Question 1

"The House of Morgan" chronicles the rise, dominance, and decline of the influential Morgan banking dynasty over three distinct periods.

Accepted Answer

"The House of Morgan" details the rise and fall of the powerful House of Morgan banking dynasty over 150 years. George Peabody established it as a London bank in the 1800s, and J.P. Morgan later inherited it and moved it to America. The old House of Morgan had immense influence over finance and industry, which caused public concern about excessive banker power. The Morgans served as financiers to corporations and governments, operating globally, particularly in Britain, France, and America. They survived crises like panics and wars, and both made and lost fortunes.

The book separates the story into three periods. During the early Baronial Age, bankers like Pierpont Morgan funded America's growth, resolved disputes, and organized trusts. They accumulated massive fortunes that eventually led to reforms to limit their influence.

In the Diplomatic Age between the World Wars, bankers like J.P. Morgan Jr. collaborated closely with governments, exercising power but with increased oversight. They acted as unofficial diplomats managing global affairs. In the US, they continued to serve as dedicated bankers to America's corporations.

After World War 2 in the Casino Age, multinationals and institutional investors reduced banker power in global markets. Bankers actively sought mergers and acquisitions, abandoning old traditions. The book asserts that no bank will ever equal the House of Morgan's mystique and influence over finance. Their era is disappearing as power spreads across institutions and countries. However, the old legend continues to be prominent.

Question 2

George Peabody was a successful merchant banker who restored America's financial reputation, became a renowned philanthropist, but was considered stingy and untrustworthy by his employees and family.

Accepted Answer

George Peabody was a Baltimore merchant who moved to London in 1837 and opened a merchant bank, specializing in trading and financing. In the 1830s, several American states defaulted on their debts, damaging America's financial reputation. Peabody hosted a dinner for British bankers, arguing Americans weren't all swindlers. He waived his commission and worked to restore Maryland's credit, conspiring with Barings bank to push Maryland to resume interest payments.

Peabody became wealthy dealing in American securities in London. A miser, he lived frugally and worked constantly. In 1854, needing an heir, he made Junius Morgan his partner, promising to leave him his name and capital in 10 years. But in 1864, though retired, Peabody refused to allow the firm to keep his name. He also forced Morgan to buy the office lease on bad terms, reneging on promises.

Peabody underwent a striking philanthropic conversion, establishing institutes, museums, housing projects for London's poor, and education funds. He gave huge sums to charity, wanting his name on everything. Queen Victoria honored him, and he received adulation.

But to employees and family, Peabody remained stingy. Morgan felt deeply betrayed by Peabody's broken promises. And some in the House of Morgan believed Peabody was one of the meanest men alive - stories circulated of his meanness toward staff and illegitimate children. So the halo Peabody acquired for philanthropy did not extend to all who knew him.

Question 3

Junius Spencer Morgan built the House of Morgan into a major international finance entity, introducing American influence to London's high finance scene and creating a powerful dynasty, despite personal and familial challenges.

Accepted Answer

Junius Spencer Morgan established the House of Morgan as a significant entity in international finance. He operated from London, providing loans to foreign governments and leading banking syndicates that funded major projects worldwide.

Junius, a member of a wealthy New England family, expanded the fortune and connections of his mentor George Peabody. He was a disciplined, strong-willed individual who prepared his son Pierpont to take over the business. They introduced an American influence to the exclusive London high finance scene, which the Rothschilds and Barings had previously controlled.

In 1870, during the Franco-Prussian War, Junius risked providing financing to France. This decision solidified his reputation but almost led to his bankruptcy when France temporarily halted interest payments. Ultimately, his risk yielded significant profits.

Junius lived a luxurious life, owning extravagant homes in London filled with art treasures. However, his pursuit of prestige negatively affected his family. His wife became ill and introverted, indicating a trend of unhappiness in the Morgan family.

Junius created a powerful dynasty and imparted enduring business principles to Pierpont. However, his extreme confidence and ambition also loaded his son with enormous responsibilities at a young age. This situation resulted in a complicated relationship between father and son, as Pierpont resisted yet strived to fulfill his father's legacy.

Question 4

J.P. Morgan transformed the House of Morgan into a leading international banking entity, amassing immense power and influence through strategic railroad reorganizations and high ethical standards in banking.

Accepted Answer

John Pierpont Morgan, or J.P. Morgan, rose to prominence as a powerful and influential banker in the late 19th and early 20th centuries. He collaborated with his father to transform the House of Morgan into a significant international banking entity.

In the 1870s, Pierpont and Anthony Drexel established Drexel, Morgan and Company, which expanded the Morgans' influence to New York, Philadelphia, London and Paris. This expansion enabled them to fund significant railroad projects in America.

In 1879, Pierpont marketed and sold a substantial portion of New York Central railroad stock for the Vanderbilts, solidifying his reputation on Wall Street. He secured a seat on the railroad's board, representing European investors dissatisfied with the mismanagement of American railroads. This marked the start of Morgan's strategy of controlling railroads through voting trusts.

Morgan was a staunch advocate of high ethical standards in banking. He preferred to collaborate with the most robust companies, avoiding risky ventures. He viewed his role as safeguarding investors' interests and took this responsibility very seriously, even when it burdened him. This sense of duty motivated him to acquire power, sometimes reluctantly, as he felt obligated to bring order to the disordered railroad industry. Despite criticism for prioritizing foreign investors over American interests, Morgan believed he was fulfilling a higher purpose.

Upon his father Junius Morgan's death, Pierpont inherited the banking business and assumed leadership of the House of Morgan.

Pierpont initiated railroad reorganizations, gaining control of bankrupt railroads such as the Erie, Chesapeake and Ohio, and Philadelphia and Reading. Through this process, dubbed "morganization", Pierpont amassed immense power over the rail industry. He established "voting trusts", enabling him and his associates to manage the reorganized railroads. At one point, he controlled one-sixth of the country's railroad trackage.

Pierpont selected skilled partners to manage the enormous workload. However, the relentless pace resulted in the death of several partners due to overwork and stress. Despite the demanding work, a partnership with Morgan was highly sought after for the wealth and power it offered. Pierpont managed the bank like a private club, but hired based on merit.

The story demonstrates the growth of the House of Morgan into America's leading bank in the late 1800s. Pierpont Morgan used reorganizations to gain unparalleled control over railroads and accumulate immense power and influence in finance.

Question 5

J.P. Morgan played a crucial role in U.S. financial history, saving the gold standard, initiating major industrial mergers, and engaging in high-stakes financial battles, which led to conflicts with the government over antitrust policy.

Accepted Answer

In 1895, J.P. Morgan saved the U.S. gold standard by forming a group of bankers to sell bonds and supply gold to the U.S. Treasury. This action restored trust in the dollar after gold reserves had fallen dangerously low due to economic issues and political threats to abandon the gold standard.

Morgan was instrumental in the first significant merger wave around 1900, forming industrial trusts like U.S. Steel. He merged competing steel companies like Carnegie Steel and Federal Steel into the new billion-dollar U.S. Steel corporation in 1901. This merger resulted in economies of scale but also caused public concern about monopolies.

