Morgan: American Financier

Jean Strouse

3 ideas

1. Morgan locks bankers in library, 1907

   During the Panic of 1907, with no central bank in the United States, Pierpont Morgan gathered New York's trust company presidents in his Madison Avenue library in November and reportedly locked the doors overnight until they agreed to pool about $25 million to support weaker trusts. Earlier that month he had also arranged for US Steel to buy the Tennessee Coal, Iron and Railroad Company to save the brokerage Moore & Schley, with President Roosevelt tacitly approving. The episode showed that a single private banker was acting as the lender of last resort, and it fed directly into the push that produced the Federal Reserve Act of 1913.

2. Morganization: creditor control of reorganised railroads

   When overbuilt, rate-cutting railroads went bankrupt in the 1890s, Morgan's firm reorganised them by cutting fixed debt charges, collecting new money from shareholders, and placing control in voting trusts run by Morgan partners. In return for new capital, the bankers took governing power so they could stop the ruinous competition and speculation that had destroyed value. The bargain made the lines stable, but it concentrated control over a whole industry in one private firm.

3. Personal reputation substituted for missing public institutions

   Strouse argues that Morgan's power rested less on the size of his fortune, which was modest beside Rockefeller's or Carnegie's, than on a reputation for trustworthiness. That reputation let him marshal other people's capital in a country with no central bank. His 1895 gold syndicate, which restocked the Treasury's reserves, worked because markets trusted his word more than the government's credit. This made the system fragile, since stability depended on one mortal man's credibility and judgement.

Save and mark ideas in the app