at the end of this fiscal year: 0

Apple's cash: $25 billion.

Sounds like asset managers have a clear choice: Retrain as debt counselors or look for business from Steve Jobs and his crew.

A Truly Foolish Hospice

In the land of the blind, the one-eyed man is king. Perhaps Tom and David Gardner recalled that truism when they ventured into the land of Wall Street. There, perceived wisdom is likely to be hazardous to your financial health, 'Tis wiser to be a fool. Ideally, a Motley Fool - the kind who bopped around the royal courts of yore, speaking truths the King's ministers dared not whisper.

Last summer, the Gardner brothers' mother, Marie-Dennett McDill, learned that terminal cancer left her with only weeks to live. The family arranged for hospice care, but not at a hospice. Mrs. McDill was moved into one of her favorite places, New York's luxurious Carlyle Hotel.

At the Carlyle, she was able to enjoy walks in Central Park by day and listen to Loston Harris play Cole Porter tunes in the Bemelman's Bar by night.

A week ago Mrs. McDill died in her sleep. At her memorial service, Mr. Harris played Cole Porter.

Mrs. McDill is survived by an extremely Foolish family.

Tuesday, October 21, 2008

Will Family Offices Flock Together?

Should managers of family offices shepherding assets of $30 million or more get to know each other? The Stamford Advocate reports on a new opportunity:
To help the "ultra-wealthy" find opportunities and meet other families of similar means, Angelo Robles has founded the Family Office Association in Stamford.
***
"I usually find that very wealthy people like to collaborate with other people like them, whether it's in investing or real estate," he said. "We plan to reach out from a global perspective to the ultra-wealthy."

Robles said the Family Office Association was launched last week with a Global Assets Showcase at the Hyatt Regency Greenwich.

Sunday, October 19, 2008

Monopoly Explains it All

The board game Monopoly was all the rage during the Great Depression, writes Tim Hartford in The Washington Post. He finds it an apt symbol for our present pickle.
Loose money. Monopoly games start swimming in money, which is briefly mopped up as the players buy everything in sight. But then money starts to flood the system again….

Vague and constantly-changing rules. Most enterprising kids treat Monopoly the way enterprising investment bankers treat the financial system, quickly making up their own rules and striking side-deals insuring each other against catastrophe. These side-deals now add up to a nerve-wracking $596 trillion, more than forty times the size of the US economy. ***

The endgame. For all Monopoly’s merits, fans complain about the way it tends to end in a slow capitulation, one player after another dropping out as ever greater sums of money slosh around unpredictably between an ever smaller group of people. Remind you of anything?

Saturday, October 18, 2008

The Silver Lining is Estate Planning

"The economy is a mess, home prices are reeling, and stocks have plunged," notes The Wall Street Journal. "But for those likely to become ensnared in the estate tax, there's a silver lining: These troubled times offer some of the best opportunities in years to transfer wealth to younger generations…."

Family gift strategies surveyed in the Journal article include IDGTs (Intentially Defective Grantor Trusts) as well as GRATs and CLATs.

Friday, October 17, 2008

Bulls, Bears, Donkeys and Elephants

How do you get rich investing in stocks? Elect a Democrat President. See this chart in the NY Times. It's a good example of how graphics can help make numbers easier to comprehend.


As of Friday, a $10,000 investment in the S&P. stock market index* would have grown to $11,733 if invested under Republican presidents only, although that would be $51,211 if we exclude Herbert Hoover’s presidency during the Great Depression. Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent over nearly 40 years.
Could a Bull Market emerge quicker than anyone expects if Democrat Obama wins the election? Before you get your clients' hopes up, read the David Brooks column that appeared right next to the chart in the print edition of the Times. Maybe cash is king after all.

To remotivate yourself, see Warren Buffett: Buy American. I Am.

Thursday, October 16, 2008

Two Words the Rich Fear Most

The two dreaded words: "margin call." Robert Frank writes that they're being heard more often:
Private banks are making an increasing number of margin calls to wealthy clients. A spokesman at Citi Private Bank said that “due to market conditions, we have higher than normal call activity.” He added that margin loans are “often employed” by high-net worth clients of the private bank. Other private banks and wealth-management firms tell the same story.

