The Morgan Consortium - the most influential private banking group in American financial history

The Morgan Consortium is a very weighty book. The first reason to say that it has "weight" is that the book is really thick enough. The Chinese version has 800 pages, 800,000 words, and spans 150 years. And what is remarkable is that the book describes every historical detail, based on first-hand archives and all kinds of primary sources, to maximize the restoration of the real history.

Its author is a big deal. The author of this book is called Ron Chernow, is the president of the Writers Guild of America, has won the Pulitzer Prize five times, is the most prestigious biographer in the United States. Morgan Consortium" is Chernow's first work, once published, won the most authoritative awards in the U.S. book industry "National Book Award". Chernow went on to write the Hamilton biography, the Rockefeller biography, the Washington biography and other heavyweight works, won numerous awards. Fortune magazine called Ron Chernow "the epitome of the American biographer".

The third reason this book carries weight is that its Chinese translator is also very good. The book was translated by Mr. Jin Liqun, former chairman of CICC and the first president of the Asian Infrastructure Investment Bank (AIIB). Mr. Jin Liqun devoted great effort to this book, spending two years before and after the three translations and three proofreading, and personally wrote a long recommendation preface, pointing out the significant value of this book from the perspective of a financial expert.

Why is this book, The Morgan Consortium, important? Ron Chernow says he originally wanted to write a general history of Wall Street, but the topic was too large and difficult to grasp. He thought about it and decided to choose one bank to write about that best represents Wall Street, and that was the JPMorgan Consortium. So, the Morgan Consortium as the most influential private banking group in American financial history, you read this Morgan history, you also understand the ins and outs of the development of the modern financial industry in the United States.

Then furthermore, why do we need to go back and y understand the history of American finance at a time when China is developing rapidly? According to Mr. Jin Liqun, the existing mainstream economic and financial theories, which are based on the particular historical experiences of Western countries, are not necessarily truths that are universally applicable at any stage of development and under any conditions. If we do not carefully analyze the historical soil from which these theories have emerged, and only know how to simply copy and reproduce them, it is very likely that we will suffer great losses. Therefore, if we understand the history of Western finance, we will be able to understand the source of the emergence of Western financial theories, and thus have a better understanding of our economy and society. This is also why Mr. Jin Liqun has spent so much effort to translate this book "The Morgan Consortium".

Well, after introducing the basics of this book, here, I will tell you in detail, from three aspects, the significant impact of the Morgan Consortium in the history of American finance.

First, as we know, there have been some giant industrial trust organizations that monopolized the U.S. economy in American history. However, the emergence of the trusts was not a victory for the American industrial barons, but symbolized the rise of the Wall Street power led by Morgan. Here's why.

Second, the Morgan consortium exerted great energy to help the United States seize global hegemony. How did a consortium help a country to dominate?

Thirdly, when the Morgan Consortium swelled, even the U.S. government had to restrict it and even introduce special laws for it. So how did the Morgan Consortium play with the US government?

Part I

Well, let's start with the first point, why is it that the emergence of industrial trusts symbolizes the rise of Wall Street power led by Morgan?

To make this clear, let's first look at what stage of economic development the United States was in at the time. At the end of the 19th century, the United States had completed the first industrial revolution and was in the midst of the second industrial revolution, the heavy industry revolution, which was dominated by steel, energy, railroads, shipping and so on. Heavy industry is capital-intensive and requires a lot of capital investment. But capital was scarce at that time.

At the same time, there were very few large national companies, and local companies were too weak to issue stocks and bonds on their own, and had to rely on the credibility of the Wall Street consortium to raise capital. That is to say, Wall Street holds the flow of scarce capital, can control the survival of industrial enterprises, the industrial sector had to follow the orders of Wall Street. However, at that time, Wall Street was still only exerting indirect influence on the industrial sector, and was not directly involved in the operation.

