I recently finished reading the award-winning book The House of Morgan by Ron Chernow. As best summarized by the author: “This book is about the rise, fall, and resurrection of an American banking empire—the House of Morgan. Perhaps no other institution has been so encrusted with legend, so ripe with mystery, or exposed to such bitter polemics. Until 1989, J. P. Morgan and Company solemnly presided over American finance from the “Corner” of Broad and Wall. Flanked by the New York Stock Exchange and Federal Hall, the short building at 23 Wall Street, with its unmarked, catercorner entrance, exhibited a patrician aloofness. Much of our story revolves around this chiseled marble building and the presidents and prime ministers, moguls and millionaires who marched up its steps. With the records now available, we can follow them inside the world’s most secretive bank.”
Below are key excerpts from the book that I found particularly insightful:
The story of the three Morgan banks is nothing less than the history of Anglo-American finance itself. For 150 years, they have stood at the center of every panic, boom, and crash on Wall Street or in the City. They have weathered wars and depressions, scandals and hearings. bomb blasts and attempted assassinations. No other financial dynasty in modern times has so steadily maintained its preeminence. Its chronicle holds up a mirror in which we can study the changes in the style, ethics. and etiquette of high finance. To order this vast panorama, we will divide our saga into three periods. This framework applies principally to the Morgan houses but also has, I think, more general relevance to other banks.
The House of Morgan’s future approach to business was shaped in the gloomy days of 1873. The panic was a disaster for European investors. who lost $600 million in American railroad stocks. Stung by all the railroad bankruptcies, Pierpont decided to limit his future dealings to elite companies. He became the sort of tycoon who hated risk and wanted only sure things. “I have come to the conclusion that neither my firm nor myself will have anything to do, hereafter, directly or indirectly, with the negotiation of securities of any undertaking not entirely completed; and whose status, by experience, would not prove it entitled to a credit in every respect unassailable.” Another time, he said, “The kind of Bonds which I want to be connected with are those which can be recommended without a shadow of doubt, and without the least subsequent anxiety, as to payment of interest, as it matures. ” This encapsulated future Morgan strategy—dealing only with the strongest companies and shying away from speculative ventures.
Pierpont selected partners not by wealth or to fortify the bank’s capital but based on brains and talent. If the Morgan style was royal. its hiring practices were meritocratic. The bank had many first-rate technicians.
The intellectual and political leap most damaging to the House of Morgan was a spreading notion that a Wall Street trust had created the industrial trusts and governed their subsequent destiny.
After Pierpont Morgan’s death, the House of Morgan would become less autocratic, less identified with a single individual. Power would be diffused among several partners, although Jack Morgan would remain as figurehead. In the new Diplomatic Age, the bank’s influence would not diminish. Rather, it would break from its domestic shackles and become a global power, sharing financial leadership with central banks and government! and profiting in unexpected ways from the partnership. What nobody could have foreseen in 1913 was that lack Morgan—shy, awkward, shambling Jack who had cowered in the corners of Pierpont’s life—would preside over an institution of perhaps even larger power than the one ruled by his willful, rambunctious father.
Through Strong’s influence, the Federal Reserve System would prove far more of a boon than a threat to Morgans. The New York Fed and the bank would share a sense of purpose such that the House of Morgan would be known on Wall Street as the Fed bank. So, contrary to expectations, frustrated reformers only watched Morgan power grow after 1913.
The news of war was greeted with melodramatic foreboding by Jack Morgan, who foresaw “the most appalling destruction of values in securities which has ever been seen in this country.” Later reviled as a “merchant of death” by isolationists, his first reaction, in fact, was spotlessly humane.
So the early New Deal threatened the House of Morgan in two ways: the Pecora hearings were exposing practices that could bring fresh regulation to Wall Street. And the White House attitude toward European finance augured an end to the House of Morgan’s special diplomatic role of the 1920s. After an incestuous relationship with Washington in the twenties, the bank would suffer the curse of eternal banishment.
The Glass-Steagall Act took dead aim at the House of Morgan. After all, it was the bank that had most spectacularly fused the two forms of banking. It had, ironically, proved that the two types of services could be successfully combined; Kuhn, Loeb and Lehman Brothers did less deposit business, while National City and Chase had scandal-ridden securities affiliates. The House of Morgan was the active double threat. with its million-dollar corporate balances and blue-ribbon underwriting business.
As it turned out, the House of Morgan didn’t suffer as much from Willkie’s defeat as might have been expected. Bolstered by his election victory, Roosevelt moved more vigorously to support Britain, and in this effort he needed the Morgan bank. With marvelous suddenness, the chill in Morgan-Roosevelt relations thawed and was replaced by cordiality from the White House of a sort that 23 Wall hadn’t known since the twenties. As America’s attention shifted from blistering debates over domestic policy to ways in which to deal with Europe’s dictators, the power of the House of Morgan surged accordingly.
On a closing note:
The old House of Morgan’s power stemmed from the immature state of government treasuries, companies, and capital markets. It stood sentinel over capital markets that were relatively small and primitive. Today, money has become a commonplace commodity. A company in need of capital can turn to investment banks, commercial banks, or insurance companies; it can raise it through bank loans, bond issues, private placements, or commercial paper; it can draw upon many) currencies, many countries, many markets. Money has lost its mystique, and banking. therefore, has lost a bit of its magic. The Morgan story is the story of modern finance itself. A Pierpont Morgan exercised powers that today are dispersed among vast global banking conglomerates. The activities once performed by a knot of side-whiskered men in mahogany parlors are now spread across trading rooms around the world. We live in a larger, faster, more anonymous age. There will be more deals done and more fortunes made, but there will never be another barony like the House of Morgan.
A recommended read in the areas of Finance, Banking and History.