Monday, September 07, 2015
Exceptional American of the Day: J.P. Morgan
His classmates made fun of him in school. He was chubby. His health was poor. His father had no confidence in him. His boss wrote his father from London, "I don't know what in the world I am going to do with Pierpont."
On top of that, John Pierpont Morgan was brusque with people to the point of rudeness. Nevertheless, J.P. Morgan, as he became known, rose to become the greatest banker the world has ever known, a financier who made the electrification of the United States possible, brought order to railroads, and bailed out the United States government in the 1890s.
His story began 201 years before his birth on April 17, 1837, in Hartford, Connecticut.
It was in April 1636 that James, John and Miles Morgan, all sons of William Morgan of Llandaff, Glamorgan County, Wales, landed in the Massachusetts Bay Colony. Miles Morgan became a farmer in Springfield and lived to be 83.
On April 26, 1776, the men of the the 8th Company in the 3rd Regiment of the Hampshire County militia elected his great-grandson, Joseph Morgan Jr.. Upon the conclusion of the Revolutionary War, he settled in Hartford, Connecticut, which was then a small village along the stage coach line between New York and Boston. He farmed..
He was so successful that his son, Joseph Morgan III, did not have to farm. Instead, this Morgan became an innkeeper, buying the Hartford Exchange Coffee House, where businessmen meet to conduct business. In 1825, he bought the Hartford Bank and re-organized the Hartford Fire Insurance Company into the Aetna Fire Insurance Company. Until Aetna, insurance companies were local concerns. He made his company nationwide with branch offices throughout the United States, which spread the risk and reduced the price. Not only did he make himself and his family rich but he helped make Hartford an insurance industry hub.
His son, Junius Spencer Morgan, was born on April 14, 1813 in Holyoke, Massachusetts, and became a banker. His big break came in 1854, when he partnered with George Peabody, who was born in Baltimore on February 18, 1795. Peabody established himself as a banker and philanthropist in London. Among his gifts to the world were the Peabody Trust in London, and the Peabody Institute and George Peabody Library in Baltimore. After Peabody died on November 4, 1869, at age 74, his partner renamed their firm J.S. Morgan and Company.
It was Peabody who had lamented that he could not figure out what to do with J.P. Morgan.
Born into wealth on April 17, 1837, J.P. Morgan preferred the name Pierpont, which drew ridicule from classmates who called him Pip. He whiled his time at Hogs Creek, where he built a skiff while other boys made do with rafts. Like his father, he later served as commodore of the New York Yacht Club. His schooling was limited to high school as at age 15, he contracted rheumatic fever, which crippled him with pain. His father sent him to the Azores to recuperate. He became fluent in French and attended the University of Göttingen.
His father sent him to London in 1857 to work under Peabody who did not know what to do with J.P. Morgan. But he knew what to do with himself; he learned the trade of banking. He reveled in the intricacies of foreign currency exchange. He also tried commodities trading, which led to a confrontation with Peabody over a purchase of coffee.
“Why, it's absurd to buy all that coffee, he sad. "Where will you get the money?”
J.P. Morgan stormed out of the office, returning later with a draft from his father to cover the bill.
Peabody found a use for this impetuous young man. The firm's American partner -- Duncan, Sherman and Company -- was unable to meet its financial obligations, which Peabody and Morgan had to cover. This meant borrowing from the Bank of England, which embarrassed Peabody. He sent J.P. Morgan back to the States to serve as cashier of Duncan and Sherman. There, C.H. Dabney, an expert accountant in New York, struck up a friendship.
But what benefited J.P. Morgan was mentoring Anthony Joseph Drexel, the Philadelphia banker and philanthropist (Drexel University) and uncle of America's first saint, Saint Katharine Drexel. J.P. Morgan's father, Junius Morgan, had encouraged Drexel to do this and in 1871, he and J.P. Morgan formed Drexel and Morgan. This necessitated a move to New York.