Morgan's influence led to conflicts with other financiers like Edward Harriman and Jacob Schiff. In the infamous Northern Pacific corner of 1901, Morgan and Harriman fought for control of the railroad, leading to extreme stock fluctuations and a market crash that bankrupted many investors. This event further tarnished Morgan's reputation as a risky financial titan.

President McKinley's assassination later that year resulted in Theodore Roosevelt becoming president. This event began a series of confrontations between the White House and the House of Morgan during the Roosevelt, Taft and Wilson administrations over antitrust policy. Despite public suspicion of his immense power, Morgan believed he was faithfully fulfilling his financial commitments and obligations.

Question 6

Jack Morgan's tenure in London expanded J.P. Morgan and Company's influence, while his father Pierpont Morgan's business and personal pursuits shaped the firm's identity and financial stability.

Accepted Answer

Jack Morgan, son of J.P. Morgan, moved to the London branch of J.P. Morgan and Company in 1898 at age 31. He felt lonely and wished to be in New York, where his father Pierpont Morgan was conducting major business deals like the creation of U.S. Steel. Pierpont liked Jack but thought he lacked aggressiveness and drive, which increased Jack's insecurities.

Jack spent his London years in a luxurious environment. He established relationships in British society and made noble friends that later offered unique access for the House of Morgan. The London office depended heavily on Pierpont for capital. As Pierpont's power increased, the British had mixed feelings, depending on his expertise but fearing his control over their economy.

Jack moved back to New York in 1905, and the London office hired upper-class British partners like Edward Grenfell and Vivian Hugh Smith. This change gave the London branch a more British identity than its previous American character.

In America, Pierpont Morgan clashed with President Theodore Roosevelt, who aimed to limit excessive corporate power. Despite their public opposition, their relationship was complicated. They both believed in big business and industrial cooperation over competition. Roosevelt also used Morgan's power abroad, for example, in financing the Panama Canal.

In his later years, Pierpont concentrated on collecting art and having relationships with actresses and mistresses like Maxine Elliott. His art purchases caused financial problems for the bank. However, collecting fulfilled Pierpont's desire for beauty and romance, which business success didn't provide. Belle da Costa Greene, his librarian, confidante, and probable mistress, encouraged this side of Pierpont. In business and art, Pierpont pursued his passions on a large scale.

Question 7

The 1907 financial crash led to banking reforms and the establishment of a central bank, marking the beginning of a cooperative era between government and banking, and significantly increasing Morgan's power.

Accepted Answer

In 1907, Wall Street anticipated a financial crash for a year, which eventually occurred in March. The Stock Exchange was in turmoil due to panic selling, and financial leaders attempted to gather a $25-million pool to stabilize prices. Pierpont Morgan initially opposed the idea, viewing it as stock manipulation. False reports of Pierpont joining the effort briefly boosted the market, but he stayed in Europe, discussing the potential for a significant stock fall that autumn with his partners.

By October, the panic was escalating due to the irresponsible actions of trust companies, which had used loopholes to make hazardous investments, leading to runs on deposits. Pierpont hurried back from a convention to handle the crisis. He examined the accounts of failing trust companies and concluded that some, like the Knickerbocker Trust, were beyond saving. The president of the Knickerbocker Trust later committed suicide, leading many depositors to do the same. Pierpont persuaded the Treasury Secretary to commit $25 million in government funds for his use and gathered young bankers to assess the crisis. He also forced trust company presidents to contribute to a $25-million pool to safeguard weaker institutions. U.S. Steel bought a majority stake in Tennessee Coal and Iron, which was collateral for loans to the Moore and Schley brokerage house. This action prevented Moore and Schley from failing and possibly saved the stock market.

Despite being sick, Pierpont worked relentlessly during the two-week crisis. He persuaded the New York Clearing House to issue emergency scrip and asked religious leaders to promote calm. Although he was praised as a hero, the incident revealed systemic issues in banking. This led to reforms such as the establishment of a central bank to provide the U.S. with a flexible currency and a last-resort lender during crises. The panic demonstrated the necessity to diminish Pierpont's unique control over finance. Ironically, the House of Morgan would utilize the new Federal Reserve to increase its global influence. This marked the beginning of a cooperative era between government and banking, with Washington recruiting banks for foreign ventures and banks appreciating the government's forceful powers to ensure debt repayment. The House of Morgan became a tool of dollar diplomacy, starting with China. Although initially hesitant, Morgan led an American banking group encouraged by the State Department to participate in railroad financing. Morgan's dynamic agent Willard Straight led this initiative. He optimistically believed that unity among foreign bankers would prevent any single country from taking advantage of China. However, geopolitics took precedence over bankers. A revolution in 1911 overthrew China's Manchu dynasty, which the bankers had backed. With Woodrow Wilson's election in 1912, the American group disbanded. But the experience had prepared big Wall Street banks for future cooperation abroad, significantly increasing Morgan's power.

Question 8

Pierpont Morgan, a globally influential banker, created a financial empire, which, despite criticism and investigation, continued to be a significant financial institution under his son's leadership after his death.

Accepted Answer

Pierpont Morgan was the most famous banker of his era, presiding over a financial empire that spanned the globe. He rescued the U.S. gold standard in 1895, created the first billion-dollar corporation in U.S. Steel, and helped negotiate the Panic of 1907. However, he faced growing criticism over his power and influence, culminating in the Pujo Committee hearings of 1912-1913 that investigated the "Money Trust" on Wall Street. Though Morgan defended his practices, the hearings took a toll on his health. He died in 1913 at the age of 75.

His son, Jack Morgan, took over the bank after Pierpont's death. Though initially overshadowed by his domineering father, Jack would steer the bank through the challenges of World War I, the Great Depression, and World War II. The House of Morgan entered a "Diplomatic Age," sharing power with governments and central banks. It remained a formidable global institution, but power was diffused among partners rather than concentrated in one man. The era of the celebrity banker passed with Pierpont's death, but the House of Morgan continued as a pillar of high finance.

Question 9

The House of Morgan, despite initial setbacks and changes in banking regulations, managed to maintain and even strengthen its control over banking and monetary policy in the early 20th century.

Accepted Answer

In early 1912, the House of Morgan bought 23 Wall Street, tore down the old building, and built a new marble headquarters. The new building, which opened in 1914, showed the bank's preference for privacy and tradition. It had no name on the outside and an open banking floor similar to London banks. Each partner had a private office lined with oak and a fireplace. The upper floors had a dining room and barber shop.

After Pierpont Morgan died in 1913, his art collection was sent to New York without any tax. He had intended to give it to the Metropolitan Museum, but the city refused to pay for a special Morgan wing. Upset, Morgan left the final decision to his son Jack, who chose to sell much of the collection to pay estate taxes and bequests. The Met got 40% of the works, which was the largest gift in its history. The rest were sold to rich collectors like Henry Frick.