The real Wall Street has become the actual controller of the U.S. economy, is the head of the Morgan consortium at that time, Pierpont Morgan, also known as "old Morgan". One of Morgan Sr.'s accomplishments was the formation of several of the largest industrial trusts in the U.S. at the time - the Railway Trust, the Steel Trust, and the International Maritime Trust.

You may wonder why Morgan Sr., as a banker, formed industrial trusts. As a matter of common sense, once industrial capital joins together, it may instead weaken finance capital.

At that time, there was a trend of overinvestment and vicious competition in American industry. Take the railroads. Railroads are the "Internet" of the 19th century, the most dynamic new industry, but also the most favored by capital. At that time, 60% of the stocks listed on the New York Stock Exchange were railroad companies. The public competed to buy railroad stocks, expecting to get rich overnight. And the major railroad companies competed for monopoly status, racing to lay rail lines, creating a serious surplus. Between St. Louis and Atlanta, for example, there were 20 rail lines competing with each other, and the railroads engaged in a bitter price war.

The result was that a large number of railroad companies went bankrupt and failed, and small and medium-sized investors lost their money. Since these railroad securities were underwritten by a group of Wall Street banks led by J.P. Morgan, the angry public turned on J.P. Morgan, and the business reputation that the J.P. Morgan consortium had painstakingly built up over the years was seriously damaged. What's worse, the frantic investment and vicious competition in the railroad industry can cause periodic economic crises that can devastate the entire financial system.

The most typical example is the Great Panic of 1873. Eighty-nine U.S. railroads defaulted on their debts, and the Jay Cooke Consortium, one of the most prominent banks in the United States, declared bankruptcy after speculating on Northern Pacific Railroad stock, ultimately triggering a financial meltdown. 5,000 business firms and 57 securities firms went out of business, and the New York Stock Exchange closed its doors for the first time since its inception for 10 days.

The crash was good for Morgan in a way, because its biggest competitor went bankrupt and the Morgan consortium jumped to become the top player in U.S. finance. However, the old Morgan never forgot the lessons of this financial collapse, and he decided to straighten out the railroad industry mess, with railroad trusts to avoid vicious competition. How did he do it?

In the beginning, the old Morgan is by virtue of his personal prestige, the railroad tycoons to his private yacht Pirate, sitting together to sign a gentleman's agreement to form a trust. This agreement is also called the "pirate agreement". But later found that this method simply does not work, there are always people through the secret price cuts to sabotage the agreement. So, the old Morgan simply personally, the bankruptcy of the railroad company reorganization, his partners into the board of directors of these companies, so that the control of the company firmly in their own hands. This process is known as the United States railroads "Morganization". In this way, the old Morgan controlled dozens of railroads, which he formed into a giant railroad trust with revenues equal to half of the U.S. government's coffers.

In addition, the old Morgan also invented a method called "equity trust", further expanding his control. Here the equity trust, refers to the dispersed small and medium-sized investors in the hands of their shares entrusted to the bank, so that the bank to help them exercise the rights of shareholders. In this way, the banker became the voice of the many small and medium-sized shareholders and furthered his control of the railroads. By 1900, a group of Wall Street banks led by Morgan Sr. controlled virtually the entire railroad system in the United States.

What should we say about Morgan's railroad trusts? It is generally believed that free competition is good and monopoly is bad, and that the formation of trusts is a historical reaction. But the railroad is a public **** product with a natural monopoly, when dozens of hundreds of small railroads to engage in a state of disorderly competition, not only is not conducive to the stable operation of the railroads, but also harm the interests of small and medium-sized investors. Objectively speaking, Morgan's railroad trust greatly improved the operation of the U.S. railroads, so that the interests of small and medium-sized investors have been protected. Of course, the Morgan consortium also use this to expand their sphere of influence, become the supreme lord of the American economy.

