William J. McDonough Overcame Childhood Traumas to Help Steer U.S. Economy

By FeaturesDow Jones Newswires

William J. McDonough


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When William J. McDonough was 10, his mother died of a stroke while trimming the family's Christmas tree on Chicago's West Side. Within a year, his father died of a heart ailment, leaving young William and his three older sisters to fend for themselves, with help from relatives of modest means.

One thing William didn't lose was his exceptional ability as a student. A nun who spotted that helped steer him toward a Jesuit boarding school in Wisconsin. He went on to a career as a U.S. naval officer, diplomat, international banker and president of the Federal Reserve Bank of New York, the second most powerful job in the U.S. central bank. His friends included Henry Kissinger and Paul Volcker.

Tall and trim, he was at ease whether singing an aria at one of his parties, chatting fluently in French or Spanish or delivering a speech. In public pronouncements, he was better known for his homilies on business morals than for any oblique hints about monetary policy.

In 2002, he scolded senior corporate executives for greed, saying that their rising compensation was "terribly bad social policy and perhaps even bad morals." In another talk, he chastised Wall Street firms for being "very long mammon and very short God."

That he held such diverse jobs proved "I'm very bad at plotting a career, " he told the American Banker in 2003.

Mr. McDonough died of heart failure on Tuesday at his home in Waccabuc, N.Y. He was 83.

In his Federal Reserve role, he helped orchestrate a private-sector bailout of the hedge fund Long-Term Capital Management in 1998, dealt with a Russian debt crisis and kept money flowing through the banking system after the Sept. 11, 2001, terrorist attacks. In some ways, those incidents were rehearsals for the emergencies the Fed would face during the 2008 financial crisis.

William Joseph McDonough was born in Chicago on April 21, 1934, the youngest of four children of Irish immigrants. His father owned a small insurance agency. His mother loved books and introduced him to "Moby-Dick" by age 7.

After his parents died, he lived with an aunt and uncle and then attended the Campion Jesuit high school in Prairie du Chien, Wis. After excelling there, he earned a scholarship to attend College of the Holy Cross in Worcester, Mass., where he received an economics degree with a minor in philosophy in 1956.

During a five year career in the Navy, he spent time on a destroyer, was stationed in Pearl Harbor and taught at the U.S. Naval Academy. As a night student, he earned a master's degree in economics at Georgetown University.

After joining the State Department, he was sent to Uruguay and later worked in Washington on Latin American policy. As a father with children, he was open to better-paying alternatives. One of his sisters heard that a Chicago-based bank needed young executives with international experience. So began his 22-year career at First Chicago Corp.

First Chicago sent him to Paris and London before bringing him back to the head office, where he rose to vice chairman. At age 55, he concluded he was unlikely to become CEO and retired early.

He worked as a consultant and did charity work for several years. In 1992, the New York Fed hired him as a senior official. A year later, he was promoted to president of the bank, which oversees the Fed's dealings with Wall Street. As head of the New York bank, he was automatically vice chairman of the Fed committee that sets interest rates. He worked from a palatial downtown Manhattan office featuring a glowing fireplace and leather sofa.

When Long-Term Capital was foundering, the Fed helped bring together private financial institutions to arrange a rescue, without government funds. Mr. McDonough rejected criticism that the Fed had no business helping save wealthy investors who made bad bets: "With the full brilliance of hindsight, we could not, I think, have done anything better," he said later.

On New Year's Eve in 1999, he turned down party invitations and stationed himself at the Fed to make sure computers didn't go berserk at the turn of a century.

After a decade at the New York Fed, he stepped down in 2003 and became chairman of the Public Company Accounting Oversight Board, a new agency that was trying to restore confidence in corporate accounts after a series of scandals. Some executives were grumbling about the tougher auditing standards imposed by the Sarbanes-Oxley Act. Mr. McDonough warned things would get worse if accounting practices weren't cleaned up: "You're going to get Sarbanes-Oxley No. 2, No. 3 and No. 4, and it will curl your hair."

He held the accounting oversight job for more than two years and then became a vice chairman at Merrill Lynch & Co.

Mr. McDonough is survived by his wife of 33 years, Suzanne Clarke McDonough, six children, 10 grandchildren and a sister, Eileen Golan. Two earlier marriages ended in divorce.

In a speech on the first anniversary of the Sept. 11 attacks, he said "those of us who have lives of great comfort and success" should thank a "good set of genes, good health, being born to loving parents, the help of a loving friend, the support of a great teacher." Though "we deserve some credit," he added, the reasons for that success "have very little to do with our own virtue."

Write to James R. Hagerty at bob.hagerty@wsj.com and Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

January 26, 2018 11:49 ET (16:49 GMT)

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