The House of Morgan also got problems with the poorly managed New Haven Railroad from Pierpont. People's lawyer Louis Brandeis and other reformers criticized the road's monopoly practices. In 1913, Jack Morgan removed the railroad's president and tried to work with the Wilson administration, which was a change from his father's aggressive style. But the bank was still upset about the railroad's nationalization.

In the same year, the Federal Reserve Act created a central bank system mostly controlled by the government, which was against the Morgan plan. But the New York Fed became the real center of power, with Morgan's student Benjamin Strong becoming its first governor. So the Fed ended up strengthening, not reducing, Morgan's control over banking and monetary policy.

Question 10

The House of Morgan capitalized on World War I, increasing its power and prominence, and signifying America's emergence as the world's primary creditor nation.

Accepted Answer

In 1914, when World War I started in Europe, the House of Morgan dealt with domestic issues in the United States. Initially hesitant about the war, Morgan partner Harry Davison saw significant opportunities and went to London to suggest that the bank manage purchases for the Allies. Despite U.S. neutrality, the bank agreed in 1915 to purchase $3 billion in supplies, earning huge fees.

The bank organized the enormous $500 million Anglo-French loan, strengthening Morgan's alliance with England. This loan challenged America's ability as a financial center. Despite controversy, it signified America's emergence as the world's primary creditor nation.

When America joined the war in 1917, the House of Morgan demanded Britain to repay its loans, but the British Treasury opposed them. However, Morgan came out of the war with significantly increased power and prominence. The wartime Liberty Bond drives also produced a new generation of American investors.

Question 11

Post World War I, the United States emerged as a leading financial power with the House of Morgan dominating Wall Street, its influence peaking in the 1920s when politics and finance became indistinguishable.

Accepted Answer

After World War I, the United States became the world's leading financial power while Europe was in ruins. The House of Morgan rose as the top private bank, choosing the most creditworthy customers and managing massive loans. Its prestige increased because of its British connections and partners recruited for Morgan Grenfell. The bank represented American capital markets and its power came from prestige and political ties, not just money.

With the Jewish banks weakened, the Morgan, National City Bank and First National Bank, the Yankee axis, dominated Wall Street. J.P. Morgan Jr. worked consistently during the war and into the 1920s, but he didn't have his father's drive and considered himself an amateur in the style of a British country squire. He was prepared to depend on a strong lieutenant and Harry Davison seemed the likely candidate. However, Davison died in 1922, which allowed Tom Lamont to take over leadership. Lamont was a self-made figure who convincingly acted the part of an aristocrat. He had a talent for friendship and politics that fit with the times.

In the 1920s, politics and finance became indistinguishable. The bank informed incoming administrations about foreign loans that needed government approval, leading to the expectation of government protection of investors. This promoted optimistic thinking and risk-taking. Even though relations were never easy, this decade marked the peak of Morgan's power and influence.

Question 12

The House of Morgan, a leading American banking house post World War I, played a significant role in Europe's economic reconstruction but faced controversy for its financial ties with future Axis powers.

Accepted Answer

After World War I, the House of Morgan became the leading American banking house due to its strong connections with European central banks and its involvement in postwar reconstruction. The bank provided loans to stabilize currencies and reconstruct economies in Europe. It participated in the League of Nations loan to Austria and the Dawes Plan to recover Germany after hyperinflation. Partners like Thomas Lamont and Dwight Morrow acted as unofficial U.S. government ambassadors at international conferences, advocating for financial diplomacy. They strived to reestablish economic order in Europe, considering countries like Germany as crucial U.S. trading partners. However, the bank also formed strong connections with Japan, Italy, and Germany, which became an issue when they opposed the Allies in World War II. Despite doubts, the House of Morgan supported financing loans to these future Axis powers in the 1920s. The loans to Germany ignited political controversy and concerns that the conditions were too severe, which later fueled Nazi propaganda. Therefore, the bank's postwar loans had unexpected political outcomes, even though they were successful in reconstructing Europe's economy.

Question 13

The House of Morgan, in the 1920s, achieved unmatched power and prestige due to its integrity, discretion, and close client relationships, setting a standard of supremacy unmatched by any other American bank.

Accepted Answer

The House of Morgan achieved unparalleled power and prestige in the 1920s. Elite clients like U.S. Steel, General Motors and AT&T sought its services due to its integrity and discretion. The partners, chosen based on merit, adhered to a code of honor. Tom Lamont, a typical Morgan partner, embodied the spirit of the Jazz Age, despite his reservations about the decade's excesses. Jack Morgan, the bank's leader, lived lavishly on his estates, splitting his time between New York and England. He prepared his sons to succeed him but was deeply affected by the sudden death of his wife Jessie in 1925, which left him isolated and lonely. The bank was a dominant force on Wall Street, underwriting billions in securities, particularly for railroads and foreign governments. No other American bank has ever matched its supremacy. Despite its small size, it maintained close contact with its clients. The partners' integrity and discretion were as valuable as money in securing unparalleled trust and prestige.

Question 14

The House of Morgan played a significant role in international finance and politics in the early 20th century, including supporting Britain's return to the gold standard and endorsing Mussolini's regime in Italy.

Accepted Answer

The House of Morgan's power transitioned from London to New York. After World War I, restrictions on foreign lending weakened London's merchant banks, while Wall Street and J.P. Morgan prospered. Morgan Grenfell handled some international loans but was less significant than its New York equivalent. Resident partners like Teddy Grenfell and Vivian Smith acted as influential intermediaries between British and American finance.

In the 1920s, Governor Montagu Norman of the Bank of England aimed to reestablish London as the top financial center. He required Wall Street funds and connections, which he obtained through the Morgan partners who agreed with his idea of Anglo-American collaboration. After Britain left the gold standard in 1919, Norman aimed to reconnect the pound to gold to ensure monetary stability. The Morgan partners fully endorsed this, viewing it as crucial for Britain's financial supremacy.

With Morgan's support, Britain reconnected to the gold standard in 1925, but at an excessively high exchange rate that harmed British industry's competitiveness. J.P. Morgan offered credits to protect the pound, but they were ultimately unnecessary. The reconnection to gold was a mistake that sped up Britain's postwar decline. However, Norman and the Morgan partners continued to stabilize other currencies like the Italian lira despite reservations about Mussolini's fascist regime.

Tom Lamont developed strong relationships with Mussolini, viewing Italy with romantic affection. He defended Mussolini, crafting phrases to attract Anglo-American attention. Lamont declared a $100 million Morgan loan to Italy in 1926, ignoring the fascist violence. He stated that Mussolini had public support and commended his economic performance while disregarding his political oppression. Lamont organized positive media coverage for Mussolini in America. His endorsement played a crucial role in validating Mussolini among business leaders and policymakers.

The Morgan-Vatican relationship also played a part in dealings with Mussolini. The 1929 Lateran Treaty, which resolved Vatican-Italian disputes, compensated the Vatican in bonds. Pope Pius XI employed Bernardino Nogara to update Vatican finances. Nogara recruited J.P. Morgan and other banks as investment advisors. The Vatican appreciated Morgan's advice, bestowing honors on Jack Morgan and Lamont. The Morgan-Vatican connection clarifies the bank's services for Mussolini despite his dictatorship.