After the success of the railroad trusts, the old Morgan organized the steel trusts in 1901. At the time, fierce competition had developed between the steel companies owned by Morgan Sr. and those of steel king Andrew Carnegie, and the steel industry was experiencing price wars and overproduction. This time Morgan Sr.'s solution was to buy Carnegie's company outright for $480 million, thus forming U.S. Steel. The steel trust controlled 65 percent of total U.S. steel production, and its market capitalization accounted for 1/6th of the total manufacturing capitalization in the U.S. At the end of signing the purchase agreement with Carnegie, Morgan Sr. stood up and said to Carnegie, "Congratulations on becoming the richest man in the world."

In 1902, Morgan Sr. formed another shipping trust and built one of the largest private fleets in the world. Through the association of railroad trusts and shipping trusts, Morgan Sr. controlled the major freight network between the United States and Europe. It is worth noting that the famous Titanic belonged to Morgan Sr.'s shipping trust and was built with his personal approval. He was scheduled to take part in the Titanic's maiden voyage, but eventually escaped by canceling it due to an impromptu emergency.

So you see, Morgan Sr. greatly controlled the U.S. economy through the formation of three major trust organizations, railroads, steel and shipping. Wall Street bankers followed suit and formed a number of large industrial trusts. The author calls this period the "Age of the Lords" and considers the Wall Street bankers, led by Morgan, to be the true masters of the era.

Well, that's the first point for you: the emergence of the industrial trusts symbolized the rise of the power of Wall Street, led by J.P. Morgan. Through the formation of the three major trust organizations, the old Morgan firmly controlled the industrial world and became the most powerful financial capitalist in the United States.

Part II

However, at the beginning of the 20th century, the Morgan consortium, though calling the shots within the United States, was still a minor player in the international political and economic arena. Until the outbreak of World War I, which brought unprecedented opportunities to the Morgan Consortium, allowing the Morgan Consortium to leap into an important role on the international stage. How did this happen? That's the second main point of what's to come.

We know that the two world wars led to a dramatic change in the international political and economic order. While the European powers fought and were devastated, the United States was the biggest beneficiary of the two wars. The two wars allowed the United States to get rid of the economic depression, a strong rise, and eventually replaced the British Empire as the new global hegemony. The global financial center gradually shifted from the City of London to Wall Street in New York, while the U.S. foreign policy shifted from traditional isolationism to active intervention in international affairs, seeking to create an international political system dominated by the United States.

In this process, the Morgan consortium and the U.S. government is highly bound to become an important pushers standing behind the U.S. government. Specifically, the Morgan consortium has done two things: the first is to intervene in European affairs, the international financial dominance from Europe to the United States; the second is to help the United States in the third world to seize the benefits.

Let's start with World War I. In the summer of 1914, news of the war came from Europe, and ordinary Americans were so frightened that stock prices plummeted. And the sharp-sensed Morgan partners were particularly excited, realizing that this was a great opportunity to make a fortune from the war. By this time Morgan Sr. had passed away and his son Morgan Jr. took over. Unlike Morgan Sr., Morgan Jr. didn't do everything himself, but instead assembled a team of smart and tough partners to run the business. Davidson, Lamont and others dominated Morgan's business during this period.

Before World War I, the United States was a debtor nation to international finance. Because of the urgent need for capital for industrial development, a large number of American companies ran to Europe to issue bonds. Morgan consortium can become the Wall Street boss, is because it is the earliest in the United Kingdom to start, in Europe has a wide range of contacts, can help the United States enterprises to raise a large number of European capital. After the outbreak of World War I, Europe was short of money, and they had to borrow money from the United States in turn. Who could they borrow from? Their old friend, the Morgan Consortium, of course.

For example, the French government took the Morgan Consortium as their financial agent and asked for a loan of 100 million dollars for the purchase of strategic materials. At the same time, the British government also approached the Morgan Consortium, asking Morgan to purchase American arms for them in large quantities. In order to be fair, and to avoid competition among countries for American supplies and price inflation, the Morgan Consortium simply set up an "Export Department" to act as the exclusive U.S. purchasing agent for all the Allied Powers involved in the war. The Allied Powers were a military grouping of Britain, France and Russia during World War I. Their rivals, the Allies, were a military grouping of Germany and Austria-Hungary, among others.

