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The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance Format Kindle
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No one should be intimidated by this book's length or the complexity of its subject. Its pages are rich with lively portraits of the sometimes quirky men who ran the Morgan banks, the high and mighty of the world with whom they did business, and the world's many critics of such concentrated economic might. Pierpont and Jack Morgan and their successors at the top get the most detailed treatment, but figures as diverse as Brandeis, Mussolini, Lindbergh (the son-in-law of a top Morgan partner), Bryan, Theodore Roosevelt and Margaret Thatcher all play a part in the story, not to mention interesting but lesser-known figures like Ferdinand Pecora, Judge Harold Medina and central bankers from Britain, Germany, Italy and Japan.
As a backdrop to the Morgan saga, this book includes accounts of the main events of 20th-century financial history, such as the Panic of 1907, the creation of the Federal Reserve system, the Crash of 1929 and the depression and bank failures that followed it, the New Dealers' attack on banks led by Pecora that resulted in the Glass-Steagall Act and the separation of commercial banking from investment banking, and the rise of hostile takeovers, Eurodollars, petrodollars, Latin American lending, junk bonds and the securitization of debt, all refreshingly written for laymen rather than experts.
"The House of Morgan" has perhaps two overriding themes. The first is that as the years have passed, and the Morgan banks have faced increasing competition, the Morgan bankers' need to maintain their global preeminence has led them to take bigger and bigger risks. Some of these risks have resulted in large financial loss, but more often they have resulted in a loss of both public and customers' confidence, which has eroded the very preeminence that the banks seek to maintain. The second theme is that the top Morgan bankers have consistently underestimated the power of government to control what they do, and even make their lives miserable. From Pierpont on down, they have ignored government at their peril. It's almost a certainty that with the next big economic downturn, the Morgan banks will be attacked again, and I hope that Chernow will be on the scene to provide an account of it.
At 700 plus pages this is an incredibly long book. Unfortunately it is an uneven read. I became progressively less interested in the book as I went along; however, it was worth the effort to complete.
The first section, which he calls the Baronial Era in banking, is fascinating, and for me it was a page-turner. The Morgan banking house actually began as the George Peabody bank in England, and Junius Morgan was brought over from the US to be his successor. Junius Morgan took the bank to a level far beyond where Peabody had, and then his son JP Morgan Sr. took over. JP Morgan Sr (Pierpont) is the name most associated with Morgan banking, and he was an enormously powerful and colorful character. This was the infamous age of the "Robber Barons" the rise of American railroads, big steel, and the oil industry. Pierpont was at the center of it, commanding industry while collecting art, building yachts and cavorting with women. It makes a great story.
Pierpont was succeeded by his son JP Morgan Jr(Jack) who headed the bank during what Chernow called the "Diplomatic Era". The book became less interesting. Jack was nowhere near as colorful as his father, and his reign over the bank nowhere near as autocratic. Several other bankers, among them Dwight Morrow (father of Anne Morrow Lindbergh) were major players at the bank. The bank played a huge role on the international stage in this era, and while it had strong ties to England (and its sister bank Morgan Grenfall) it also helped finance the rise of the Nazis, Mussolini and the nationalists in Japan. This was also the period of the roaring twenties and the depression. The story told in the book is not quite as gripping because it doesn't hinge on a single character, but the events impacted and the role played by the bank were enough to keep me reading with interest and occassionally complete absorption.
The third era covered was the "Casino Era". As a result of the Glass Steagle Act, the bank split into Morgan Guarantee and Morgan Stanley. This section of the book also tells about the demise of Morgan Grenfall in England. This is essentially the modern era of banking where the investment bankers at Morgan Stanley and Morgan Grenfall became involved in takeover battles and modern securities. Morgan Guarantee became a fairly staid, and boring, commercial bank. This section of the book had the least interesting characters. I found it to be pretty dry. I have read several books about the various takeover battles, so this account, which was more of a survey, lacked the blood and drama of other accounts I have read.
Finally, from the perspective of 2005, the last section of the book, covering the most recent time period, feels a bit dated. I know more about what happened to both Morgan Guarantee and Morgan Stanley than Chernow knew when he wrote the book, so the very last few chapters felt out of date.
Overall it was also interesting to see the interaction between the history of the bank, and social history. The bank originally was very "white shoe", male and protestant. It hired its first Jewish banker in 1963. Pierpont and Jack were quite anti-Semitic. Yet, within its confines, the bank was also a meritocracy and afforded many of its employees entree into the upper classes.
Although, it can be a bit of a slog at times, if you are interested in the world of banking and finance, or the history of the 19th and 20th century, this is an excellent book.
Chernow has a habit of putting a few details in, then glossing over the key points, and editorializing on his own to make the vignette correspond to his thesis. His thesis seems to be this: Morgan (whichever one) was a good man in a dirty business and his monopolistic tendancies were for the moral betterment of humanity. The broader thesis is that the banking titans have been cut down to size for the betterment of the average citizen.