Question 15

Dwight Whitney Morrow was a successful lawyer and banker who transitioned into politics, serving as U.S. ambassador to Mexico and later as a U.S. Senator, while grappling with his ideals and material ambitions.

Accepted Answer

Dwight Whitney Morrow was a successful lawyer who became a partner at the Wall Street law firm Simpson, Thacher, and Bartlett. Despite his success, he felt restless and torn between idealism and materialism. In 1914, Morgan partners Harry Davison and Tom Lamont recruited him to join J.P. Morgan & Co. Morrow performed well at the bank, reorganizing the Equitable Life Assurance Society and managing Morgan lending to Cuba. However, he still had political ambitions and used the partnership as a stepping stone.

Morrow was good friends with Calvin Coolidge from their time at Amherst College. When Coolidge became president, Morrow wanted to join his administration but didn't receive any high-level appointments. Coolidge later made him ambassador to Mexico, which was in disputes with the U.S. over oil, debt, and the Catholic Church. As ambassador, Morrow developed a good relationship with Mexican President Plutarco Elias Calles and negotiated compromises on oil and church issues.

However, Morrow disagreed with his former Morgan partner Lamont about Mexico's debt default. Lamont wanted a separate settlement for the foreign bondholders he represented, while Morrow wanted a fair solution for all creditors. This disagreement led Morrow to further separate himself politically from the Morgan bank.

In 1930, Morrow became a U.S. Senator. His association with Morgan continued to be a problem during his Senate campaign. Once he was elected, the overworked Morrow let down some liberal supporters with his votes. In 1931, he died suddenly of a cerebral hemorrhage at age 58, leaving a legacy of brilliance, idealism and ambition, but also inner conflicts.

Question 16

The 1920s bull market was a Wall Street phenomenon driven by liquidity boom and speculation, which ended in the 1929 crash, exposing Wall Street's pretensions and establishing government responsibility in financial crises.

Accepted Answer

The bull market of the 1920s primarily occurred in the latter half of the decade and was mostly a Wall Street phenomenon, not reflected in other global stock markets. It was a response to the unstable postwar years and was driven by a liquidity boom as money moved away from hard assets like commodities. America's trade surplus increased due to the war-ravaged state of Europe, but the boom was not consistent across all sectors. Wall Street optimism increased, with surplus cash viewed as wealth rather than a lack of investment opportunities. The financial services industry expanded quickly, with the number of securities dealers increasing from 250 before the war to 6,500 by 1929.

Small investors rushed to the stock market, often purchasing on margin, while bonds became less significant at the NYSE. Insider trading was prevalent and legal. Despite Morgan's official avoidance of stocks, partners participated in pools that manipulated share prices and profited from corporate tips. In 1929, Morgan even sponsored speculative new holding companies in utilities and railroads, including the heavily leveraged Alleghany Corporation.

The Federal Reserve's low-cost money policies, designed to aid Britain, encouraged speculation. In March 1929, Morgan partner Russell Leffingwell anticipated a "world credit crisis." Just days before the crash, President Hoover sought reassurance from Morgan head Thomas Lamont, who downplayed market excesses. On October 24, "Black Thursday," stocks plummeted, leading to a panic the following week. Morgan and other bankers attempted to inject liquidity and control the fall, but their power proved to be limited. The market and public trust in bankers fell.

The true solution came from the proactive Federal Reserve Bank of New York, which reduced rates and offered credit to support banks and brokers. This established the principle of government responsibility in financial crises. The crash destroyed the perception of bankers as cautious and wise. Despite its economic devastation, it exposed Wall Street's pretensions. The optimism of the Jazz Age was suddenly over.

Question 17

Despite various economic interventions, the Great Depression worsened due to banking failures and geopolitical tensions, leading to a loss of confidence in global financial stability.

Accepted Answer

After the 1929 stock market crash, former President Herbert Hoover implemented tax cuts, public works programs, and interest rate reductions by the Federal Reserve to counteract the economic downturn. Despite initial optimism on Wall Street, the economy continued to worsen.

The House of Morgan lent money to clients like Charles Mitchell of National City Bank and the Van Sweringen brothers' railroad empire to keep them afloat. However, the bank denied assistance to the failing Bank of United States, the largest Jewish-owned bank, despite regulators' pleas, which further damaged public confidence.

The Depression also affected Europe. The failure of the Credit Anstalt bank in Austria and the collapse of the German economy due to war reparations payments caused a crisis of confidence in the British pound. The Bank of England sought a rescue loan from the House of Morgan to maintain the gold standard. After initial hesitation, the bank organized a syndicate of US and French banks for a $400 million credit. Despite this, a run on the pound occurred, and it was removed from the gold standard in 1931.

During this chaos, senior Morgan partner Tom Lamont remained hopeful that the world would regain stability. He stayed loyal to the bank's clients like Japan, despite signs of increasing militarism. He even secretly wrote a statement justifying Japan's invasion of Manchuria that the Japanese finance minister issued. However, as political assassinations increased in Japan and the military took control, Lamont realized his trust was misplaced. By 1934, he had become disillusioned with Japan's aggression and advised the British against renewing their alliance.

Question 18

The 1932 economic crisis and subsequent political shift led to the Glass-Steagall Act, which separated commercial and investment banking, impacting Wall Street and private banks like Morgan, despite their resistance.

Accepted Answer

The Wall Street of 1932 was in a dismal state, with many securities firms declaring unpaid vacation days and destitive brokers selling apples on the sidewalks. Downtown real estate was depressed, with ten-room Park Avenue apartments sitting empty. The misery extended across America, with Hoovervilles lining Riverside Park and hobo camps in Central Park. Even the new Empire State Building was mocked as the "Empty State Building."

Despite the hard times, top Morgan partners still enjoyed splendor, although some felt guilty about flaunting their luxury. Jack Morgan decided not to use his yacht Corsair that summer, considering it unwise to display such indulgence when so many were suffering.

In 1932, politics shifted in a way that led to the Glass-Steagall Act and the division of the House of Morgan. It started with Hoover declaring war on Wall Street short sellers, whom he blamed for driving down stocks and preventing economic recovery. Lamont and other Morgan partners tried to dissuade Hoover, to no avail.

Hoover asked the Senate Banking Committee to investigate short selling, which eventually expanded into a comprehensive inquest of Wall Street led by Ferdinand Pecora. The Pecora hearings exposed manipulative practices that fueled public anger against bankers and led to demands for regulation. It pressured the Roosevelt administration to take action against Wall Street.

The Glass-Steagall Act, sponsored by Carter Glass and Henry Steagall, worked through Congress to separate commercial and investment banking. It forced banks to choose between taking deposits and making loans or dealing in securities. An unexpected provision applied the law to private banks like Morgan, forcing them to decide between the deposit and securities business.

The Pecora hearings focused on private bankers, with Morgan first. Jack Morgan appeared old-fashioned, upholding the Gentleman Banker's Code of honor and character. But practices like the "preferred list" of distributing lucrative shares to friends, including politicians, exposed Morgan favoritism and disillusioned the public.

