The House of Morgan: an American Banking Dynasty and the Rise of Modern Finance by Ron Chernov

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernov is a history of the modern banking system in the US from 1838 to 1989 told through the history of the J.P Morgan bank. The book chronicles the bank beginning in the baronial age which ended with the death of J. Pierpont Morgan in 1913, the diplomatic age from 1913 to 1948, and the post war casino age from 1948 to 1989, when the book was written. There were three significant events that shaped the future of the bank and the banking industry in the United States. In the baronial age it was the Panic of 1907. In the diplomatic age it was the passage of the Glass-Steagall act of 1933. In the casino age it was the development of merchant banking and leveraged buyouts that led to the Crash of 1987. J. Pierpont Morgan’s actions during the Panic of 1907 solidified the bank’s reputation and firmly established it as the most powerful and influential bank of its era. The stock market crash in 1907 spurned both a run on banks as people tried to withdraw their money, as well as the massive selling of trust stocks. J. Pierpont Morgan engineered a plan that saved numerous brokerage houses, kept the stock market open and bailed out the city of New York. In 1907, almost half of the loans made by New York banks were backed by securities as collateral and the trusts didn’t keep the cash reserves of the commercial banks on hand, making them vulnerable to runs in a time of panic. At the time, there was very little government regulation on banks and trust companies. There was also no central bank to regulate the money supply or the stock exchange. The direct result of the Panic of 1907 was the Federal Reserve System. The Fed consisted of twelve regional reserve banks placed under a central federal authority. This gave the government the ability to offset sudden credit contraction in the private sector to keep banks, brokerages, and trust companies solvent in times of crisis.