Initially, they worked with European investors to settle up the Union's debts from the Civil War. Philadelphia banker Jay Cooke thought he had a monopoly on this business. Young Morgan organized a syndicate of other banking firms to compete with Cooke in this lucrative bond market. It worked. Congress split the bond business between Cooke's syndicate, which included the Rothchilds, and Morgan's. Pip was no longer a pipsqueak. For all intents and purposes, he was now the central banker of the United States.
Then in September 1873, the economy collapsed due to an overheated railroad securities market, and the opening of Russian ports in the Black Sea, which caused British flour mills to switch their suppliers from American farmers to Russian overlords.
There also was the problem of the Erie Railroad also was run by Jay Gould and Diamond Jim Fisk, who later was murdered by a jealous husband. Gould and Fisk were cheats who used unscrupulous tactics to acquire the Albany and Susquehanna Railroad. They wanted to corner the coal market. Gould was rich and feared on Wall Street. The panicked president of the railroad asked another railroad executive, Samuel Sloan, what to do.
"Why don't you see J.P. Morgan?” Sloan asked. “Call him into consultation. He is not afraid of Jay Gould, and he can fight him without ever delivering a foul blow. If your road is to be saved to you, Morgan, I am sure, is the man who can do it.”
He did. The blunt, terse, and even stuffy J.P. Morgan kept his wits about him. Within a few days, Morgan came up with a plan for saving the railroad. At a stormy stockholders meeting, in which the railroad president knocked Fisk on his keister and out of the picture, Morgan took command. Gould was reduced to silence. Morgan had developed a reputation for being true honest, above board, and true to his word -- the opposite of Gould.
He dove into the railroad business doing what Gould and Fisk said they would do but did not do as they skimmed the profits. He brought efficiency and order.
In 1876, he bailed out William Vanderbilt, who had inherited Commodore Vanderbilt's vast holdings. The press demonized Vanderbilt so much that the New York Legislature had no hesitation or misgivings about taxing New York Central because one man owned it. Just how one man's ownership of a railroad harmed the public never was explained.
To reduce his holdings from 87 percent down to 49 percent at a fair price, Vanderbilt turned to Morgan, who sold the stock to European investors. A public stock issuance under such circumstances would have cut the value of the stock easily in half.
Morgan also worked with Edison to finance his plan to provide homes and businesses with direct current electricity. And a brief War of Currents with George Westinghouse, Morgan decided alternating current was the better way to go for long transmission of electricity. Morgan kicked direct current and Edison to the curb, and founded General Electric.
In 1893, his partner Drexel died, just as a national economic crisis put J.P. Morgan to the test. He passed with flying colors, bailing out the federal government.
Next he formed Federal Steel, a conglomeration of small steel companies. In 1901, Morgan offered 66-year-old Andrew Carnegie $480 million for Carnegie Steel. Carnegie accepted and became the second-richest American ever, right behind John Davison Rockefeller. Morgan's U.S. Steel became the world's first billion-dollar company within a few years.
Unlike his father, J.P. Morgan drew his son, Jack Morgan, into his bank, and the son enjoyed great success as he built on what his father had built. One of the final conglomerations J.P. Morgan created was one of luxury steamships. One component was White Star. J.P. Morgan had planned to join other celebrity millionaires aboard the inaugural run of White Star's most famous ship, but fell ill and missed the launch of the Titanic.
He died nearly a year later in Rome, Italy, at age 75, on March 31, 1913. The stock exchange shut down for two hours for his funeral.
The Federal Reserve had already assumed his duties as the nation's central banker. Congress gave the Fed that role. His honesty, integrity and hard work earned J.P. Morgan that role.
I am publishing collections of the best in this series of Exceptional Americans, with the second volume published on September 1.
Which is better? "Exceptional Americans 1" or the new book, "Exceptional Americans 2"?
Buy both and tell me.