Throughout World War I, the Morgan Consortium purchased up to $3 billion in strategic materials for the Allied Powers, accounting for half of all U.S. sales to the Allied Powers. Morgan became the world's largest buyer, and all of America's big businessmen and industrialists crowded in to suck up to Morgan in hopes of getting a big order. A significant portion of the money used by the Entente for purchases was raised by bond issues in the United States, led by the Morgan Consortium. With a steady flow of supplies and equipment from the United States, the Allies eventually won the war. Some believe that the Morgan Consortium was most responsible for the Allies winning the war. For example, a British newspaper magnate said during a visit to the Morgan Consortium, "The war was won within these walls."

But while it was the Entente that won the war, it was the Morgan Consortium and the U.S. government that were the biggest winners. World War I brought an unprecedented industrial boom and trade surplus to the United States, while leaving Europe in ruins and with a huge foreign debt. By the end of WWI, the Allied Powers owed the U.S. up to $10 billion in war debt, of which Britain owed $4 billion and France $3 billion. The United States became Europe's largest debtor in one fell swoop, and European countries had to be careful to look at the face of the United States to act, and the balance of power in Europe and the United States has been completely reversed to the side of the United States.

While the Morgan consortium, not only did it get a huge commission, but it also surpassed the old European financial groups that once pressed it head on, such as the Bank of Bahrain and the Rothschild Bank, becoming the most influential private bank in the world. In the Paris Peace Conference held after the war, Morgan partner Lamont attended as a financial adviser to the U.S. delegation. Morgan's influence was so pervasive throughout the conference that some officials complained that it seemed as if the Morgan consortium was presiding over the Paris Peace Conference.

In addition to its deep involvement in the European situation and helping the United States seize international financial dominance, the Morgan consortium has also become the vanguard of U.S. interests in the Third World. For example, Latin America as the U.S. backyard, Morgan consortium early intervention, the old Morgan for the U.S. to obtain control of the Panama Canal stood up. At that time, the U.S. government spent 40 million dollars to buy the right to open the canal from the hands of France, and then orchestrated the Panama region to fall out of independence, separated from Colombia to establish the Panama **** and the country. In this way, the U.S. sidelined the British and French forces and "leased" the canal to the Panamanian government in perpetuity. Since then, the U.S. has monopolized the Panama Canal for nearly a century.

What did Morgan do in this process? First of all, he for the U.S. government to buy the excavation rights of 40 million U.S. dollars to provide financing, and even personally supervise the transportation of bullion, to ensure the smooth completion of the transaction; After, Morgan consortium to become the Panamanian government in the United States of America's financial agent, is responsible for the receipt of U.S. compensation to Panama, and the investment management. Because the old Morgan played an important role in the whole process, he was called "Roosevelt's control of the Panama Canal, Mr. Accountant".

In Asia, due to Britain, France, Germany and other old powers first step, has long delineated their respective spheres of influence, came late to the United States want to force a share of the spoils, with the help of the Morgan Consortium to knock on the door. For example, in China, the Morgan Consortium in 1909 to organize a U.S. banking syndicate, and the British, French and German banking syndicates to negotiate for an equal share of the benefits. With Morgan's efforts, the U.S. fought for parity with Britain, France and Germany, *** with control of the late Qing government's financial system.

Ten years later, in 1919, while the European countries had not slowed down from World War I, the United States wanted to take advantage of the opportunity to expand its sphere of influence in China. As a result, Lamont, a Morgan partner, personally organized a second China-oriented syndicate in an attempt to strengthen financial control over China. When word got out, Lamont was mobbed by hundreds of patriotic students in Shanghai, and the syndication program ended up being a non-starter.

