How J P Morgan saves America

Oh what a crisis it was: the panic of 1907! 

It all started when Otto Heinze attempted to corner the stock of United Copper. On 15th October, the stock price of United Copper more than doubled and reached $60. But by 16th October, when it was evident that Otto would not be able to corner the market successfully, the prices crashed to less than $10!

Otto Heinze went bankrupt. And along with him, did the various banks who had loaned him the money to try and corner the stock. And this started a run of the banks. People feared that their bank would go bankrupt too, and so they went to pull their funds out. And as more people pulled their money out, the banks actually started going bankrupt! Banks lost more than 48% of their deposits within a fortnight!

The stock market crashed by 50% from its peak. There was absolutely no liquidity left in the market as everyone was just pulling their money out. 

And to top it all of, the whole city of New York was on the verge of bankruptcy. The city had tried to raise money by selling standard bonds worth $20 million – like they usually did. But because of the poor situation of the financial markets, they had failed to sell their bonds.

Economists and historians believe that this would have been the worst financial crisis the world had ever seen. If it were not for one man standing in the way: John Pierpont Morgan.

JP Morgan – the most powerful banker to ever live

JP Morgan was 70 years old and away on travels when the panic began. But he quickly returned to New York and focused on coordinating with the heads of banks and the government. 

The liquidity crisis meant the banks stopped giving short term loans that was required to facilitate daily stock trades. When Ransom Thomas, the president of New York Stock Exchange came to Morgan and told him that he would have to shut the exchange down early, Morgan emphatically expressed that that would lead to a complete loss of confidence. Morgan summoned the top New York bankers to his office and told them that 50 stock exchange clearing houses would fail unless $25 million was raised in 10 minutes. 14 bank presidents pledged $23.6 million dollars and saved Wall Street.

The New York Clearing House then stepped in and created money out of thin air – they issued loan certificates worth $100 million that the banks could use to settle balances amongst themselves. This allowed the weaker banks to retain their cash deposits and just pay an interest on the amount they had to settle.

When New York mayor George McClellan told Morgan how close the city of New York was on the verge of bankruptcy, Morgan contracted to purchase all of the city’s bonds himself.

When Moore and Schley – one of the largest exchanges was on the verge of collapse, Morgan orchestrated US Steel – a company he had helped form – to buy off their Tennessee Coal, Iron and Railroad company shares and save them. JP Morgan persuaded President Theodore Roosevelt who was against monopolies to set aside the application of anti-trust laws and pre-emptively grant immunity to US Steel – and allow the deal to go through so that the exchange could be saved.

Kidnapping the bankers

Each of these rescues were notable in their own right. But the most bizarre rescue happened on the night of 2nd November. When Morgan literally kidnapped all the top bankers of New York. 

Over 50 top bankers had gathered in Morgan’s library to discuss strategies on ending the panic. When they found that the door was locked and they could not leave. Morgan had taken the key away. The bankers could not leave until they hammered out a deal to save the weaker banks and trust companies then and there! 

A deal was reached late in the night at 4.45am and suddenly, the panic was all but diffused.

End of an era

JP Morgan wielded immense power to save America from a deep depression. Six years later, when he passed away, 3,698 telegrams of condolences were received: everyone from the Pope to heads of countries sent in their regrets. 

Senator Nelson Aldrich, realizing that there would not be another Morgan to help avert such a crisis in the future, devised a plan to set up the Federal Reserve System.

The most surprising bit? People believed that JP Morgan was one of the richest Americans to live. But after his death, they found out that his estate had a mere $80 million! John D. Rockefeller, the first billionaire remarked: “and to think, he wasn’t even a rich man!”

JP Morgan wielded his power without wealth. And got impossible things done.

What is power?

Power is neither riches nor fame. Power is the ability to influence people and get them to do what you want. A two month old crying baby wields power on her parents to do as she wishes. 

Power is not about having resources. It is about being resourceful.

A lot of books have been written on how to become rich and famous. But not enough has been written on how to become powerful. 

Jeffrey Pfeffer from Stanford University is one of the few academics who has researched power thoroughly. And he lists the seven attributes that people can cultivate to become more powerful.

From his book, aptly titled “Power”:

“The two fundamental dimensions that distinguish people who rise to great heights and accomplish amazing things are will, the drive to take on big challenges, and skill, the capabilities required to turn ambition into accomplishment. 

The three personal qualities embodied in will are 

The four skills useful in acquiring power are 

Action Summary:

  • Aim to become powerful instead of chasing riches or fame. Work on your will as well as your skills to lead people.