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Notes and Quotes- May 2, 2021

The Banker Who Saved America

By Tom Morrow

One of the important entrepreneurs who was key to building America was John Pierpont Morgan, New York financier, who orchestrated the federal government’s financial system, as well as created the giant corporations such as U.S. Steel and General Electric through his many acquisitions and consolidations.

John Pierpont Morgan Sr., born April 17, 1837, was an American banker who dominated corporate finance and industrial consolidation in the United States during the late 19th and early 20th centuries.

Morgan played a key role in the financial reorganization and formation of such well known giants like General Electric, U.S. Steel, International Harvester and communications conglomerate American Telephone &Telegraph (AT&T).

During the early part of the 20th century at the height of Morgan’s career, he and his partners had financial investments in many large corporations and had significant influence over the nation’s high finance as well as U.S. presidents and members of Congress. He directed the banking coalitions that stopped the national financial “Panic of 1907;” was the leading financier of the so-called “Progressive Era,” and his dedication to efficiency and modernization helped transform much of today’s American business. Yet, he was dubbed a “robber baron” because he profited in the collapse of earlier businesses such as Westinghouse.

Morgan learned at an early age how to make money. At 26, during the American Civil War, in an incident known as the “Hall Carbine Affair,” Morgan financed the purchase of 5,000 rifles from a U.S. Army arsenal at $3.50 each, which he then re-sold to an Army field general for $22 each.

Wyatt Earp

John Pierpont Morgan, Sr.

Morgan’s process of taking over troubled businesses to reorganize them became known as “Morganizations.” He reorganized businesses in order to return them to profitability. Morgan’s reputation as a banker and financier also helped bring interest from investors to the many businesses he had taken over. At the depths of the “Panic of 1893,” by 1895 the Federal Treasury was nearly out of gold. Morgan had put forward a plan for the federal government to buy gold from his European banks. Morgan came up with a plan to use an old Civil War law allowing him to sell 3.5 million ounces of gold directly to the U.S. Treasury restoring the nation’s financial surplus in in exchange for a 30-year bond issue.

The episode saved the U.S., and to maintain the status quo in business, Morgan, steel magnet Andrew Carnegie, and railroad mogul John D. Rockefeller, along with some Wall Street bankers donated heavily to Republican candidate William McKinley, who was elected in 1896 and re-elected again in 1900.

By 1900, Morgan’s financial firm was one of the most powerful banking houses in the world, focused especially on reorganizations and consolidations. After financing the creation of the Federal Steel Company, Morgan merged it in 1901 with the Carnegie Steel Company and several other steel and iron businesses to form the giant United States Steel Corporation.

“The Panic of 1907” was a financial crisis that almost crippled the American economy. Major New York banks were on the verge of bankruptcy and there was no mechanism to rescue them, until Morgan stepped in to help resolve the crisis. Treasury Secretary George B. Cortelyou earmarked $35 million of federal money to deposit in New York banks. Morgan then met with the nation’s leading financiers in his New York mansion, where he forced them to devise a plan to meet the crisis. Morgan organized a team of bank and trust executives which re-directed money between banks, secured further international lines of credit, and bought up the plummeting stocks of healthy corporations.

In 1913, realizing that in a future national crisis there would unlikely to be another J.P. Morgan for a rescue, banking and political leaders devised a plan that resulted in the creation of today’s Federal Reserve System. But a similar crises occurred 100 years later. In 2008, the J.P. Morgan-Chase bank emerged as one of the world’s largest banks, but that particular financial catastrophe, which saw the downfall of Lehman Brothers investment group, proved that no bank is “too large to fail.”

On March 31, 1913, J.P. Morgan died in Rome, Italy at the age of 75. He left his fortune to his namesake, John Pierpont Morgan ,Jr. The Morgan senior was estimated to have left a fortune at “only” $80 million, which prompted fellow so-called “Robber Baron” John D. Rockefeller to say: “… and to think, he wasn’t even a rich man.”

The 19th century “robber barons” included Morgan, oil giant John D. Rockefeller, auto builder Henry Ford, steel magnet Andrew Carnegie, and railroad mogul Cornelius (the Commodore) Vanderbilt. Together, these men truly did financially and industrially build America with Morgan providing the necessary financial and organizational “glue” that held many of the nation’s key conglomerates together.

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