Seeing that his interests in China were not working, Lamont was furious and turned to Japan to develop it into JPMorgan's biggest client in East Asia, and completely turned to Japan's side in Asian affairs. After the "September 18th Incident", Lamont also wrote an article for others, in the "New York Times" for the defense of Japanese militarism, said the Japanese army to protect the northeast of the "South Manchuria Railway", like the United States government to protect the Panama Canal, is no excuse. This statement has greatly misled international public opinion.

From these events, we can see how the Morgan Consortium, as a private bank, has danced long and hard on the international stage to reap benefits for the U.S. and itself.

Well, above is the second key point for you, the Morgan Consortium became the driving force behind America's seizure of global hegemony. By acting aggressively in World War I, the Morgan Consortium shifted international financial dominance from Europe to the U.S. Morgan also helped the U.S. capture benefits in the Third World.

Part III

If the interests of the Morgan Consortium and the U.S. government largely coincide in foreign affairs, they often clash in domestic affairs. In fact, there is a dark line in the book, which is the process of JPMorgan and the U.S. government's game of love and kill each other. The most famous bill in U.S. financial history, the Glass-Steagall Act, is the product of the game. What is going on here? This is the third key point to be told next.

As mentioned earlier, in the second half of the 19th century to the beginning of the 20th century of the "Lords era", the United States of America's industrial sector is relatively weak, the government sector's ability to manage the limited, basically do not interfere in economic affairs, the United States economic control is actually in the hands of the financiers of the Wall Street, led by J.P. Morgan. However, with the growing strength of U.S. industry, the government's financial strength is also getting stronger. The U.S. government is no longer a "small government", but began to more and more involved in economic management affairs, strengthen financial regulation, the purpose is to gradually reduce the power of private financial capital. This, of course, and the interests of the JP Morgan consortium conflict. And every financial crisis makes this conflict more acute.

For example, the famous 1907 financial collapse in U.S. history. This financial collapse was caused in large part by excessive speculation on Wall Street. To be fair, though, the Morgan consortium at the time was not involved in speculation, as the old Morgan strictly forbade speculative business. In the great panic of the critical moment, when the old Morgan has been in semi-retirement status personally sit on Wall Street, with personal prestige organized a large-scale rescue operation, saved dozens of brokerage houses, but also let the New York City government from bankruptcy. In this crisis, the old Morgan played the role of a hero.

But the crisis also showed the government and the public that a financial system without external oversight is dangerous. Wall Street's speculative impulses have caused financial crises in the U.S. every decade, and it's always been impossible to rely on Old Morgan to bail out the market every time. The government and the public are unanimous in demanding that the financial sector be reformed to end its anarchy; and that financial regulation be strengthened so that in the event of a crisis, a government will step in to intervene. Who should do these things? It should be the central bank, of course. You may find it hard to believe that until 1913, the United States did not have its own central bank, the only Western power at the time without one.

So the creation of a central bank was on the agenda of Congress. But the public worried about what would happen if a private consortium led by J.P. Morgan took control of the central bank. In particular, the public's concern was deepened by the fact that the elder Morgan was pushing for a central bank modeled on the British model, and that the Bank of England was supposed to be a privately owned central bank.

Washington and Wall Street, after a long game, finally reached a compromise: the U.S. central bank consists of 12 privately owned regional reserve banks; but on top of these 12 private banks, there should be a central governing body, that is, the U.S. Federal Reserve Board. This Board is located in Washington, D.C., and its members are appointed by the U.S. Secretary of the Treasury and the President. The U.S. government hoped that this would serve as a check on the power of Wall Street, led by J.P. Morgan. According to this program, in December 1913, U.S. President Wilson issued the Federal Reserve Act, the Federal Reserve was formally established.

This is the first round of the game between the U.S. government and the Morgan consortium. However, contrary to expectations, the Federal Reserve actually did not weaken the Morgan Consortium, but rather Morgan secretly harnessed the Federal Reserve, thus further expanding their own power. After the outbreak of World War I, Morgan consortium and the U.S. government in foreign affairs, the two sides entered a period of honeymoon.

