Thursday, September 18, 2008

Here Is a Shortlist of People and Institutions Who Can Make the Financial Crisis End?

We are living through a financial riot, and it is not a comforting feeling. We have found that the rating agencies might not quite be on top of things the way we had come to believe over the years. We have found that financial statements from insurance companies and banks do not show the toxicity of the loans they call assets. We are reminded again of the many conflicts of interest that rage on Wall Street. We have learned that the bank down the street with its giant mirror of a building that always seemed to imply power, strength, and the sky's-the-limit is up to its cooling towers in loans that seem to have seeped up from the sewers. We are in a financial riot, but just like physical riots it will not last indefinitely. It will end and it will be the government who ends this financial riot just like it is government that ends physical riots. It is not shopkeepers who fight back the inflamed mob and quell the riot, it is government through the police or the army. But it will not be government who will rebuild the financial system. That is the job for private enterprise. This is not a third world country. We are not dependent on the United Nations to solve our problems. This is a fabulously wealthy country that has blessed many entrepreneurs and corporations with wealth beyond their wildest dreams. There is no shortage of capital to solve this crisis; there is a shortage of nerve and courage and the willingness to take some blows to give fresh capital and clear-headed management principals time to turn the financial system around. It time to cut loose the bodies of capital that can solve this problem. I believe the following short list of participants should be allowed or encouraged to help clean up the mess.
  1. Wells Fargo (WFC) has dodged all the sludge so far, and they have made it clear that they are not in the turn-around business. I want to remind them; however that it was the ideas and leadership of a bunch of people from the old Norwest Bank out of Minnesota, who turned around the country-club banking types in California and enriched them in the process. John Stumpf, America needs your business acumen and banking genius to reach down into this mess and pick up something that you can correct. Many banks are selling for a fraction of their book values. What STAGE are you waiting for to get in the business of helping solve the banking crisis, and ultimately to enrich your company even more. You know its the truth. You just need to move. I think Washington Mutual is your best bet. They have a sales culture similar to yours. Unfortunately they have been selling the wrong products. If you give them the right products and risk management systems, they will rise.
  2. JP Morgan (JPM) and Mr. Diamond, you cut a heckuva deal on Bear Stearns. However, you need to get a little more skin in the game this time. National City Bank (NCC) has lost its rudder. They are a natural fit to your old Bank One territory. National City has always been a good meat and potatoes bank. They fell into the sewer when they tried to join the caviar crowd in the subprime world. National City would offer incredible consolidation possibilities because of its overlap in your Bank One territories.
  3. Wal-Mart (WMT), you have been trying to get into banking for years. In exchange for allowing you to get into the banking business, you should seriously look at Wachovia(WB). It's big. It's got the Sunbelt covered. It can provide you with the expertise to cross sell hundreds of investment products to your your millions of loyal customers both in the US and around the world. The government should change the rules to allow you to do it. You have capital coming out of your ears, and you have a bond with Mr. and Mrs. America that is among the strongest of any company on earth. You can help your fellow Americans the way you did in Hurricane Katrina and recently with Hurricane Ike.
  4. Warren Buffett, what are you waiting for. You are worth$70 billion, your company is worth over $100 billion(BRK/A). You also need legislation to allow you to get into the banking business. Your party is in power currently in Washington. It ought to take you about 36 hours to be in business. J Pierpont Morgan is said to have saved the US from financial calamity at least twice by loaning money to the country. Here's your opportunity to join Mr. Morgan as a man whose legacy will live through the ages. Buy somebody smart in the banking business like you did with MidAmerican Energy and turn them loose amalgamating the banking system like MidAmerican has done in energy and power. It may not be shooting fish in a barrel, which is your preferred method of operation, but America is calling on you like it once did on J. Pierpont Morgan. I know you own bank stocks, but it not the same as owning the companies outright. You know that.
  5. General Electric (GE): I know the Kidder Peabody purchase did not work, but the hubris on Wall Street is at an end for awhile and the complexity of your company would benefit from the expertise and business connections of an investment banking firm. JP Morgan is swinging in the breeze looking for a buyer. You have a AAA rating; you do business in every corner of the world; you are at the forefront of all the alternative energy solutions that have a chance of working. Your biggest problem is going to be helping your customers finance your technology. Morgan Stanley can do that. That is their business. They can also help guide you to important acquisitions in the areas of the world you want to be in and to the companies with bona fide products and capable management teams.

Ken Lewis, of Bank of America (BAC). I shudder every time there is a financial crisis because I know you will be there with your checkbook, even if nobody else is. Thank you for your bravery; thank you for your belief in America. I pray that your courage and strength of character will be blessed with strong profits for many years as a result of the moves you have made during this crisis.

I criticized your Lasalle Bank and Countrywide Financial purchases; I cringed with the Merrill Lynch purchase, but you appear to have paid pennies on the dollar in all cases and something seems to be speaking to you about the future that none of the rest of us are hearing. Call Warren Buffett. See if he'll fight this battle with you.

Moves like these will ultimately occur. I don't know if these people and companies will come forth, or if it will be other brave souls. This short list, however, if they put their shoulders to it, could solve our current problems.