Monday, October 06, 2008

Like J.P. Morgan, Warren E. Buffett Braves a Crisis


In the midst of a financial crisis, a towering figure of American business steps forward with his reputation and financial resources for public good and personal gain.

Their times and personalities are vastly different, of course. But J. Pierpont Morgan’s role in the Panic of 1907 has its echo in Warren E. Buffett’s actions during the current financial troubles.

“What Buffett is doing is similar in ways to what Morgan did in 1907,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. “It’s what you might call profitable patriotism.”

Comparing the two men and their moves in periods of market turmoil, just more than a century apart, reveals how much some things have changed over the years and how other things have not, according to business historians and finance experts.

Morgan was 70 during the financial crisis of 1907, in the twilight of his career. Mr. Buffett is 78. Like Morgan so long ago, Mr. Buffett now finds himself “at the center of things; he draws headlines and he inspires confidence,” said Robert F. Bruner, dean of the Darden School of Business at the University of Virginia, and a co-author with Sean D. Carr of “The Panic of 1907: Lessons From the Market’s Perfect Storm” (Wiley, 2007).

In the last two weeks alone, Mr. Buffett has exercised his influence mainly by investing in embattled blue-chip companies, committing a total of $8 billion to Goldman Sachs and General Electric. He drove hard bargains and invested on favorable terms.

Mr. Buffett has been fielding many phone calls recently because of his cash, his reputation and his ability to act quickly. The G.E. investment, for example, was put together in a matter of hours, after G.E. reached out to Mr. Buffett through his longtime banker at Goldman Sachs, Byron D. Trott.

“In the last few weeks, everyone who has been in trouble or thought they were in trouble has called him,” said Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life,” a biography released last week by Bantam. Ms. Schroeder, a former Wall Street analyst, is the first Buffett biographer to receive his cooperation, and she said she talked to him regularly.

The companies benefit from the credibility dividend that comes with the Buffett endorsement. Last Thursday, the day after he announced his investment in G.E., the company raised more than $12 billion in a public sale of shares.

Mr. Buffett is also the largest shareholder in Wells Fargo, which last Friday swept in with a $15 billion bid for another banking company, Wachovia, offering seven times what Citigroup did at the start of the week.

Mr. Buffett is the world’s richest person, topping this year’s ranking of billionaires by Forbes magazine with $62 billion. Mr. Buffett has pledged to give most of that fortune to charity upon his death.

Yet even more than money, Mr. Buffett brings the reputational capital that comes from being a peerless long-term investor, revered for his acumen and sound judgment.

“So there is immense signaling power to Buffett’s moves, showing others that now may be a good time to invest,” Mr. Bruner said...