It is easy to blame the extraordinary market forces for all these margin calls. We could argue that the CEO’s and entrepreneurs were guilty of nothing but excessive optimism and loyalty to their company stock. But the margin calls also point to one of the hidden risks of the wealth boom: too many people were too concentrated in one stock or company. It creates enormous wealth–until it doesn’t.

Wednesday, October 15, 2008

Trusts: What's Hot, What's Not

The Washington Post's Retirement Guide includes a survey of planned giving vehicles, including foundations, trusts and donor-advised funds. Will philanthropic financial strategies continue to be a hot topic? The answer may depend on how many High Net Worth Individuals still possess their HNWs.

The Panic of 2008 may also determine who continues to care about tax-saving estate plans. In any case those old standbys, bypass or credit-shelter trusts, look like an endangered species. The Wall Street Journal points out that both John McCain and Barack Obama favor making the estate-tax credit "portable" between spouses.

Monday, October 13, 2008

In Praise of Little Old Banks

Well! Sounds like some big national banks will be really "national."

As The Washington Post reports here, little old community banks look awfully good by comparison. Deposits are pouring in. Seven-figure deposits, sometimes!

If you're the trust wing of a little old bank like Burke and Herbert or Sandy Spring – two of the community banks mentioned by the Post – opportunity for new trust business from affluent new bank customers isn't just knocking, it's practically breaking the door down.

[Start of commercial message] Many other community trust departments around the country have similar opportunities. Merrill Anderson has geared up to provide the marketing tools needed to seize those opportunities. [End of commercial message]

P.S. Burke & Herbert surely has one of the top-ten bank mascots.

Saturday, October 11, 2008

Sex, Bulls and Naked Shorts

In Swept Up by Insanity of Markets, Joe Nocera surveys students of financial behavior. They pretty much agree that the markets are governed not by science, nor even art, but by emotion.

James Grant puts it this way:
People keep on stepping on the same rakes because money, like romance, is only partly an intellectual experience. Money, like sex, brings out some thought — but also much heavy breathing and little stored knowledge. In finance, the process is cyclical. Some people learn from their ancestors, but mostly they repeat the same mistakes. Thus it has always been and thus it will always be.

Friday, October 10, 2008

Thought for the Day

From Wikipedia's article on Warren Buffet's mentor, Benjamin Graham:
Graham's favorite allegory is that of Mr. Market, a fellow who turns up every day at the stock holder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price. The point is that the investor should not regard the whims of Mr. Market as determining the value of the shares that the investor owns. He should profit from market folly rather than participate in it.
If Buffett had gotten into his first choice business school, someone pointed out the other day, he would not have had to settle for Columbia. And who knows? He might never have met Graham.

They Lost Their Shirts

In Bavaria, this item from The Telegraph suggests, investors who lose their shirts might be called "naktiv."

Wednesday, October 08, 2008

Don't Step on the Lame Ducks

Think George W. Bush is a Lame Duck? Not really. Authentic Lame Ducks aren't over-the-hill politicians. Rather, they are members of a species we see all around us this fall: mortally-wounded stock traders.

See Bulls, Bears . . . and Lame Ducks.

Tuesday, October 07, 2008

What to Tell Your Clients (and Potential Clients)

In Ads That Soothe When Banks Are Failing Stuart Elliot of the NY Times looks at how financial advertisers are dealing with the panic. (Seems like only yesterday when it was only "the turmoil.")

He includes a worthy suggestion from Westport consultant Gary M. Stibel:

“The ads should tell people with money: ‘There is every reason to worry. That’s why we’re here.’ ”

Advertising during the Great Depression

This article is mostly about how internet advertising dollars might shift during an economic downturn. Along the way, the author makes some good points about advertising during the Great Depression (during which many advertising agencies prospered).
There was quite a number of examples of successful brands during the Great Depression, including Chevrolet cars, Camel cigarettes and Procter & Gamble (that gave birth to the phenomenon of soap opera during those hard times). And all of them relied heavily on advertising because they realized that they needed advertising to create and maintain brand loyalty. They simply pretended there was nothing particularly wrong with the economy and consumers still had money to spend - and this proved to be the right approach for them.