Unfortunately I find much of this posturing nothing more than cheerleading for the rich establishment types that Chernow obviously reveres! He neglects to even mention Morgan's involvement with Nikola Tesla at Wardencliffe, yanking out Tesla's funding when it became clear to him that Tesla was working to provide free energy, not the kind that Morgan could monopolize. He leaves out much more as well, such as Morgan's rather shady involvement in Japan at the end of WW II with Herbert Hoover where they managed to gain preferential treatment in the re-emerging Japanese economy... in alliance with Japanese monopolists eager to preserve their power and control.
It is incredible how Chernow couches Morgan's ruthless monopolist tendancies in terms that make them sound like he was a benign visionary! His attack on the Glass-Steagall act is also certain to make him a darling of the bankers. I wish he had just presented the facts, and replaced his "apologies" with MORE facts!
At any rate, I learned from it, but I recommend viewing much of it with a very jaded eye.
PROBLEM ONE: ACCURACY & ASSESSMENT
Historical details, particularly those that are unfamiliar to nonspecialists, are frequently wrong. For example, the first sentence of this book is, "When Baltimore merchant George Peabody sailed for London in 1835, the world was in the throes of a debt crisis." In fact, the debt crisis occurred four years later.(1)
Another example: in 1895, Pierpont Morgan is personally credited with saving the gold standard (in other words, sustaining the US Treasury's ability to redeem dollar liabilities in gold). Chernow's account is filled with errors, and these errors seem to be consistent with his finger-wagging. One is that the Crisis of 1895 was caused by the Sherman Silver Purchase Act of 1890.(pp.71-74) (2). The problem with this theory is that the Sherman Silver Purchase Act was actually a revision of the Bland-Allison Act (1876) silver clause, which resulted in a reduction of silver purchases. This was not bimetalism because silver dollars and silver certificates were not involved in the gold assessment of the dollar's price; silver was merely used as a negotiable commodity (at par).(3)
(In plain English: it made no difference if the US Treasury had a largish _additional_ reserves of silver, provided it had the statutory amount of gold, too.)
One last example: English went off gold in 1914, not 1919 (contra Chernow, p.274).(4)
In many cases, these examples are just too recondite to explain in the space of a book review, but they are copious. What bothered me was that, if Chernow was alluding to things about which I just so happened to have specialized knowledge, I could see he was wrong. What about things I didn't know about, like the real impact of the Pujo Commission?
PROBLEM TWO: STYLE
Contra the many admirers of this book, I found the style to be so bad it could not be ignored as a matter of taste. Some readers may approve of Chernow's world view; but other people with a similar world view can write well and succinctly, and successfully communicate their knowledge. Extremely bad style becomes a serious problem when it reduces the author to constant self-contradiction, massive padding, and insipid nonsense.
At random points while reading this book I would make notes of this; not the padding, which accounts for (seriously) >80% of the book's word count, but the vapidities. Let's take the example of Peabody I mentioned first: "He joined a select group of merchant banker who traded in dry goods and also financed such trade; hence, their businesses became known as merchant banks" (p.4). The adjoining narrative makes it sound like the merchant banks of London were Silicon Valley startups that made it big, perhaps in the great Merchant Bank Boom of the roaring 1850's. In fact, merchant banks evolved over centuries, from around 1460 to the 1870s.
(Chernow's sources are dominated by prior bios of J.P. Morgan--like Winkler, whom most historians would dismiss as embarrassingly adulatory. Occasionally he cites letters without reservation. He also relies on the intra-firm hagiography, like Morgan partner Lamont's bio of Davidson. Letters are invoked alternatively to uncritically reassure readers that (a) "the House of Morgan" was never guilty of skulduggery, and (b) Boy, those brilliant lads of the "House of Morgan" were totes awesome at skulduggery."
This becomes a problem when Chernow breezes past the question of how people became merchant bankers in the first place--it's as if a biography of Bruce Springsteen began, "Bruce wanted to be admired and loved. So he took up being a rock star, and after some reflection, chose to become a really big one." And then the biography described how he spent the money he made, controversies he was involved with, and a lengthy account of how he hugged NJ governor Chris Christy that one time.
It becomes painfully obvious that what Chernow really wanted to do was avoid the tedious aspects of an actual business history and write a vaguely macho version of The Thorn Birds. Of course, the "House of Morgan" was a powerful and controversial entity; but Chernow, rather than even address this controversy honestly, just sneers at the critics. He does this not because he really thinks people like Theodore Roosevelt, Louis Brandeis, Charles A. Lindberg Sr., or Mexican leftists, or German nationalists, havenothing to say--but because they are not relevant to his narrative. In his narrative, the fabulously rich Morgan partners aspire to great achievements and are challenged by snarling devils. Chernow doesn't ever provide a valid explanation of any financial activity--not once.
