I’m reading Ron Chernow’s “The House of Morgan,” which follows the Morgan banking dynasty (yes, as in JP Morgan) from its start in the mid-19th Century through the 1980s. This is my first time reading Chernow in four years (I posted here and here about his excellent Ulysses S. Grant biography). Chernow is an excellent writer who manages to keep the reader’s interest all the way through his historical tomes. Reading a Chernow book means much more than following one man’s life story. It means entering a thoroughly-researched world from another era and digesting a continent of great information about it. ( It also means occasionally having to look up words, as Chernow does not shy away from esoteric words like “unctuous” and “halcyon”).
Admittedly, it took a little while to get into this book. I knew I liked Chernow, but what would I think of a book about bankers? The previous books I read were focused on one particular “great” man: Hamilton, Rockefeller, and Grant. These books set the bar high. It is probably no accident that it took me four years to get back to Chernow,* as I just wasn’t sure what I would think of a collective history like “The House of Morgan.”
I’m glad I gave it a shot. Over the course of three-hundred thirty pages read so far (out of over seven-hundred), I have followed several generations of Morgan men, both family members (Junius, Pierpont, and Jack Morgan) and banking partners, as they grew the Morgan empire into the most powerful banking power in the world. Surprisingly, Chernow manages to humanize the banking industry, portraying these men as passionate, committed, and mostly-honorable human beings who happened to be at the center of American industry and finance just as the U.S. rose to global dominance. I am learning a lot about the history of banking and gaining an appreciation for bankers as a result.
While there are many things I could write about, I am especially interested in sharing a few passages about the 1929 Crash:
In the 1920s, stocks became favored over bonds for the first time.
Before [World War I], there were 250 securities dealers; by 1929, an astounding 6,500. A critical shift in the popular attitude toward stocks occurred. Bonds had always dwarfed stocks in importance on the New York Stock Exchange. Before the war, banks and insurance companies might trade stocks, but not small investors. We recall Pierpont Morgan’a steady disdain for stocks. When asked why the market went down, he would say dismissively, “Stocks will fluctuate,” or “There were more sellers than buyers,” as if the subject weren’t worthy of analysis.“The House of Morgan,” p303.
At the time of the 1929 Crash, people did not realize how big it was nor what the ramifications would be.
- Five days before Black Thursday, on October 19th, 1929, Morgan partner Thomas W. Lamont wrote this in a note to President Hoover:
Since the war the country has embarked on a remarkable period of healthy prosperity… The future appears brilliant.“The House of Morgan,” p314-5.
- Even after the Crash, Chernow writes,
The speculative mood didn’t immediately disappear. Those with money who rushed in to buy stocks were at first vindicated: by early 1930, the market had regained much lost ground. People chattered about a little bull market. Business investment rose, accompanied by an upturn in car and home sales. On March 7, 1930, President Hoover proclaimed: “All the evidence indicates that the worst effects of the Crash upon unemployment will have passed during the next sixty days.”“The House of Morgan,” p323.
Because of the severity of the stock market crash of 1929-32, people who “bought the dip” lost out.
- Chernow writes, “[T]he deterioration in prices was small and steady but unrelenting. In mid-1932, the market would bottom out at one-tenth of its September 1929 peak” (p323).
- Because of this, discount-seeking traders immediately after the Crash were out of luck. Chernow notes, “So the yokels who sold in terror after the Crash fared better, in the long run, than the canny traders who scouted for bargains” (p323).
So much has been written about the 1929 Crash and Great Depression in personal financial literature. In his book, “The Simple Path to Wealth,” JL Collins calls the Crash “The Big Ugly Event.” Typically, it is regarded in investing books as the worst-case scenario investors need to prepare for.
In Chernow’s book, I appreciate getting a historical view of the time period from people who experienced it as it was happening. They did not know what the outcome would be. Many people underestimated the magnitude of the Crash. The House of Morgan, for all its might, could not prevent World War II, only a few years away. Though there is much tragedy and loss in this time period, it is fascinating to read about, especially from the point of view of the company at the heart of the money trail.
*I have yet to read Chernow’s Washington biography, probably because I felt I got to know Washington well enough in “Alexander Hamilton.” However, the allure of another Chernow read remains, so I’m sure at some point I will read it.