We should also keep in mind that advertising is one of the measures to demonstrate to consumers that the company is healthy. . . .

And this explains why those companies that survived the Great Depression and even grew during the recession period were not those that were wise about their budgets and cut on advertising as much as they could - instead those were the companies that continued to push their brands to consumers, thus making those consumers choose their brands over competitors (under-advertised) when making a decision what to spend their limited money on.

No satisfaction

Would it surprise you to learn that "satisfaction with how things are going in the United States" has fallen to 9%, the lowest level Gallup has ever recorded?

Didn't think so.

But the graph accompanying the linked NYTimes article is quite interesting. Notice that the satisfaction level fell to just over 10% at the end of the Carter presidency. It reached 50% only upon Reagan's re-election in 1984, then jumped to 70% by mid-1986. The '87 stock market crash coincided with a falloff. Satisfaction was under 50% when Bush I was elected, and it plummeted to the teens again after Clinton was elected. The 50% mark would not be reached again until 1997. Eyeballing the graph, it looks like on average only 35% to 40% of Americans have felt satisfied during the last three decades. That must mean something.

Satisfaction was over 50% as recently as 2004, as it was in 2000 when Bush II was first elected, but as been in pretty steady decline the last four years.

Wednesday, October 01, 2008

How J.P. Morgan Tamed the Trust Companies

As author of Morgan, American Financier, Jean Strouse "lived" through the Panic of 1907. If Morgan were around today, she writes in The Washington Post, he might be thinking how relatively easy he had it. No inscrutable derivatives. And he'd probably back the bailout.

Morgan would surely note one similarity between a century ago and now: reckless "bankers" running wild. In our Credit Crisis, the culprits are (or were) highly-leveraged investment banks. In 1907, Strouse recalls, the wild and crazy "bankers" were…trust companies.
What set a match to the tinder in October 1907 was a run on New York trust companies. ••• An attempt by speculators to corner the stock of a copper company failed, and as word got out that trust companies had made loans to the speculators, people with money on deposit at the trusts lined up to take it out. The trust companies, the weakest link in the financial system, operated like commercial banks -- accepting deposits, issuing loans and financing speculative schemes -- only with no regulatory supervision or mandated reserves.
Within weeks, the panic had killed off one trust company and shaken others. Banks teetered. The credit crunch threatened to close The New York Stock Exchange. Almost single-handedly, J.P. Morgan quelled the panic. But as November arrived he was still hard at work cleaning up the mess. As Strouse tells it, the new Morgan Library, completed only the year before, was his secret weapon:
[T]he bankers had to bail out a near-bankrupt New York City, and the trust companies, source of the original trouble, weren't in the clear. Sunday night, Nov. 3, Morgan gathered 50 trust company presidents at his library, told them they had to come up with $25 million on their own and left them in a large room filled with Renaissance bronzes, Gutenberg Bibles and tiers of books. He withdrew to his librarian's office. At 3 a.m., he called in one of his sleep-deprived lieutenants, Ben Strong, for a review of a trust company's books. Strong gave his report, then headed to the library's front doors and found them locked. Morgan had the key in his pocket. No one would leave until the trusts ponied up. The presidents continued to talk. At 4:15, Morgan walked in with a statement requiring each trust company to share in a new $25 million loan. One of his lawyers read it aloud, then set it on a table. "There you are, gentlemen," said Morgan.

No one moved.


Morgan took the arm of Edward King, the head of the Union Trust, and drew him to the table. "There's the place, King," he said, "and here's the pen." King signed. The other presidents signed. They set up a committee to handle the loan and supervise the final-stage bailouts of endangered trusts. At 4:45, the library's heavy brass doors swung open and let the bankers out.


As the stock market rallied and gold began to arrive from Europe, the two long weeks of crisis came to an end.

The 1907 run on the trust companies drained their deposits by $275,000,000. That's comparable to perhaps $6 billion today.