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Zeus of Wall Street

In the early years of corporate America, J.P. Morgan was the undisputed king of U.S. Finance.
Thomas F. Gillen
From the Print Edition:
J.P. Morgan, Mar/Apr 00

October 24, 1907, Ransom H. Thomas, president of the New York Stock Exchange, rushed from his office to a building across the street. But instead of going to the U.S. Treasury offices on one corner, Thomas headed to 23 Wall Street, where the office of the most powerful banker in America was located.

The man was John Pierpont "J. P." Morgan, and Thomas had come to beg for his help. The United States was in the grip of a financial crisis. Investors were stampeding out of stocks, bringing trading to a virtual standstill. Banks were calling loans that borrowers could not pay since they were unable to sell their investments. The interest rate on margin money jumped to an astronomical 150 percent. People lined up at banks, demanding their money, which the banks could not recover from the loans, collateralized by the now depressed or even worthless stocks. Today, a similar situation would be called a liquidity crisis, and the Federal Reserve Bank would provide the cure. In 1907, however, the Federal Reserve system was still six years away. Numerous banks failed, increasing the panic.

As a result, Thomas faced the impending failure of 50 brokerage firms and even the exchange itself. He knew only one man could mend the crisis, and he now sat before him. One can imagine the 70-year-old Morgan sitting behind his desk, dressed in his standard dark gray suit, his intense stare grilling Thomas. In his customary manner, the stoic banker would listen expressionless, his bushy mustache twitching from time to time beneath his bulbous nose. He held an eight-inch-long maduro Havana cigar known as a Meridiana Kohinoor; the cigars were dubbed "Hercules's clubs" by his observers. Morgan listened for a few moments, puffing on his cigar, and then raised his hand as a signal for silence. Thomas wasn't telling him anything that he didn't already know. "What time does the exchange usually close?" Morgan snarled.

The banker disdained stock speculation, considering it beneath him, so he never paid attention to the exchange's hours of operation. He believed the only worthwhile investment was debt--a lien that had to be paid back lest the borrower be willing to suffer severe consequences, especially the kind he could inflict. "Three o'clock," a nervous Thomas replied. "It must not close one minute before that hour today!" Morgan commanded. At two that afternoon, Morgan held a meeting in his office with several of the city's most important bank presidents. He persuaded them to pledge $25 million for a line of credit to be made available to the market investors at 10 percent interest. At 2:16, an announcement of the available funds--better known as call money in broker parlance--resounded on the floor of the New York Stock Exchange. A cheer immediately erupted that Morgan could hear across the street.

The relieved traders were giving the mighty financier an ovation for rescuing them from near certain financial death. While he is among the legends of Wall Street, and he did accumulate vast wealth (although not to the extent of some of the industrialists of his day), the real story of J. P. Morgan is about the enormous amount of financial power he wielded. The process of his accumulation of that power became known as morganization, and the results are impressive. Not only did he save the stock exchange, but he rescued the U.S. government from bankruptcy 12 years earlier. He created the General Electric Co. and U.S. Steel, at the time the world's largest company. At one point he controlled more railroads than anyone in the United States. His investment banking firm, J. P. Morgan & Co., remains to this day one of the most influential firms of its kind in the world. His hands even touched the infamous Titanic; his International Mercantile Marine Co. constructed the doomed ship.

Morgan's era conjures images of the robber barons: corporate titans with their huge estates, opulent mansions and ostentatious lifestyles. Morgan shunned such displays. Although at one point he owned the largest yacht in the world, Morgan was not interested in the glamour or social functions of high society. He was an intensely private person with few close friends and a sharp temper, earning him the reputation of a stern and crusty tyrant. People feared him, and he knew it. The inner Morgan was a different man. His wanderlust led him to far-flung places, where he collected works of art and rare manuscripts. He was an avid student of religion. And he enjoyed few things more than his beloved cigars, smoking dozens of them a day. His life was one of contrasts. For all his enormous power (Jupiter and Zeus were two of his nicknames), Morgan was uncomfortable in the role of the grand master. He built a huge financial empire, yet he often considered quitting his business life altogether. His business success was often a burden, causing him physical problems, including fatigue, headaches, fainting spells, depression and skin eruptions.

