The Weekend That Changed Wall Street by Maria Bartiromo & Catherine Whitney

Author:Maria Bartiromo & Catherine Whitney [Bartiromo, Maria]
Language: eng
Format: epub
ISBN: 9781101547410
Publisher: Penguin Publishing Group
Published: 2011-09-26T16:00:00+00:00

SEVEN

Popcorn and Dominoes

“It was extraordinary from a personal point of view. I remember being in the meetings and thinking, ‘My gosh, I’m a mere mortal and I’m in a situation where me and half a dozen people hold the fate of three hundred million people in our hands.’”

—ED LAZEAR, ECONOMIST AND CHIEF ECONOMIC ADVISER TO PRESIDENT GEORGE W. BUSH, IN AN INTERVIEW WITH MARIA BARTIROMO, FEBRUARY 25, 2010

SEPTEMBER 21, 2008

The mild Sunday evening provided perfect baseball weather, but for the crowds that jammed Yankee Stadium in the Bronx, the victory over the Baltimore Orioles was bittersweet. After eighty-five years and twenty-six world championships, it was the last game to be played at the stadium Ruth built. Twelve miles away, in the caverns of Wall Street, it would also go down as the last day of investment banking as we knew it.

It had been a bad week on Wall Street. Morgan Stanley CEO John Mack, who had watched the disastrous events unfold over the Lehman weekend, and had seen Merrill Lynch jump the investment banking ship to save its life, was deeply troubled. It was becoming increasingly clear that the two remaining investment banks, Morgan Stanley and Goldman Sachs, were vulnerable to the same forces that brought the other three to their knees. Mack knew he had to move fast to save his firm. “It wasn’t a question of being scared,” he told me. “It was a question of how we were going to solve these problems. After Merrill was bought, Morgan Stanley’s and Goldman’s stock went down. There was a lot of fear in the market about these firms.” Mack started reaching out to international companies that might be investment partners—in particular, Mitsubishi and CIC in China. It was a frustrating period. “What do we have to do to get people to have confidence not only in us but in the entire system? That kind of leadership was the critical piece in keeping the meltdown from being much worse.”

The greatest fear during that time was that there would be a run on the investment banks triggered by rumors. True or not, fear would set in and cause people to run for cover and withdraw their money. There was also worry about short-sellers. The concern was so serious that Andrew Cuomo, New York’s attorney general, announced that he was launching an investigation into short-sellers. “Short-selling in and of itself is not illegal,” he explained to me, “and many people argue that it’s a productive part of the marketplace. There can be behavior that is illegal, however, if you’ve spread false information and are trying to drive down prices for your own economic benefit.” A type of short-selling, called naked short-selling, was being investigated by the SEC, and Cox announced a temporary ban on this practice.

Still, Morgan Stanley’s stock fell precipitously. In a single week after Lehman declared bankruptcy, the stock price dropped from the low thirties to the low teens. Mack had predicted a “run” on his bank, and now it was happening.

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