The History Book Club discussion

This is a thread that focuses on Bankers and Tycoons.

This is something interesting I came upon while researching a paper for graduate school this week.

Sociologist Daniel Bell writes in The End of Ideology about how around the first half of the 20th century there was this shift in the American economy from "family capitalism" to "financial capitalism." He writes,

The breakup of family capitalism began, roughly, around the turn of the century, when American industry, having overextended itself, underwent a succession of crises. At this point, the bankers, with their control of the money and credit market, stepped in and reorganized and took control of many of the country’s leading enterprises. The great mergers at the turn of the century, typified by the formation of United States Steel, marked the emergence of ‘finance capitalism’ in this country.

By their intervention, the investment bankers, in effect, tore up the social roots of the capitalist order. By installing professional managers–with no proprietary stakes themselves in the enterprise, unable therefore to pass along their power automatically to their sons, and accountable to outside controllers–the bankers effected a radical separation of property and family.

In my paper I mentioned how Booth Tarkington already appeared to be privy to this in his 1918 novel The Magnificent Ambersons, which was about a wealthy family in a fictional town modeled after Indianapolis, IN. It won the 1919 Pulitzer Prize.

I wrote about how the 5 Ball brothers, who manufactured glass in Muncie, IN, gradually passed away between 1921 and 1955, and their business made this shift too. In the 1950s, Ball got into the aerospace and defense industry. It closed the Muncie glass factory in 1962, and it became a public company in 1973. And so began the demise of what was once a booming manufacturing city.

Bell blames the shift from family capitalism for the rise of bureaucracy and the managerial class, which was the focus of my paper. The concept of family capitalism and its demise due to the investment banking tycoons was new to me. It has interesting historical and sociological implications.

by Daniel Bell (no photo)

by Booth Tarkington

Very interesting - there were many esteemed families of finance at one time and they were parental in their role as well.

In October 1907, J. Pierpont Morgan summoned New York City’s major financiers to his library on East 36th Street to find a way to restore liquidity to desperate markets.

The situation was grim. Markets had been wildly unsettled for months and in March, despite record corporate earnings, the American stock market crashed. Prices crumbled, brokerage houses closed, interest rates soared. There were runs on U.S. banks with no central bank to intervene since the Federal Reserve System was not yet formed.

The crisis was global. The Bank of England sent $3 million in gold to Alexandria to stop the Egyptian Stock Exchange’s slide, only to find itself short of cash. Banks throughout Japan failed. French investors sold American stocks to buy gold to send home, badly depleting U.S. reserves.

With no central bank, J.P. Morgan & Co. was the only institution with the experience and authority to act. J. Pierpont Morgan helped to save several trust companies and a leading brokerage house from insolvency, bailed out New York City and rescued the New York Stock Exchange.

He also persuaded the team of financiers to supply liquidity to the markets, including underwriting $30 million worth of New York City bonds to keep the city from defaulting.

In 1908, Congress passed a Currency Act authorizing banks to form reserve associations that could issue money temporarily in emergencies. The Federal Reserve was established five years later, shortly after Morgan's death.

Source: JP Morgan

by Louis Auchincloss

Fool's Gold

by Gillian Tett

Savage Minds views this book as anthropology. You decide.

Synopsis:

From award-winning "Financial Times" journalist Gillian Tett, who enraged Wall Street leaders with her newsbreaking warnings of a crisis more than a year ahead of the curve, "Fool's Gold" tells the astonishing unknown story at the heart of the 2008 meltdown. Drawing on exclusive access to J.P. Morgan CEO Jamie Dimon and a tightly bonded team of bankers known on Wall Street as the "Morgan Mafia," as well as in-depth interviews with dozens of other key players, including Treasury Secretary Timothy Geithner, Tett brings to life in gripping detail how the Morgan team's bold ideas for a whole new kind of financial alchemy helped to ignite a revolution in banking, and how that revolution escalated wildly out of control.

The deeply reported and lively narrative takes readers behind the scenes, to the inner sanctums of elite finance and to the secretive reaches of what came to be known as the "shadow banking" world. The story begins with the intense Morgan brainstorming session in 1994 beside a pool in Boca Raton, where the team cooked up a dazzling new idea for the exotic financial product known as credit derivatives. That idea would rip around the banking world, catapult Morgan to the top of the turbocharged derivatives trade, and fuel an extraordinary banking boom that seemed to have unleashed banks from ages-old constraints of risk.

