Titan of Finance: Unraveling the Legend of J.P. Morgan !

INTRODUCTION

Wealth, power, and influence. J.P. Morgan had it all. The first billion-dollar firm in the world was owned by him. He controlled the most lucrative industries in America. And several times, J.P. Morgan's decisions determined how the US economy performed. With a simple word or the stroke of a pen, he could save a company from collapse or doom it to bankruptcy. Disliked by some, adored by others -  there will never be another man quite like JP Morgan. Let us see the tale of this legend.

AN UNPLEASANT START

In 1837, John Pierpont Morgan was born in Connecticut into a wealthy family. Since John's father, Junius Spencer Morgan was already a successful banker, he ensured his son received the best education possible to prepare him for a career in finance. John was born into affluence, yet he had a miserable upbringing. He was an ill little boy, who suffered from several illnesses like seizures, coughs and scarlet fever. Because of his health issues, he was frequently unable to play outside with the other youngsters. Instead, you’d find him inside studying financial statements. 

John's father transitioned into a junior partner at a London-based merchant banking firm named George Peabody & Co. Thanks to his father's position, John secured a job on Wall Street with the banking firm overseeing Peabody's interests in America. Part of John's responsibilities included reporting to his father's firm about the economic and political developments in America, which was still an emerging market at the time. However, from an early age, John's father worried that his son's impulsive nature and quick temper might hinder his success as a financier. He believed John needed to learn restraint and accountability. This concern was highlighted in 1859 during a trip to New Orleans when John made what seemed like a risky decision, using company funds to purchase an entire shipment of Brazilian coffee without a confirmed buyer.

In 1861, at the age of 24, John decided to leave the stability of his position in an established firm to venture out on his own. He founded his own company, which continued to act as an agent for his father's bank in England. John married his first love, a frail young girl named Amelia Sturges. And for a quick duration, John turned into the happiest he`d ever been. However, Amelia was diagnosed with tuberculosis. John took her on a prolonged vacation to the Mediterranean, hoping that the brand new weather may repair her power similar to what John`s father had attempted for him while he was younger - however, it turned into no use. Four months after their wedding, she died. Understandably, John turned into an inconsolable mess, and it`s believed, he never genuinely recovered from this.

 Immediately after losing his wife, John threw himself deep into his work more than ever.  However whilst John was going through his crisis, so was the United States - around this time the American Civil War had broken out, and by the 1863 Conscription Act, John should go off to fight in the war - but he didn’t. Instead, John paid $300 to be removed from enlisting, and have a substitute stand in his place. That's not to say John didn’t get involved in the war though - in fact, on the contrary, he profited from it hugely. One of the most notable examples was when he financed the purchase of 5,000 surplus Hall carbine rifles at $3.50 each from the government that were considered too old to use. But then the consortium who bought them made some minor adjustments and almost immediately sold the same rifles back to the government for $22 each. It was an over 600% increase in price, and thus whilst it was a very lucrative deal for John to be involved in, this war profiteering was certainly not popular with the public or the government.

 
THE RAILROAD TYCOON

In 1871, John saw a great opportunity to join forces with one of the country's leading financiers Anthony Drexel. Together they founded Drexel Morgan & Co., a private commercial banking company. This company was later renamed simply JP Morgan & Co. This is the company led by John for the rest of his life and served as the precursor to the modern banking giant known today as JP Morgan Chase. Early in his career, John was just a dealmaker, connecting wealthy investors and visionaries in exchange for a share of the profits. However, as John accumulated greater personal fortune and fame, he was able to fund many of these projects himself.

John had already identified his first major investment, the American railroad system. At the time, most other major industries were controlled by single tycoons, such as Carnegie who controlled the steel sector and Rockefeller who controlled the oil sector, but railroads did not have a monopoly. The opposite was true, with so many competitors offering very similar routes that they often lowered their prices to attract customers. But while most companies were looking at the railroad business and seeing intense competition, John saw an opportunity. In his opinion, the answer lies in consolidation, in integrating railroads rather than competing with each other. That's because John knew that the bigger the company, the more it could benefit from economies of scale. Therefore, John's goal has always been to transform several small businesses into an integrated conglomerate. Because they owned all the railroads in their neighbourhood, they suddenly could set the prices they wanted instead of competing with each other to drive prices down. Therefore, John invested heavily in several railroad companies and began consolidating them. He would buy a cash-strapped railroad company, optimize its management and operational efficiency, and consolidate its small businesses into a powerful company. John used this tactic to such great effect that it was even named after him, becoming known as “morganization.”

But what set John apart from other businessmen and investors of his time was that he took a very active role in the governance of these companies. John wasn't satisfied with simply buying stocks and sitting back and making a profit. He was a man who craved control. John had to be in charge, so he regularly used his influential position on the board to run the company as he saw fit. He intended to use his position to push for mergers and acquisitions that would enrich himself and, of course, his investors and eliminate competition. However, this also means that John could have significant influence over the entire country's economy. And it was always John's dream - to control the destiny of the country. And over time, John began to accomplish just that.

THE MAN OF STEEL

In 1901, Carnegie Steel stood at its zenith. Dominating the steel industry, it was one of the most valuable companies in the United States. Andrew Carnegie, its founder, was ready to retire and sought a buyer for his company. Enter John, a shrewd businessman with an appetite for bold deals. John approached Carnegie and urged him to name his price. Carnegie did so, asking for a staggering $480 million – an astronomical sum even by today’s standards. Remarkably, John agreed on the spot, later admitting he would have paid $100 million more. This landmark purchase marked the birth of U.S. Steel, the world’s first billion-dollar corporation. With a market cap of $1.4 billion, U.S. Steel dwarfed all other manufacturing companies combined, which were capitalized at a mere $9 billion. 

