Lets examine one of them Greed
By Melvin J. Howard
The seven deadly sins did not come from the bible as a lot of people think they did. They came from a list of transgressions identified by Evagrius of Pontus in the 4th century and then by John of Cassius in the 6th century. Gregory the Great then formulated the now traditional seven deadly sins. The sins were ranked by increasing severity, and judged to be the greatest offences to the soul and the root of all other sins. Pride, Greed, Lust, Envy, Gluttony, Anger and Sloth it all equals vice. That many of us are so guilty of since the beginning of time till now. If you want to know what got us in the current economic malaise you have no further then to look at these seven deadly sins.
A major topic of conversation in the late nineteenth and early twentieth centuries were bankers, especially J. P. Morgan and his son Jack (J. P. Morgan Jr.). After the panic of 1893, it became clear that Morgan was able to exercise a power far in excess of his private position on Wall Street. But true to his nature, J.P. exercised that power and then receded from public view. As far as the press and the reading public were concerned, the principles of Jeffersonian democracy were still safe in turn-of-the-century America. State influence in private affairs was still at a minimum despite the formation of some regulatory agencies such as the Interstate Commerce Commission. The America of Thoreau, where good government remains in the background, was still inviolate, or so it appeared. But behind this facade of private trust capitalism was a fragile financial structure. To many panics occoured and when they did they underlined the frailty of a system driven largely by private enterprise. What was extraordinary about the first panic of the twentieth century was that it appeared to be a replay of those that had occurred so many times before on Wall Street. During the panics of 1857, 1869, 1873, and 1893, Wall Street had to come to its own rescue. Strong financial firms bailed out the weaker while allowing others to fail. Government was not much help. Traditionally, when a white knight appeared to help others by bailing them out or by helping the government with it’s financing, the rewards were minimal and the risks could be great. The anti-Wall Street contingent was quick to charge financiers with lining their own pockets at the expense of the public, as Pierpont Morgan had witnessed more than once. After Jay Cooke had beaten Drexel and Company into second place in investment banking in Philadelphia, his unravelling came quickly when the Northern Pacific bankrupted him. It was natural that anyone who stepped into the breach caused by the lack of strong central government power should make sure there was something in it for them.
The profits made by bailing out the Treasury in 1894 were criticized but well earned. But it became clear that an emerging economic power could not leave its lender-of-last-resort functions to Wall Street. Even if the banking community looked after its own in reasonable fashion the conspiracy theorists would always rant about the concentration of economic power at the corner of Broad and Wall. One of the more disparaging nicknames hung on Wall Street's lapel was destined to last for decades. In the wake of the oil, steel, and tobacco trusts the so called "money trust," the lofty Wall Street group that controlled the financial system, were allocating credit at whim. This would prove a difficult characterization that would not be shaken off easily. During the panic of 1900’s" the notion would only pick up additional credence.
The stock market was approaching bubble like proportions in 1900’s. In 1901 the price of the Northern Pacific rose to over thousand dollars per share as J. P. Morgan bid the price up in an attempt to stop Jacob Schiff and Harriman from gaining a majority control. Subsequent market collapse piqued the anger of the New York pres-brought denunciations raining down on the heads of the trusts. The market had also been hard hit by speculation. In that plunge the share price of US Steel had dropped from the mid-fifties to less than ten dollars a bubble again began to expand and prices rose. The lack of a central bank became increasingly worrisome to almost all market operators. If the market fell, many banks would undoubtedly follow suit since they integrally involved in the market as either underwriters or investors. This-included the trust banks, a group of institutions separate from the commercial and investment banks. Trust banks were administrators of private family funds, money invested on behalf of estates, wills, and the like. Many of them made loans to market speculators, taking securities as collateral. If stocks fell, the trust bank would be severely hurt, as would their investors. Without a central bank no one would loan them money if a depositor's run developed they would need cash to prop up their positions under duress.