The historical significance of Morgan's ascendancy--and subsequent decline--is never explained. What if Morgan had been replaced by something more diffuse and transparent? The reader has nothing whatever to go on. But as dynastic slashfic, *The House of Morgan* fails too because of Chernow's addiction to cliches. At first I sensed that Chernow was alluding constantly to the Morgan partner's antisemitism and racism as a red herring, since he was otherwise so adoring. Then it dawned on me that he admired that, too. Every single time he mentions what somebody did, he has to mention that the person was from someplace that somehow ensured he would do that particular thing; Pius XI was from Milan, so of course he had "a good Milanese business head" (p.285). He does this so often it lapses into self-parody, especially when we urgently want to know something.
Self-contradiction is another problem. Chernow is clearly influenced by Wechsberg; he insists that J.P. Morgan was benign, ridicules critics, and sneers at "conspiracy theories." But the moment one expects him to deliver on his promise of a privileged tour of the mysterious world of merchant banking, he suddenly reminds us how mysterious it is even to him, a mere mortal wholly reliant on official biographies and hackneyed cliches. When describing how Morgan "saved the gold standard" in 1895, he mentions in passing that Pierpont Morgan personally promised President Grover Cleveland (while pitching a bond issue to buy more gold) that the shorting of the dollar against gold would stop.(5)
I have other issues with this book, but they are matters of (very intensely felt) opinion, and not necessarily shared by readers of this review. The main point, however, is that the book offers little narrative on any of the subjects it pretends to, it wastes the reader's time with vapid slogans, and it is not a reliable source of information. Wikipedia is actually a lot better.
(1) Chernow is specifically referring to the 1839 Debt Crisis (arising from the Panic of 1837). For the Panic, see Davis Rich Dewey, Financial History Of The United States (1922), p.229; or Charles Conant, A History of Modern Banks of Issue (1896), p.483; or Roberts, America's First Great Depression (2012). The debt crisis came several years after the Panic; for example, Mississippi floundered along financially between 1839 and 1842, before then-Gov. McNutt had the main category of state bonds declared in default.
I have a copy of D.R. Dewey's *Financial History* on permanent loan, which is currently available on Google Books FOR FREE in the 1918 edition; Conant (1896) is also available FOR FREE on Google Books. One reason why I'm emphasizing Dewey's book is that (a) it was a classic that went through many editions, and (b) was a plausible source for Chernow back in the 1980s. It is not in Chernow's bibliography, probably because *The House of Morgan* is not really informative about finance itself.
(2) To be fair, Conant (p.527) says as much, even though his evidence is not convincing. For a compelling refutation of the "Sherman Silver Purchase Act" theory, see (gold standard advocate) Oliver Sprague, History of Crises under the National Banking System (1910); complete text available for FREE online. Readers who are more skeptical of the gold standard than Sprague or Conant were will, of course, need even less convincing.
(3) Davis (1922), p.436.
(4) I carefully reviewed Chernow, pp.183-191, for evidence that he knew Britain went off gold with the outbreak of WWI. Perhaps Chernow felt the suspension of 1914 didn't count until the war ended; he never says so.
(5) Specifically, in 1895, the US Treasury Department's stock of gold fell from its statutory level of $100 M worth to less than $7 M. Morgan famously warned the cabinet that he, Morgan, knew there was a bank draft of $10 M against the Treasury outstanding. The obvious remedy was a bond issue to buy gold so that the Treasury could meet claims (although those claims were in fact created by private sector trade, not fiscal deficits by the US government). An obvious objection to the obvious remedy was that the people shorting the dollar would simply borrow more dollars in order to demand more gold, until the Treasury ran out of gold again. Morgan promised the cabinet this would magically stop, and in fact it did. How? Chernow's own account, true or not, confirms the most wild-eyed conspiracy theories in existence.
But go-zillionaires are people, too*. Ron Chernow does another wonderful job here, as he did with his book on the Rockefellers, "Titan." Morgan was not anywhere near as "public" or colorful as the Rockefellers, so it's tougher to maintain reader interest. Chernow does it, though, by telling a detailed and meticulously researched story in an engaging way.
From this book, the average Wall Street hater learns of how Morgan amassed one of the United States' largest fortunes, and how, more than once, he used that fortune in a public-spirited manner, bailing our economy out when the government was philosophically opposed to doing so. He does not come across as a particularly greedy man, but a very, very careful one, with a huge sense of responsibility and purpose. Unlike the Vanderbilts, his progeny did not engage in an unseemly race of consicuous consumption, too.
It is a book you might think you'd have no use for, but when you're done, you'll think you've read a great biograhpical novel and, like me, realize with deep satisfaction that you just read something...true.
*Apologies to Forrest Gump
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