But John’s ambitions didn’t stop there. He orchestrated the merger of Carnegie Steel with the Federal Steel Company and other businesses, creating U.S. Steel. Controlling two-thirds of American steel production, John seemed invincible. Yet, he wasn’t content with steel alone. John financed Thomas Edison’s early experiments with electricity, leading to the creation of General Electric (GE). His influence extended to the birth of what would later become AT&T. John’s knack for combining companies into unstoppable giants was unparalleled. However, as the 19th century drew to a close, the United States faced an unprecedented depression. Decades of unchecked growth and speculative investments culminated in a devastating economic bubble burst. The American economy plunged into chaos, and John’s empire faced its greatest challenge yet. And so, the stage was set for a new chapter – a crisis that would test John’s mettle and resilience.

CRISES

In 1893, the United States faced an unprecedented depression following decades of continuous growth and unregulated investments. The bursting of the bubble led to chaos in the American economy, with stocks losing nearly half their value, numerous businesses closing permanently, and hundreds of banks going bankrupt. Unemployment rates soared across the nation as foreign investors, fearing the crisis, exchanged their American bonds for gold, gradually depleting the U.S. reserves. As the dollar was then pegged to the gold standard, ensuring that paper money could be converted into physical gold, the government maintained a minimum of 100 million dollars in gold bullion to back the currency. However, by 1895, most of this gold had been exhausted, causing a sharp decline in the dollar's value. With reserves dwindling to just nine million dollars, the government faced imminent loan defaults, triggering further panic and withdrawals by investors.

The absence of a central bank left the U.S. without a clear mechanism for rescue, presenting a dire situation. Recognizing the gravity of the moment, President Cleveland realized that conventional methods like issuing more bonds to the public wouldn't suffice. Entered John, who saw the urgent need for bold action to avert economic disaster. John proposed a daring plan: assemble a private syndicate comprising the country's leading bankers, working alongside foreign investors, to bolster America's gold reserves. Their syndicate offered to buy 65 million dollars worth of 30-year gold bonds using 3.5 million ounces of gold. Leveraging an old Civil War statute, President Cleveland swiftly approved the deal without waiting for congressional endorsement. With the agreement signed, John coordinated with his associates in New York, swiftly securing all the gold bonds in just 22 minutes. This decisive move quelled the financial market's volatility and instilled confidence in the economy, marking a turning point in America's economic recovery.

John's pivotal role in bailing out the government raised concerns about the immense influence of a single banker on the entire U.S. economy. Some questioned whether his motives were genuinely patriotic or merely opportunistic to enrich himself. The relationship between big banks and the government became a contentious issue, particularly among Democrats. Despite this, John and his banker allies heavily supported the Republican nominee, who ultimately won the election. This alignment allowed John to maintain his close ties with the government. John's impactful interventions in stabilizing the economy were not limited to one instance. In 1907, during another financial crisis, he played a crucial role once again. Numerous banks were on the brink of collapse, prompting widespread panic and withdrawals from bank accounts.

Facing this dire situation, President Roosevelt and John, despite their differences, recognized the need for collaboration between government and big business to avert a depression. Roosevelt turned to JP Morgan to tackle the crisis, emphasizing the urgency of their joint efforts. J.P. Morgan summoned dozens of the leading financiers and leaders of the nation's biggest banks and trusts to join him in his private library on Madison Avenue and decide on the best course of action. John's plan was essentially for them to invest in their smaller competitors. John concluded that although some banks would inevitably fail, others could still be saved. So he and his associates deposited giant sums of money in several banks so that they would be able to pay their depositors and avoid declaring bankruptcy.

After revealing his plan, John then locked the door while the bankers negotiated among themselves, literally locking them in until they agreed on a resolution. By the morning, everyone had agreed with John's plan, and with Roosevelt's approval, the U.S. Treasury also contributed 25 million, showing the level of trust and respect the president had for John's business sense.

What's remarkable is that John was 70 years old at this point and negotiated all of this while having a terrible cold, meaning he was constantly coughing and sneezing while saving the US economy. But his plan ultimately worked. Lots of capital was injected back into the economy, public confidence was restored in America's banking system, and yet another economic disaster was averted thanks to John's wheelings and dealings. But whilst he was once again briefly labelled as a hero, almost immediately people began to realize just how dependent they had become on one single man. Something needed to change.

 THE LEGACY

John faced heightened scrutiny as the era of the unchecked robber baron gradually drew to a close. The American public grew increasingly cautious of a select few businessmen wielding immense power and influence. This led to John being summoned to testify before Congress. The Pujo Committee was formed, which aimed to investigate Wall Street's money trust and its impact on the American economy. However, John never witnessed the full aftermath of this investigation. On March 31st, 1913, the 75-year-old financier died while on vacation in Rome. After his death, John's son took over the business and continued its expansion. Even in the present day, there are still concerns that the bank is too powerful. It has undergone countless acquisitions and mergers over the years, something John himself would have been proud of. One notable merger was with Chase Bank in the year 2000, creating JP Morgan Chase with an estimated three trillion dollars in assets. After 200 years of consolidation in the banking industry, J.P. Morgan Chase is now the biggest bank in the world by market capitalization. So, while opinions may be divided on John Pierpont Morgan, his story, is a fascinating one.

 

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