Wall Street began to recognize the problem, and the heads of banks wanted to assemble a pool of money to be used as a standby if it developed. They also had a substantial stake in the trust business. 7 years earlier, many of the New York banks had pooled their money and founded their own trust, the Bankers Trust Company, later to become a Morgan partner. Any vulnerability in the group was bound to have severe repercussions up and down the Street most had anticipated, the reaction came on March 13, 1907, when the market began to fall. The press was full of stories about bankers and deliberate attempts to make the market fall. Politicians, notably Roosevelt, also blamed the current economic concentration in the country. The next six months saw the market steadily erode. Then, on October 21, a run developed on the Knickerbocker Trust Company of New York. Depositors lined up in front of the bank's headquarters on the site of the future Empire State Building to demand their funds. Many of them were unsuccessful. The bank closed the next day after an auditor found that its funds were depleted beyond hope. The bank's president, Charles Barney, shot himself several weeks later, prompting some of the bank's outstanding depositors to commit suicide as well.
After the Knickerbocker failure, the Wall Street community, led by J. P. Morgan, put together a rescue package designed to prop up the other trust institutions. Morgan, Jacob Schiff of Kuhn Loeb, George Baker of the First National Bank, and James Stillman of the National City Bank banded together to ensure that the banking system remained intact. Schiff especially had been an advocate of banking reform for some time he thought banking was conducted to be nothing short of disgraceful. After the Knickerbocker failed, this group stepped in to prevent others from doing so. They met in New York with President Roosevelt's secretary of the Treasury, George Cortelyou, who provided them with Treasury funds of $25 million to keep the system from collapsing. The money was deposited in the national banks in New York with the intent of adding funds to a system sorely in need of more liquidity. It was the job of the large New York banks to apply the funds as they saw fit to prevent further panic and runs by depositors. In many ways the act was an extraordinary gesture Roosevelt had faith in Morgan. The Treasury of the largest emerging economy in the world had to transfer funds to private bankers in order to prevent a financial collapse. More than one detractor claimed that those bankers had orchestrated most of the panics themselves in order to make speculative profits. The panic of 1907 was nothing short of a massive conspiracy designed to ingratiate Wall Street to Washington and make more than a few dollars in the process. Many pointed to the profits made by the Morgan syndicate in the previous panic. One of the strongest proponents of the conspiracy theory was Senator Robert La Follette of Wisconsin. Described as one of the few U.S. senators who was not a million one who had not bought his seat. There was little doubt that Morgan would enhance his own reputation in the financial sector if it could be saved, but the handwriting was on the wall. Those favoring a central bank would now win the day, but it would still take several years to work out the details. After bailing out both the banking system and the NYSE, Morgan whom was deified in the press, was now being referred to as "our savior." He was portrayed now as having saved the country from the excesses of speculation. He was also portrayed as being above the common excesses of foreign traders and minor-league capitalists, all of whom were hell-bent on making a dollar regardless of the consequences. But Senator La Folier took a different tack. He suspected the Wall Street banking interest manipulating the crisis to their advantage from the very beginning. Pointing to the fiasco at the Knickerbocker Trust and the subsequent bail out of the Trust Company of America, La Follette presented a very different interpretation from that generally accepted. He blamed the run on Knickerbocker and the Trust Company on enemies of Charles Barr who wanted to ruin him. Morgan's reputation was only enhanced by a rescue package put together for New York city the depression and unemployment caused by ten months of market slide and bank failures had forced the city's back to the financial wall. The mayor appealed to Morgan, who agreed to underwrite a bond issue for New York for the required amount: $30 million. The 6 percent bond issue was successful, and finally, after several difficult months, the panic began to abate. Morgan was seen as the savior of the banking system, the stock exchange, and New York City all at the same time. So what is the ruling here was it Greed by J.P. Morgan and his associate bankers that brought down the financial system in the 1900’s. Was it also the same Greed that led him to help the US Treasury to restore confidence in the banking system? I make no verdict I am merely acting as camera recording events in time. Did Greed cause the crack in this current global financial system perhaps? But also did Greed build some of the great empires of the past? It is a philosophical question that may not have a black and white answer.