But when the Morgan team's derivatives dream collided with the housing boom, and was perverted -- through hubris, delusion, and sheer greed -- by titans of banking that included Citigroup, UBS, Deutsche Bank, and the thundering herd at Merrill Lynch -- even as J.P. Morgan itself stayed well away from the risky concoctions others were peddling -- catastrophe followed. Tett's access to Dimon and the J.P. Morgan leaders who so skillfully steered their bank away from the wild excesses of others sheds invaluable light not only on the untold story of how they engineered their bank's escape from carnage but also on how possible it was for the larger banking world, regulators, and rating agencies to have spotted, and heeded, the terrible risks of a meltdown.

A tale of blistering brilliance and willfully blind ambition, "Fool's Gold" is both a rare journey deep inside the arcane and wildly competitive world of high finance and a vital contribution to understanding how the worst economic crisis since the Great Depression was perpetrated.

Source for recommendation: Savage Minds

Volcker

by William L. Silber (no photo)

Synopsis:

Over the course of nearly half a century, five American presidents --- three Democrats and two Republicans --- have relied on the financial acumen, and the integrity, of Paul A. Volcker. During his tenure as chairman of the Federal Reserve Board, when he battled the Great Inflation of the 1970s, Volcker did nothing less than restore the reputation of an American financial system on the verge of collapse. After the 2008 financial meltdown, the nation turned again to Volcker to restore trust in a shaky financial system: President Obama would name his centerpiece Wall Street regulation the Volcker Rule. Volcker's career demonstrated that a determined central banker can prevail over economic turmoil--so long as he can resist relentless political pressure. His resolve and independent thinking--sorely tested by Richard Nixon, Jimmy Carter, and Ronald Reagan--laid the foundation for a generation of economic stability. Indeed, William L. Silber argues, it was only Volcker's toughness on monetary policy that "forced Reagan to be Reagan" and to rein in America's deficit.

Noted scholar and finance expert Silber draws on hours of candid personal interviews and complete access to Volcker's personal papers to render dramatic behind-the-scenes accounts from Volcker's career at the Treasury Department and the Federal Reserve: secret negotiations with European ministers; confrontations with the White House; crisis conferences with Wall Street titans, and even tense boardroom rebellions within the Fed itself. Filled with frank commentary from Volcker himself--including why he was personally irked with the "Volcker Rule" label--this will be the definitive account of Volcker's indispensable role in American economic history.

Bentley, sounds fascinating! However, before there was Volcker, there were Montague Norman and Benjamin Strong.
Regards,
Andrea

by Liaquat Ahamed

Thank you for the add Andrea - the citation looks great and you have the format perfect - see you learned it all in no time.

That is supposed to be an excellent book too - it won the Pulitzer Prize I believe - I should put it on my to be read list.

I think I will do that right now!

Bentley, I used to read Economic History as a cure for insomnia, but Lords of Finance changed all that. It’s exciting!

by Liaquat Ahamed

Andrea wrote: "Bentley, I used to read Economic History as a cure for insomnia, but Lords of Finance changed all that. It’s exciting!

Andrea, you might enjoy these 3, which are probably my top 3 economic history books. although you may find they don't help cure the insomnia either!

by Mervyn King

by Bryan Taylor

by John Brooks

(smile)

Douglass, thank you — these all sound great! Now, what do you read to cure insomnia?
Regards,
Andrea

Andrea wrote: "Douglass, thank you — these all sound great! Now, what do you read to cure insomnia?
Regards,
Andrea"

Any of the classical or Austrian school economic treatises are sure to knock me out really fast.

Thanks for the tip! I’ll try it some dark night.
Regards,
Andrea

Interesting interview with Hank Paulson:



Hank Paulson, 74th U.S. Secretary of the Treasury: "It’s the People Skills that Matter"

Link: https://youtu.be/gTGybnPatQk

Synopsis:

"Getting anything done requires working with others. It’s all about interpersonal relationships," shared Henry "Hank" Paulson, 74th Secretary of the Treasury and Founder & Chairman, Paulson Institute. During his View From The Top talk on Thursday, October 27, 2016, Paulson shared life and career advice with Stanford GSB students as well as discussed his experience leading during the financial crisis.

Source: Youtube, Stanford Graduate School of Business