The Glass-Steagall Act aimed to restore sobriety in finance and eliminate conflicts of interest from security affiliates of deposit banks. Though Morgan had arguments against the bill, the public wanted to punish Wall Street. While the new law targeted Wall Street, failures were concentrated among small rural banks. But politically it made sense. The House of Morgan suffered for sins committed by others.

Question 19

The Glass-Steagall Act forced J.P. Morgan to split into a commercial bank and a new securities firm, Morgan Stanley, marking the end of gentleman banking.

Accepted Answer

The Glass-Steagall Act mandated J.P. Morgan and Company to select either commercial or investment banking. Despite having a strong securities business, the bank chose commercial banking to keep its large staff and clients. In September 1935, it separated its securities business into a new firm, Morgan Stanley. J.P. Morgan partners supplied the capital for Morgan Stanley, which quickly drew many of the bank's previous clients and led new securities issues. In contrast, J.P. Morgan and Company transformed into a less active commercial bank. Despite the Glass-Steagall Act, the success of Morgan Stanley annoyed New Deal reformers like Harold Ickes, who believed J.P. Morgan was still secretly involved. In general, New Deal reforms introduced unprecedented transparency to Wall Street by enforcing regulations for balance sheet disclosures and government examinations. The era of gentleman banking was ending.

Question 20

The House of Morgan faced diplomatic and financial challenges in the 1930s due to Germany's potential debt default under the Nazi regime and Italy's aggressive policies under Mussolini.

Accepted Answer

The House of Morgan had a difficult relationship with Germany in the 1930s due to the threat of Hitler's Nazi regime defaulting on its debts. Hjalmar Schacht, the Reichsbank president, took an unpredictable and resistant position against foreign creditors. He declared a pause on Germany's long-term overseas debt, intending to repurchase the bonds at a significant discount. This worried the Morgan partners, who had sold the Dawes and Young loans in the 1920s to assist in rebuilding Germany after World War I.

Tom Lamont urged Schacht to fulfill Germany's obligations, referring to Morgan's involvement in the previous loans at the request of the U.S. and British governments. However, Schacht was already working with the Nazis. He responded dramatically, claiming that Germany did not have foreign exchange to pay its debts. The British then secretly arranged to receive partial bond payments, favoring themselves over American holders. This led to a heated disagreement between the Morgan houses in New York and London.

The Morgan partners also became dissatisfied with Italy after Mussolini's invasion of Ethiopia. The U.S. implemented an arms embargo and Cordell Hull, the Secretary of State, requested Lamont to persuade Mussolini towards freer trade. During a visit to Rome, Lamont informed Mussolini that Americans perceived him as a warmonger, not the peaceful man he professed to be. However, he soon returned to propaganda efforts to restore Mussolini's image, even defending his violent Ethiopian campaign as akin to America's westward expansion. The Morgan bank's connections with autocratic regimes would later cause problems as fascism expanded in Europe.

Question 21

The Morgan family's secretive handling of internal theft and their resistance to New Deal reforms led to a scandal that advanced regulatory reforms and transparency in Wall Street.

Accepted Answer

Jack Morgan, a widower, maintained his late wife Jessie's gardens. He had sixteen grandchildren and was known for his aloofness, punctuality, and strictness about manners. He worked at the bank under Pierpont's portrait and opposed the New Deal reforms, advocating for patience and fortitude for traditional values to win.

In 1936, stress from hearings led to Jack having a heart attack. He recovered on a cruise but held a grudge against Roosevelt's administration, viewing it as a personal attack. He blamed the "crazy man" in charge for his resentment. Public criticism, even minor, affected Jack deeply due to his underlying shyness and insecurity.

George Whitney, Jack's son, continued the Morgan style. He joined from Kidder Peabody and managed domestic underwriting. George responded to New Deal investigations with indignation, questioning their validity. His brother Richard, known for stopping the 1929 panic as Stock Exchange president, lived extravagantly while in constant debt, often borrowing from George. By the 1930s, Richard was stealing funds from the Exchange's Gratuity Fund and Yacht Club.

In 1937, when Richard confessed his thefts to George, the Morgans had a problem. Revealing him would benefit their New Deal enemies, particularly SEC chairman William Douglas, a fervent regulator intent on reforming Wall Street and reducing Morgan influence. Lamont and George chose not to report Richard's crime. Richard's suspension from the Exchange in 1938 caused a scandal. The SEC immediately launched an investigation.

During the hearings, a tired Jack denied any responsibility for the Exchange. Lamont confessed to lending George $1 million, unaware of Richard's crimes. He asked if he should have exposed George's brother instead of silently supporting a friend. George also mentioned his loyalty to his brother. However, the SEC blamed them for aiding Richard's misbehavior. Douglas used the scandal to implement Exchange reforms. Richard was found guilty of theft and imprisoned, leaving George as the innocent brother. The case advanced Douglas' reform agenda and encouraged advocates of competitive bidding like Robert Young. It ultimately demonstrated the importance of transparency in the previously private Exchange.

Question 22

The House of Morgan navigated complex political and financial dynamics during the pre-WWII era, balancing its Anglo-American interests and advocating for internationalism while facing accusations of war profiteering.

Accepted Answer

The House of Morgan maintained long-term connections with Britain, with partners appreciating British culture and regularly visiting London. Morgan Grenfell, the London branch, was more insular, hiring from family and friends, which gave it a relaxed, self-satisfied atmosphere. After the Great War, Morgan partners held the belief that Anglo-American had a duty to maintain world peace.

However, in the 1930s, disagreements arose over debt issues, particularly after Hitler took over Austria. Morgan Grenfell independently negotiated a deal with Germany regarding Austrian debt, which upset the New York partners. Lamont blamed them for prioritizing British interests, cautioning that this could endanger Anglo-American collaboration in war. The London partners spread Lamont's letter, further damaging relations.

As the threat of war increased, the majority of Morgan partners supported pacifying Hitler, thinking that war would destroy the British Empire. Lamont believed Hitler could be controlled through diplomacy. The Astors, who were friends of Lamont, shared these views. After Munich, Lamont anticipated Hitler's downfall, commending Chamberlain's "achievement" in delaying the inevitable. However, Hitler's seizure of Czechoslovakia ended any hopes of appeasement.

The bank wanted to help Britain but was afraid of accusations of war profiteering. It decided not to reprise its World War I purchasing role. Instead, it discreetly sold British-owned securities in New York to generate cash for British purchases. However, this still led to political issues, reinforcing the stereotype of Morgan-British conspiracy.

Lamont advocated for the repeal of neutrality laws that prohibited arms sales to belligerents. Charles Lindbergh made radio speeches advocating neutrality, indirectly referring to those who desired war for profit. Anne Morrow Lindbergh, conflicted between her isolationist husband and internationalist father, was upset. Betty Morrow requested Lamont to persuade Lindbergh, but it was unsuccessful.

