April 17 is the birthday of one of America’s most infamous financiers, J.P. Morgan. With controversy whirling around the biggest U.S. banks in the presidential race, with one Democratic candidate trying to break them up and the other being financed by them, there is no reason not to remember the nation’s most important banker and to take a look at how JPMorgan Chase & Company might be split up.
There is little debate today as to the impact that Morgan had on America as a powerhouse financier. The process through which he obtained struggling businesses and made them more efficient was called “Morganization.” This was perhaps most evident in his creation of U.S. Steel, which in 1901 was the first company with authorized capital worth over a billion dollars. In 1985, Morgan, together with the Rothschilds, provided the U.S. Treasury 3.5 million ounces of gold to aid in recuperating the nation from the Panic of 1893. President Cleveland did, of course, offer a 30-year bond in exchange and was later criticized for this deal. Together with Thomas Edison, he also formed General Electric and financed Adolph Simons Ochs in the purchase of a struggling newspaper called The New York Times, which in 1896 became one of the most reputable news sources in the world.
However, in recent times, it is being discussed whether or not the American people’s tax dollars would be safer if the company was split up. David Shirreff, with The Atlantic, offers a blueprint to the break-up of this company that has become “too big to fail” and that many claim is simply too complex to manage. Shirriff suggests breaking the bank into three separate entities. The divisions would include an investment bank, a wholesale bank and a retail bank.
Through regulating these banks separately, taxpayers would be better protected in the case of another financial crisis, like that of a housing bubble. The investment bank could split off entirely and, as Shirriff explains, “JPMorgan’s creative investment bankers would relish the chance to turn the franchise into a partnership.” The most obvious reason for this is because it would provide them the opportunity to determine their own compensation. This bank would be regulated similar to that of a hedge fund and would not be allowed to access funds generated from taxpayers.
The wholesale bank would perform basic duties, such as “foreign exchange and interest-rate hedges.” The retail bank would then be restricted to small business and consumer banking services, with limited access to “high leverage or the big-scale securitization” lending. This would prevent the bank from failing, like Washington Mutual did in September 2008. The ultimate reason for this separation would be to limit the pressure on the insured banking system. By keeping these last two banks “boring,” if another crisis were to occur, there would theoretically be a limited effect on taxpayers.
Morgan was much more than one of the founding fathers of American financiers; he was also a philanthropist and famed art collector. He established The Morgan Library & Museum in New York where much of his collection is still on display. He was not the most beloved individual, was criticized for any number of business deals and battled labor issues regularly. He was even called before a Senate committee to testify as to the degree he might have contributed to the financial crisis in 1907. These hearings were seen as circus-like, with Morgan himself actually photographed in the courtroom with a Ringling Bros. performer who was only 21 inches tall. Similar hearings are something that splitting up JPMorgan Chase & Company could prevent.
Opinion by Joel Wickwire
Farlex – The Free Dictionary: J. P. Morgan
Federal Deposit Insurance Corporation: Failed Bank Information
Politico: Bankers for Bernie
The Atlantic: What Would Breaking Up the Banks Even Look Like?
The Smithsonia.com: The Man Who Busted the ‘Banksters’
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