Till more than a decade later, the 1929 financial collapse and the subsequent Great Depression triggered a second round of games between the U.S. government and the JPMorgan Foundation. The Great Depression devastated the U.S. economy, and President Hoover stepped down in disgrace, while President Roosevelt's first fire to implement the New Deal when he came to power was to set up hearings to investigate Wall Street thoroughly. Public opinion at the time held that it was Wall Street bankers who had engaged in reckless insider trading, stock market manipulation and public deception in the 1920s that ultimately triggered the 1929 financial collapse.

Then, the U.S. banking industry was mixed, meaning that a bank could engage in both the savings and loan business and the securities business. In the absence of supervision, what were the consequences of this? For example, blatant fraud against the public. Some banks have bad loans to Latin America, and they repackage these bad loans as attractive emerging market bonds and sell them to the public through their subordinate securities institutions. On top of that, insider trading was also commonplace. Like the Morgan consortium in its heyday, had 72 board seats in 112 large companies, most of which in turn were publicly traded, trying to stop Morgan partners from insider trading in them would have been virtually impossible.

But the most lurid scandal uncovered at the hearings was the massive bribery case in which the Morgan consortium used stock underwriting. In 1929, when the stock market was booming, anyone who could "score new shares" made a fortune. Morgan used its status as a stock underwriter to sell new shares to political and business elites with whom it had close ties, and these people were able to turn over more than 50 percent of the profits. Figures who have accepted the Morgan stock include former U.S. presidents, party chairmen of the *** and the party and the Democratic Party, the Secretary of the Treasury, the Secretary of the Navy, senators, and so on. This list of bribe recipients shocked the American public, and public opinion boiled over, demanding that the government take immediate action against Morgan.

And President Roosevelt took action by signing and passing the Glass-Steagall Act. One of the central provisions of this act was the requirement that the banking industry be divided so that a bank could either engage in commercial banking, which involves depositing and lending, or investment banking, which involves trading in securities, and could only do one or the other. The purpose of this was to separate the lower-risk commercial banking business from the higher-risk securities business in order to protect the interests of public investors. And JPMorgan Consortium, the most successful amalgam of these two types of business, is the biggest victim of this bill, which faces dismemberment.

But JPMorgan Consortium is like Hydra, the hydra of Greek mythology: You cut off one of its heads, and it grows two right back. After the dismemberment of the Morgan consortium split into J.P. Morgan and Morgan Stanley, and later after a series of mergers, J.P. Morgan became today's JPMorgan Chase Bank, the most dominant commercial bank in the United States, absorbing 1/4 of the total deposits in the U.S. Morgan Stanley, on the other hand, has developed into the world's most successful investment bank, whose tagline is, "If God wants to finance a company, he will also look for Morgan Stanley. would call on Morgan Stanley."

And the Glass-Steagall Act, the most famous in U.S. financial history, was finally canceled in 1999 after putting the U.S. financial sector through more than half a century of compartmentalization. However, in the aftermath of the 2008 financial crisis, there have been calls in US politics for a revival of this bill, with both Obama and Trump proposing to revive it. It seems that the game between Washington and Wall Street will continue.

Well, the above is the third key point for you to tell, the Morgan consortium and the U.S. government has been in love with each other in the game state. 1913, the establishment of the Federal Reserve, as well as the enactment of the Glass-Steagall Act in 1933, is the product of the game of the two.

Summary

First, the emergence of industrial trusts symbolized the rise of Wall Street power led by Morgan. Through the formation of the three major trust organizations, the elder Morgan took firm control of industry and became the most powerful financial capitalist in the United States.

Secondly, the Morgan Consortium became the driving force behind America's seizure of global hegemony. In World War I, the Morgan Consortium transferred international financial dominance from Europe to the U.S., and helped the U.S. seize benefits in the Third World.

Third, the Morgan consortium and the U.S. government have been in love with each other in the game state. 1913, the establishment of the Federal Reserve, as well as the enactment of the Glass-Steagall Act in 1933, is the product of the two games.