The bank saw potential in Wendell Willkie, an internationalist Republican. Lamont supported his presidential campaign, providing him with Wall Street backing. However, Willkie lost to FDR, who was reelected for a third term. Nevertheless, with FDR now also an internationalist, Morgan-Roosevelt relations improved, and the bank's influence increased as the focus shifted to confronting the dictators.

Question 23

During World War II, the House of Morgan operated under Nazi control in France, attempted to prevent Mussolini's alliance with Hitler, and later became a strong advocate for U.S. and Britain's joint leadership in the postwar world.

Accepted Answer

During World War II, the House of Morgan operated in Nazi-occupied France and attempted to deter Mussolini from aligning with Hitler. The Morgan bank in Paris, Morgan et Compagnie, sent securities to safe houses in central France before the Nazi invasion. After France's surrender, Morgan et Compagnie remained operational under Nazi control, enduring constant interference and surveillance. The Nazis looted Jewish accounts and demanded foreign currency, despite objections from Morgan. Two Morgan partners were arrested for refusing to surrender a depositor's money, but were freed after paying a ransom.

Simultaneously, Thomas Lamont and J.P. Morgan & Co. tried and failed to dissuade Mussolini from joining Hitler in 1940. Mussolini arrested the Morgan agent in Rome, Giovanni Fummi, as tensions escalated. Lamont secured Fummi's release through the Vatican and by personally appealing to Mussolini, stating that Fummi had represented Italy's interests to Morgan over the years. After 10 days, Fummi was permitted to leave for Switzerland.

As the war progressed, the relationship between FDR and the House of Morgan improved significantly, a stark contrast to the tensions of the 1930s. The Morgan partners were strong advocates for Lend-Lease aid to Britain. Following the attack on Pearl Harbor, which led to the U.S. entering the war, the House of Morgan and the Roosevelt administration united against isolationism. Lamont and FDR exchanged friendly letters and jokes, viewing each other as allies against anti-war forces. This newfound cooperation stemmed from a mutual belief that the U.S. and Britain should jointly lead the postwar world.

Question 24

Post World War II, the House of Morgan transitioned from a private partnership to a public corporation, aligning with the modern financial system and marking a shift from personal diplomacy to bureaucratic banking.

Accepted Answer

After World War II, the House of Morgan changed from a private partnership to a public corporation. This change enabled the firm to manage trusts and spread ownership more widely. Despite the controversy, the change aligned the bank more closely with the modern financial system.

Leaders like Jack Morgan and Tom Lamont died, ending an era. However, the bank persisted under new management, became a part of the Federal Reserve System, and sold shares to the public. This change required the bank to adhere to regulation and transparency, abandoning the secrecy and independence of the past.

The world changed. Financial power moved from London to New York. Banks increased in size while bankers became more anonymous. The personal diplomacy between private financiers and heads of state was replaced by multinational institutions. The aristocratic world of the old grandees disappeared as banking became more bureaucratic.

People like Montagu Norman and Tom Lamont had difficulty adapting to the new order. Despite their abilities, they could not halt the progress of history. Their flaws became apparent as the challenges increased. Although they were visionary in many ways, they made errors and compromises in an attempt to maintain the old system. The issues they encountered were too significant for any individual to solve.

The postwar period introduced unpreventable forces of integration and regulation. Banks adapted to survive in this new environment. However, the significant influence of prominent bankers diminished. Their ambitions were grand, but human limitations resulted in mixed legacies. The new era demanded different skills and a less grandiose perception of financial power.

Question 25

Post-World War II, the House of Morgan struggled to regain its former influence due to changes in the financial environment and its own insular culture, eventually necessitating a life-saving merger.

Accepted Answer

After World War II, the House of Morgan found it challenging to reclaim its previous power and influence in the evolving financial environment. Russell Leffingwell, the last of the Morgan partners who were thinkers between the wars, provided wisdom to the bank. However, the bank had significantly reduced in size due to Glass-Steagall. Morgan, as an investment bank, had dominated its competitors. But as a commercial bank, it couldn't compete with more common banks with retail deposits.

George Whitney assumed the role of chairman in 1950. The bank maintained its refined atmosphere but needed to make efforts to attract clients, which was a departure from its previous passive approach. Wall Street banks like Morgan had financed through compensating balances - companies leaving deposits in return for loans. This was a comfortable scheme. However, companies began to distribute deposits among banks, which posed a threat to Morgan's business model.

When Chase suggested a merger, Morgan unexpectedly had a stronger bargaining position. However, Morgan insiders resisted the idea of diluting the bank's unique culture. The bank was too small to continue independently. Its insular nature would eventually necessitate a late, life-saving merger.

Politically, Morgan continued to face residual attacks from the New Deal. But these attacks seemed outdated, as corporations had become multinational. Whitney maintained a close relationship with Eisenhower, regularly sending him letters expressing his views on various issues. Eisenhower appreciated this Wall Street perspective. The postwar years solidified Morgan's preference for international cooperation in Washington. After years of being an outsider, the bank had finally aligned with America's political culture.

Question 26

In the late 1950s, the dominance of Morgan Stanley and Morgan Grenfell in investment banking was threatened by new financial powers and a shift from relationship banking to a more competitive marketplace.

Accepted Answer

In the 1950s, Morgan Stanley and Morgan Grenfell stood as the leading investment banks, continuing the Morgan legacy. Morgan Stanley monopolized major industrial accounts due to its prestigious client list inherited from J.P. Morgan. It was a small, elite partnership that underwrote securities issues for blue-chip companies. Managing partner Perry Hall entertained clients while junior employees took care of legal compliance. Morgan Grenfell also issued debt and equity for top British companies. However, it was an old boys' club, with senior partner Lord Bicester ruling autocratically. Both firms were significant parts of the establishment.

The late 1950s saw a disruption in this comfortable world. Maverick Texas financier Robert Young led a loud proxy fight and took control of the New York Central railroad from its Morgan-dominated board. In London, Jewish emigre Siegmund Warburg initiated the first hostile takeover, for British Aluminum. He understood that advisory work was more important than capital and sought public opinion. The establishment, including Morgan Grenfell, united but failed. These battles indicated that relationship banking was losing its importance. Morgan Stanley and Grenfell had to adjust to a more competitive marketplace. New financial powers and demands for shareholder value threatened their dominance. The polite way of high finance was coming to an end.

Question 27

Post-World War II, the House of Morgan regained its stature through strategic mergers, innovative financial products, and global expansion despite regulatory constraints and competition.

Accepted Answer

The story presents the post-World War II history of the House of Morgan banking dynasty. It details the bank's strategies for staying competitive in the evolving financial landscape.

Post World War II, the House of Morgan was declining and falling behind more aggressive retail banks. In an effort to recover, it merged with the larger Guaranty Trust bank in 1959. This merger increased its capital, corporate clients, and global reach. The bank introduced new financial products such as negotiable certificates of deposit and trading in the federal funds market. These innovations enabled it to lessen its dependence on deposits and raise funds more flexibly in money markets.

