Safeguarding Your Money

When it comes to white-shoe, old-money banking, Brown Brothers Harriman and Co. could give Mortimer and Randolph Duke a run for their money. Down to its mahogany-paneled walls, the nation's oldest and largest private bank epitomizes traditional business conservatism on Wall Street. Once counting Prescott Bush—President George W. Bush's grandfather—as a partner, the firm only just admitted its first female partners in 1998. But how much can even the über-rich who have access to institutions such as Brown Brothers insulate themselves in the market when the Dow slips below 8600 points? Because it is a private partnership, Brown Brothers does not release detailed financial results about the roughly $45 billion it manages, but as Wall Street's losses pile up, and adventurous banks crumble, Brown Brothers' partners aren't losing nearly as much sleep as many of their peers. To find out the secrets to their success, NEWSWEEK's Katie Paul spoke with Charles Blood, a financial strategy director at Brown Brothers, about weathering the economic crisis, how to keep your money safe, and why he thinks things could get better in just six months. Excerpts:

NEWSWEEK: Since you take a long-term view of the economy, what's your take on how bad this situation is? Charles Blood:
Everything keys on how we go through this part of the slowdown, perhaps recession. We'd like to say we've got a two-year view, but the more relevant question is how we are going to get through the next six months. Up until three weeks ago, outside of the financial or housing sectors, the economy was actually pretty strong, surprisingly strong. GDP kept coming in positive—below its normal rate, but positive.

What changed?
Three weeks ago, post-Lehman weekend, money-market rates went up very sharply for most borrowers. That's a big deal. Not only are there credit-flow questions, but also the price has gone up for everybody. That increases the risk that this moderately positive GDP number could tilt over into a recession.

So you don't think we're in a recession yet?
Not if you think of recessions as negative GDP. But out in the real world, it certainly feels like a recession: Unemployment's going up, retail sales are going down, income growth is slow or negative, and people are struggling with the consequences of high gasoline prices. By any standards that normal people use in living their lives, it would be a recession.

What do you see that's promising about the economy at this point?
We're almost at the point that it's bad enough that it's good. The credit crisis seems to be approaching climax. On the other side of that comes the rebound. Now we're trying to figure out where the bottom is. Six months from now, I think we'll be talking about an economy that has bottomed and started to improve.

What are the indicators that the bottom is on its way?
One of the classics is that the stock market bottoms. At that point, you just turn on a clock and expect that the economy will bottom six months later. The stock market now looks like it's getting close to a low. That's a risky thing to say, because it might take another month or two. We're not in the early stages in all of this. But the main thing we have to see before we can make any legitimate projections about the economy is for interest rates to go down. Nothing's going to happen while we're in this acute credit crunch. That will be the first sign that we're on the road to healing.