The Master of Puppet or The Knight in Shining Armour?




John Pierpont Morgan the founder of 'J.P. Morgan and Chase'. The man who in his time put a halt to the ‘Panic of 1907’ wherein the NYSE fell almost 50% from its peak the year before and the ‘Panic of 1893’ where he helped the US Treasury out of the crisis. He was the most experienced and the most respected Financier and Banker in his time. He was also the man who managed to raise $25 million in 1907 within ten minutes and helped the NYSE from crashing down and hitting rock bottom. That's something that no one else other than Mr. Morgan could have done.

If you look through the whole scenario which existed then during 'The Panic of 1907' then it all seems like a natural sequence of events wherein the NYSE kept tumbling down and created a big rift within the minds of the investors. With people pulling out of the banks heavily and the banks being left with fewer deposits, it was a hard time for the United States economy. This panic was triggered by the failed attempt to manipulate the stocks of the 'United Copper Company'. When its bid failed the banks which lent money to the scheme suffered huge losses and a week later the downfall of the 'Knikerbocker Trust Company' -New York City's third largest trust messed things up further. The fear in the minds of the investors increased and the panic spread like a disease. With people withdrawing extensively from the national and regional banks.

If you then look a little carefully at the scenario which existed you will see a man i.e. J.P. Morgan, who always solved the problems of the market and used to come out as the 'man of the hour'. There were times when he even infused his own capital into the market just to keep the market afloat. He always came out as the Knight who showed everyone the way and handled each crisis with his expertise. But was it all a part of a plan? Can it be all a part of a plan?

Theodore Roosevelt the 26th President of the United States of America, who took office after the demise of President McKinley promised to work on President McKinley's principles. One of the youngest presidents of the United States of America President Roosevelt was well known as the man who fought his way gallantly against the ‘Monopoly’ and the powerful and large ‘Trust Corporations’ was often known as the “Trust Buster”. One of the major reasons for his fight was due to the reason that in those times the so called ‘Trusts’ were getting stronger and it was imperative for the economy to break them down for a healthy growth prospectus.

In 1901 J.P. Morgan financed the creation of his 'Federal Steel Company' and then merged it with the 'Carnegie Steel Company' and several other iron related businesses including the 'Consolidated Steel and Wire Company' to form the ‘Union States Steel Corporation’. During that time the demand for Steel and Iron was something that was inevitable. Iron and Steel industries have always worked as pillars for infrastructural development. With Railroads expanding and investment in infrastructure increasing alongwith the car industry changing pace, Iron and Steel was all they needed. This was one of the biggest mergers of that time because the market which the combined unit would control would have been immensely huge which none of the other corporations could compete with.

While the whole ‘Panic of 1907’ was in place and J.P. Morgan was acting as the 'Knight in Shining Armor' who was saving the day. JP Morgan who dealt with each crisis helping the whole financial community with all of his expertise. After the whole market was coming under the siege of the 'Panic Attack' Mr. Morgan helped solve the crisis brilliantly by convincing the 14 top bakers to infuse $25 million in a matter of 10 minutes.

On 2nd November another such crisis came to his desk. Moore & Schley which was heavily indebted was on the verge of a collapse. Moore and Schley was one of the exchange’s largest brokerage firms and it collapse would have led the market into a downward spiral all over again. The firm had borrowed using ‘Tennesse Coal, Iron and Railroad Company’ (TC&I) as collateral. The conditions were so bad that there were chances of mass liquidation of stocks to be enforced by the banks from which Moore and Schley had borrowed. If that would have happened then it would have sent TC&I’s shares plummeting, devastating Moore and Schley. .

Morgan to solve this problem suggested that the US Steel Corporation acquires TC&I. This would help Moore and Schley avert the crisis. The US Steel Corporation offered Moore and Schley a loan of $5 million, or an offer to buy TC&I for $90 a share. Simultaneously a problem with the trust companies had also arisen. Mr. Morgan told the heads of Moore and Schley about the need of infusion of $25 Million was required and something could be done only if the Trusts came together, and they eventually did at the fear of the whole Financial System collapsing. While one one side the Trusts came together on the other hand the deal was being prepared to be presented to the President because of the 'Sherman Antitrust Act'.

Now President Roosevelt who was fighting against the whole concept of 'Monopoly' was reached to make sure the acquisition of TC&I and US Steel Corporation is allowed. Roosevelt was asked for permission because this was an extraordinary condition where the ‘Sherman Antitrust Act’ was getting violated as a company owning 60% of the market was making another big acquisition. Roosevelt's initial reaction was a no but when he looked into the matter deeply he did agree to the merger as if that hadn't been in place then one of the most important brokerage firms had failed and the U.S. economy might have fallen like a domino. 

If you look at the sequence of events you’d find it completely understandable that Moore and Schley might have got into their debt by their excessive borrowing in the name of TC&I and the whole event chain after that but was it all on its natural course or was Mr. Morgan pulling some strings as the premier banker and pulling off a mega stunt, making Steel and Iron a monopoly of the United States Steel Corporation, after all he was a big part of it. President Roosevelt who was working thoroughly working against the formation of Monopolies and now he was set (or setup) in a position to allow this merger. 

So the question is that was Mr. Morgan the knight or the puppet master? You’re to decide.



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