The bank aimed to grow overseas to accompany American companies abroad. It established the first underwriting subsidiary in Paris since the Glass-Steagall Act prohibited such activities in the US. The bank faced obstacles from nationalistic European banks that sought to control capital flows in their own currencies. Despite these challenges, this experience provided the bank with expertise in the burgeoning Eurodollar markets that were rapidly growing outside US regulation.

In the 1960s, the bank endeavored to establish a presence in Japan. After a lengthy battle, it became the first US bank to open a branch there since WWII. The bank utilized its history and relationships in Japan despite some hostility due to the war. The Tokyo branch became highly profitable lending to American and Japanese corporations.

Through the introduction of new financial markets and products, global expansion, and merging to increase scale, the House of Morgan managed to adapt and regain its stature despite regulatory constraints and increased competition. The bank gave up some of its mystique but ensured its survival in the postwar era.

Question 28

In the 1960s, Morgan Guaranty and Morgan Grenfell adopted assertive, long-term investment strategies, leading to success but also public criticism.

Accepted Answer

In the 1960s, Morgan Guaranty's trust department expanded quickly, handling pension funds and other assets. Street Hinton led the department to adopt a buy-and-hold philosophy, purchasing stocks for the long term. This strategy was successful as it invested in growth stocks during the 1960s bull market. However, it also drew attention, for instance from Congressman Wright Patman, who expressed concern about the power concentration. The Texas Gulf insider trading case highlighted this issue. Tommy Lamont of Morgan Guaranty allegedly informed the trust department about an ore strike, leading to Texas Gulf stock purchases. Although he was cleared, the case demonstrated the potential conflicts in banks that both lend and invest.

At the same time, Morgan Grenfell in London was evolving from a quiet, traditional firm to an assertive participant in mergers and acquisitions. It supported Imperial Tobacco in the takeover fight for Gallaher cigarettes, abandoning its previous principles to use contentious tactics. This move was succeeded by assisting Rupert Murdoch in acquiring the News of the World tabloid through a complex transaction. Under Lord William Harcourt's leadership, Morgan Grenfell adopted an assertive, contentious approach. The firm thrived as mergers surged, attracting new talent. However, this led to public criticism as Morgan Grenfell conflicted with authorities like the Bank of England. The old world of the City was disappearing as business became more ruthless and globally focused in the 1960s.

Question 29

Morgan Stanley's transformation in the 1960s from a traditional, courteous firm to a more aggressive, profit-oriented entity marked the end of Wall Street's era of gentlemanly conduct.

Accepted Answer

Morgan Stanley began the 1960s as a model of civility but later transformed completely. In the early 1960s, partners operated from 2 Wall Street, a power hub where a single call could generate $100 million. Despite their diverse backgrounds, partners maintained exclusive client relationships without poaching from competitors. They respected traditions, such as distributing coins at meetings.

By the 1960s, Wall Street's segregation was falling apart as skills became more important than background. In 1963, Morgan Stanley appointed its first Jewish partner, Lewis Bernard, who evolved into a significant strategic thinker. Another partner, Robert Baldwin, felt uneasy with the firm's refined past and advocated for radical changes. He updated management, broadened trading, and introduced mergers and acquisitions.

Baldwin's modifications turned Morgan Stanley into a more assertive and profit-oriented firm, terminating its courteous style. Trading introduced a harsher culture and performance-based remuneration, undermining camaraderie. The M&A department, under Bob Greenhill's leadership, established fees proportional to the deal size, encouraging takeovers over impartiality. In 1974, Morgan Stanley executed its first hostile takeover for client Inco against ESB, breaking conventions. The takeover trend leveled the playing field on Wall Street, favoring new Jewish law firms like Skadden and Wachtell.

Morgan Stanley defended its evolving strategies as client-oriented. However, the focus became more short-term, with less consideration for employment or manufacturing. By initiating hostile takeovers, Morgan Stanley adopted a new level of ruthlessness that permeated Wall Street. The era of interconnected partnerships and gentlemanly conduct had ended.

Question 30

The 1973 oil crisis revealed a new global complexity, diminishing the power of banks and exposing their reliance on unstable sources of revenue, such as Arab business.

Accepted Answer

The 1973 oil crisis caused economic chaos, including inflation and unstable financial markets. Banks such as Morgan Guaranty had difficulty maintaining deposits. They suddenly received a surge of petrodollars from oil-rich Arab nations. Morgan Guaranty accepted these deposits, changing policies to suit Saudi clients despite controversy. Its previous role advising the Saudi central bank and Aramco oil provided it with exclusive access. Competitor Morgan Stanley did not have Middle East experience. Desperate for Arab business, it foolishly partnered with Adnan Khashoggi on dubious ventures that failed. Morgan Grenfell gained from its discretion and British connections, attracting Arabs who were suspicious of America. The firm earned most of its revenue from Arab clients but had to exclude Jews to satisfy them. Despite profits, reliance on Arab business was not viable in the long run. The crisis also put pressure on New York City's finances. Even though Morgan Guaranty president Ellmore Patterson led the bankers' committee advising the mayor, federal aid was necessary to prevent default. This demonstrated the diminished power of bankers like Morgan compared to previous crises they had resolved independently. The unstable economy exposed a new global complexity that no bank could manage alone.

Question 31

Morgan Stanley's rapid expansion into new businesses in the late 1970s led to cultural strain, ethical compromises, and damaged reputation, challenging its ability to reconcile growth with legacy.

Accepted Answer

Morgan Stanley, despite its elegant facade in the late 1970s, was experiencing rapid changes. The firm expanded quickly into new businesses such as trading and brokerage, which put a strain on the firm's culture. Founder Bob Baldwin not only adapted the firm to these new conditions but also politicized it, leading to tension. The firm's once famed policy of being the sole manager on tombstone ads became outdated as corporate treasurers became more autonomous. Clients like IBM started demanding co-managers, which weakened Morgan's power. Merger advisory turned into Morgan's main source of profit. Under Bob Greenhill, this area expanded aggressively, leading to clashes with banking. Morgan Stanley compromised its ethics for fees in the Olinkraft case by disclosing confidential data. The firm faced more conflicts as it incorporated risk arbitrage. In 1981, authorities exposed an insider trading ring involving former employees. Although Morgan cooperated with the authorities, the incident damaged its reputation. The firm was no longer the stronghold of integrity it used to be. Despite its ongoing success, Morgan Stanley found it challenging to reconcile its growth with its legacy.

Question 32

Star banker Tony Gebauer embezzled $6 million from J.P. Morgan, tarnishing the bank's image and revealing oversight failures during the Latin American lending boom.

Accepted Answer

Tony Gebauer was a star banker at J.P. Morgan who helped the bank expand into Latin America in the 1970s. He developed close ties with Brazilian officials and brought in huge profits from loans to Brazil and other countries. However, Gebauer was embezzling money from client accounts, eventually stealing $6 million over nine years. He used the money to fund a lavish lifestyle. Gebauer's crimes went undetected even as he led debt restructuring efforts for Brazil during the Latin American debt crisis of the 1980s. When his theft was uncovered in the mid-1980s, it was a major embarrassment for J.P. Morgan. The bank portrayed Gebauer as a lone culprit even though auditors found another executive involved. Gebauer pleaded guilty to fraud charges, repaid over $8 million, and served prison time. The scandal tarnished J.P. Morgan's elite image and revealed oversight failures during the risky lending boom in Latin America.

