Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe Read Online Free
United States.
But J.P. Morgan had always had a transcultural identity. Well known as one of the large Wall Street firms, its roots lay in the City of London, where American banker Junius Spencer Morgan took charge of the English brokerage George Peabody & Co. in 1864 and renamed it J.S. Morgan & Co. His son J. Pierpont Morgan worked at the firm for some years and was then dispatched to New York, where he formed a partnership with the wealthy Drexel family, Drexel, Morgan & Company, which after Anthony Drexel’s death was renamed J.P. Morgan. The American bank quickly swelled into a powerhouse, with J. Pierpont Morgan personally brokering many major deals, audaciously merging a number of steel companies he had bought to form U. S. Steel, and financing major concerns in railroads, shipping, coal mining, and other key industries. By the late nineteenth century, the group had become so preeminent that it appeared to wield as much power in the financial markets as the American government itself.
When crisis hit Wall Street in 1893, Morgan personally orchestrated a syndicate to provide the US Treasury with $65 billion in gold, keeping it solvent. In the Panic of 1907, when the New York Stock Exchange plunged to half of its value, Morgan put up vast sums of his personal fortune and rallied other leading bankers to do the same, shoring up the banking system.
In the years after the Second World War, the bank lost some of its preeminence. After the crash of 1929, a populist backlash against Wall Street led to the introduction of the Glass-Steagall Act, which forced banks to split off their capital markets operations—the trading of debt and equity securities—from their commercial banking businesses. The J.P. Morgan empire was required to fragment into separate entities, including Morgan Stanley, the US brokerage; Morgan Grenfell, a British brokerage; and J.P. Morgan, which was devoted to commercial banking. But the bank maintained an unusually close set of ties with both governments and powerful, blue-chip corporate clients, such as Coca-Cola and AT&T. The international heritage of the bank was also preserved, so much so that J.P. Morgan staff sometimes joked that joining the bank was akin to entering the diplomatic or British colonial service—albeit much better paid.
When Peter Hancock joined the bank, he was dispatched to New York to attend a yearlong training course, together with around four dozen other recruits, only half of whom were American. “It was an extraordinary experience. We had Chinese, Malaysians, French—you name it. And we were all housed together in one small building down on the Upper East Side of Manhattan,” Hancock recalled. The course itself, however, didn’t have much to satisfy Hancock’s penchant for invention.
The Commercial Bank Management Program, as it was called, was conducted in the bank’s historic headquarters at 23 Wall Street, right across the street from the Stock Exchange, in an imposing, column-fronted building where J. Pierpont Morgan himself had worked. The firsthalf of the course was spent in a classroom, learning fundamental banking skills little different from the practices in J. Pierpont Morgan’s time; the nuts and bolts of assessing credit risk by reading a company’s balance sheet and analyzing its business. The goal was to drill into them how to measure the chance a company would default on a loan, the lifeblood of J.P. Morgan’s style of banking. For the second half of the training, the recruits acted as the junior analysts in actual deals.
The trainees were required to spend a good deal of time crunching corporate numbers. Only a few years earlier, those calculations had had to be done by hand. When they needed to look up bond prices, they consulted a voluminous book of tables. By the time Peter Hancock took the course, however, handheld calculators programmed with the power to use complex mathematics to assess corporate cash flows and measure risk were becoming
But J.P. Morgan had always had a transcultural identity. Well known as one of the large Wall Street firms, its roots lay in the City of London, where American banker Junius Spencer Morgan took charge of the English brokerage George Peabody & Co. in 1864 and renamed it J.S. Morgan & Co. His son J. Pierpont Morgan worked at the firm for some years and was then dispatched to New York, where he formed a partnership with the wealthy Drexel family, Drexel, Morgan & Company, which after Anthony Drexel’s death was renamed J.P. Morgan. The American bank quickly swelled into a powerhouse, with J. Pierpont Morgan personally brokering many major deals, audaciously merging a number of steel companies he had bought to form U. S. Steel, and financing major concerns in railroads, shipping, coal mining, and other key industries. By the late nineteenth century, the group had become so preeminent that it appeared to wield as much power in the financial markets as the American government itself.
When crisis hit Wall Street in 1893, Morgan personally orchestrated a syndicate to provide the US Treasury with $65 billion in gold, keeping it solvent. In the Panic of 1907, when the New York Stock Exchange plunged to half of its value, Morgan put up vast sums of his personal fortune and rallied other leading bankers to do the same, shoring up the banking system.
In the years after the Second World War, the bank lost some of its preeminence. After the crash of 1929, a populist backlash against Wall Street led to the introduction of the Glass-Steagall Act, which forced banks to split off their capital markets operations—the trading of debt and equity securities—from their commercial banking businesses. The J.P. Morgan empire was required to fragment into separate entities, including Morgan Stanley, the US brokerage; Morgan Grenfell, a British brokerage; and J.P. Morgan, which was devoted to commercial banking. But the bank maintained an unusually close set of ties with both governments and powerful, blue-chip corporate clients, such as Coca-Cola and AT&T. The international heritage of the bank was also preserved, so much so that J.P. Morgan staff sometimes joked that joining the bank was akin to entering the diplomatic or British colonial service—albeit much better paid.
When Peter Hancock joined the bank, he was dispatched to New York to attend a yearlong training course, together with around four dozen other recruits, only half of whom were American. “It was an extraordinary experience. We had Chinese, Malaysians, French—you name it. And we were all housed together in one small building down on the Upper East Side of Manhattan,” Hancock recalled. The course itself, however, didn’t have much to satisfy Hancock’s penchant for invention.
The Commercial Bank Management Program, as it was called, was conducted in the bank’s historic headquarters at 23 Wall Street, right across the street from the Stock Exchange, in an imposing, column-fronted building where J. Pierpont Morgan himself had worked. The firsthalf of the course was spent in a classroom, learning fundamental banking skills little different from the practices in J. Pierpont Morgan’s time; the nuts and bolts of assessing credit risk by reading a company’s balance sheet and analyzing its business. The goal was to drill into them how to measure the chance a company would default on a loan, the lifeblood of J.P. Morgan’s style of banking. For the second half of the training, the recruits acted as the junior analysts in actual deals.
The trainees were required to spend a good deal of time crunching corporate numbers. Only a few years earlier, those calculations had had to be done by hand. When they needed to look up bond prices, they consulted a voluminous book of tables. By the time Peter Hancock took the course, however, handheld calculators programmed with the power to use complex mathematics to assess corporate cash flows and measure risk were becoming
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