He was a deeply religious man (he once told his associate that he believed every word of the Bible), yet he had a proclivity for licentious behavior and became notorious for his extramarital dalliances with women. Morgan's life reveals three major forces that affected his behavior. First, there was the influence of his domineering father, Junius. Second was the tragic death of his first wife, Mimi, perhaps the only woman he ever loved. Third, he was always self-conscious of his deformed nose, caused by a skin condition now recognized as rosacea, so much so that he had photographs of himself retouched to hide its true condition. John Pierpont Morgan was born on April 17, 1837, in Hartford, Connecticut, with a solid gold spoon in his mouth. His grandfather Joseph was an extremely successful businessman who left Junius more than $1 million when he died. J. P., or Pierpont, as he was known, was the oldest of five children: three sisters, Sarah, Mary and Juliet, and a brother, Junius Jr., who died at the age of 12 after an illness. A high-strung, yet shy child given to mood swings, young Pierpont suffered from rashes and fatigue.

Despite these lifelong ailments, he excelled in his studies and was competitive at sports. In 1854, Junius Morgan formed a partnership with prominent American banker George Peabody and moved to London, where George Peabody and Co. was located. At the time, London was the center of the financial world, and Peabody was involved with funding the financially thirsty ex-colonies across the ocean. The partnership would eventually establish Junius as one of Europe's prominent investment bankers. J. P. Morgan, meanwhile, had graduated from high school in Boston and had been sent off to the Institut Sillig on Lake Geneva, Switzerland, where he mastered German and French. He then attended the university at Gottingen, Germany, excelling in math. By then a trim young man 6 feet, 2 inches tall, Morgan wore well-tailored clothes with polka-dot vests, bright cravats and checked pants. Enjoying his life as a dandy, he spent long hours in the beer halls consuming large quantities of brew, singing songs, and cultivating his lifelong taste for cigars. Alarmed by his son's wayward behavior, Junius sent Morgan to work at Duncan, Sherman, a merchant banking firm in New York City. Junius wanted to pattern his own investment banking empire along the lines of the great European banking firms which, by tradition, were passed from one generation to the next. Pierpont was his only surviving son and Junius planned for him to become the next generation of Morgan bankers.

The placement of Morgan in a respectable firm was more than just a father's concern for an unruly son. Junius was raising capital for several U.S. state governments as well as for new industries such as the railroads. To protect his English investors, he had to have trustworthy information about political and business conditions in the States that might have an impact on those investments. Upon his return to New York in 1857, Morgan provided the crucial link for his father, dutifully writing to him at least twice a week about the country's economy and politics. The letters continued for more than 30 years, and his father saved every one, which he bound in volumes. (In 1911, two years before his death, the intensely private J.P. Morgan burned all the letters.) Morgan's apprenticeship at Duncan, Sherman lasted four years. He then persuaded his father to support him in the opening of his own firm, J. P. Morgan and Co. (This was not the prestigious investment banking firm that would later bear his name.)

Junius supported Morgan's request with the intention that the firm was to execute trades and represent Peabody and Co., at his father's direction, to Junius's influential American friends. Morgan, however, had other ideas. One of his first deals nearly ended in disaster. The Civil War was just beginning when Morgan was approached by a man named Simon Stevens, who asked him to finance the refitting of 5,000 rifles known as Hall carbines for the Union army. Stevens arranged to purchase the guns, which the army had already declared obsolete. Once they were refitted, they were to be sold for $22 per rifle, about twice Stevens's cost, to Union Maj. Gen. John C. Frémont for his troops. The deal was too good to turn down, and Morgan made the loan.

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