Question 33

In the early 1980s, Morgan Guaranty transitioned from wholesale lending to global investment banking, ending a century-old transatlantic relationship with Morgan Grenfell.

Accepted Answer

In the early 1980s, the Morgan houses' relationship disappeared, and Morgan Guaranty left wholesale lending to join global investment banking. This move led to a conflict with Morgan Stanley. The old Anglo-American connection between the two firms was at risk when Morgan Guaranty moved into a building near the Bank of England, ignoring Morgan Grenfell nearby. From 1979, Morgan Guaranty became a significant underwriter in the Euromarkets, rivaling Morgan Grenfell in foreign markets and encroaching on each other's territory at home.

Morgan Grenfell, based in London, needed expansion capital but couldn't obtain it from Morgan Guaranty. To expand beyond its small New York office, Morgan Grenfell had to remove Morgan Guaranty's one-third stake. In 1981, Morgan Guaranty sold its stake in parts, making $40 million and leaving Morgan Grenfell to navigate its path. The firms' brotherhood pretense ended, giving way to pure competition.

This action ended a transatlantic relationship over a century old, which was crucial to the House of Morgan's beginnings. However, Morgan Guaranty's chairman, Lew Preston, had become uneasy with Morgan Grenfell as the old families disappeared. He decided to concentrate on global investment banking rather than traditional lending.

Under Preston, Morgan Guaranty dived into trading and the Euromarkets. His protégé Dennis Weatherstone embodied the new banker skilled in swaps and futures. By the 1987 crash, some Morgan traders were earning more than Preston's $1.3 million salary. The bank had become a diversified global financial conglomerate, free from deposits and loans. Few people mourned the fading away of the House of Morgan.

Question 34

The Guinness scandal at Morgan Grenfell highlighted the dangers of unchecked profit-seeking, leading to stricter regulation and ethical standards in London's financial markets.

Accepted Answer

Morgan Grenfell was a prestigious British merchant bank with a long history dating back to the 19th century. In the 1980s, it embarked on an aggressive strategy in the mergers and acquisitions business under the leadership of Christopher Reeves. The bank recruited talented dealmakers like Roger Seelig and George Magan who helped make Morgan Grenfell the top takeover advisor in London. However, the bank's buccaneering culture led it to push the boundaries of ethical behavior.

In 1986, Morgan Grenfell advised Guinness in its hostile takeover of Distillers. The takeover involved manipulation of share prices through a secret 'concert party' organized by Seelig. When this was exposed in the 'Guinness scandal', it caused public outrage against the perceived greed and wrongdoing in the City of London. The scandal led to the dismissal of Morgan Grenfell's top executives including Seelig. It was a stunning reversal for the firm and damaged its prestigious reputation. The scandal contributed to demands for tighter regulation of takeovers and higher ethical standards in the newly deregulated London financial markets.

The Guinness scandal showed the risks of an unchecked, profit-at-all-costs mentality. For Morgan Grenfell, it signaled the end of an era of freewheeling dealmaking. The bank had to overhaul its culture and institute stricter controls. The scandal was a formative episode in the City of London, shaping the regulatory environment and business practices in subsequent decades.

Question 35

The 1980s marked a shift in Wall Street from relationship banking to transactional finance, characterized by aggressive strategies and conflicts of interest, culminating in the 1987 stock market crash.

Accepted Answer

In the 1980s, Wall Street transformed by adopting hostile takeovers, leveraged buyouts, and junk bonds. Investment banks like Morgan Stanley pursued merger and acquisition deals, often causing conflicts between clients. The previous gentlemanly culture changed to a more aggressive attitude aimed at generating large fees.

At the same time, commercial banks like Morgan Guaranty expanded into investment banking activities due to relaxed regulations. They struggled to balance their traditional lending business with the demands of capital markets. Morgan Guaranty's involvement in hostile takeovers led to conflicts of interest with longtime clients.

The speculative climate led to the 1987 stock market crash. Unlike previous crashes, top financiers like J.P. Morgan did not lead a clear rescue effort. The Federal Reserve acted quickly to provide liquidity and reassure markets. The crash revealed the risks of Wall Street's unchecked behavior but did not decrease its desire for deals in the late 1980s. This period marked the end of relationship banking and the beginning of transactional finance focused on short-term profits.

Question 36

The transformation of Morgan Stanley and other Morgan houses reflects the evolution of finance from traditional, cautious operations to aggressive, profit-oriented ventures.

Accepted Answer

In the 1980s, Morgan Stanley's lavish headquarters filled seventeen floors of the Exxon Building, embodying the refined, traditional ambiance of the original House of Morgan.

Morgan Stanley had become an assertive, profit-oriented firm that engaged in risky ventures such as junk bonds, leveraged buyouts, and hostile takeovers. This was a stark contrast to the cautious, gentlemanly House of Morgan of yesteryears. The colossal RJR Nabisco LBO deal epitomized the speculative excess, where bankers earned enormous fees while the company was laden with debilitating debt.

On the other hand, Morgan Grenfell, based in London, was finding it difficult to adjust to the new era of integrated global investment banking. Its inability to establish a robust securities business led to the cessation of trading and its eventual sale to Deutsche Bank, marking the end of its esteemed independence.

The Morgan commercial bank had also undergone changes, advocating for the repeal of Glass-Steagall restrictions on securities activities. However, the former synergy between the Morgan houses was dwindling. The bank and the investment firm had become competitors rather than partners.

As the bank transitioned to a new high-tech tower, the esteemed 23 Wall Street building appeared to be an artifact. The era of paternalism and lifelong employment had ended. Financial power was now broadly distributed, not confined to a few firms like the old House of Morgan. Its supremacy was a reflection of a bygone era of immature markets and limited capital.

The story ends by stating that the charm and influence of the original House of Morgan could never be duplicated today. Its operations are now scattered across the global financial system. The firm's history is a reflection of the contemporary evolution of finance.

Question 37

Accepted Answer

"The House of Morgan" by Ron Chernow is a comprehensive history of the Morgan banking empire, tracing its roots from the 19th century to the modern era. The book provides a detailed account of the rise, fall, and resurrection of the House of Morgan, highlighting its influence on the Western economy. It also explores the personalities and strategies of key figures in the Morgan dynasty. The book won the National Book Award for Non-Fiction in 1990.

However, the text does not provide a self-help guide or a list of actions for readers to implement in their lives. It is primarily a historical and biographical work, focusing on the evolution of modern finance through the lens of the Morgan banking dynasty. The book offers insights into the workings of the financial world, the impact of high finance on modern life, and the influence of the Morgan banks on the history of the Western economy.

As such, it does not provide a list of specific actions for readers to implement in their lives. Instead, it offers a historical perspective that can help readers understand the evolution and inner workings of the financial world. This understanding can indirectly guide readers in their financial decisions and strategies.

The House of Morgan - Book Summary (2024)