Understanding Finance from scratch

Chapter 23 Those Who Shake Up the World—Know a little about international financial giants every day (2)
In 1869, 48-year-old Marcus Goldman, a descendant of German Jews, hung up the signboard of "Marcus Goldman & Company" in a narrow hut on Pine Street in southern Manhattan, New York.This is the predecessor of Goldman Sachs, whose main business is reselling commercial paper.At that time, some companies that were short of money would borrow money from wealthy jewelers and leather dealers, and set up a loan letter, and repay the money with the letter when the repayment deadline came.This kind of paper can be transferred. When it expires, the company will return the money to whoever holds the paper.This document is a commercial paper.

Gradually, Goldman began to realize that promissory note reselling, a humble business method, was far less profitable than the stock and bond underwriting business.In order to make the company bigger, in 1882, Goldman invited his son-in-law Samuel Sachs to join the company as a partner of the company, and changed the company's name to "Goldman and Sachs Company", that is, Goldman Sachs. Three years later, his son Henry Goldman also joined the company and became a partner.At that time, Goldman Sachs was a small family business bound by blood and in-laws and implemented a partnership system, that is, several members of the family partnered to jointly own the company's shares and share operating profits.Rothschild Financial Group, JP Morgan, and Lehman Brothers, which were established earlier than Goldman Sachs, also adopted this partnership management mechanism.

In the United States in the early 20th century, the investment banking business developed rapidly and played a very important role in the economic and even political fields.The large consortium represented by Morgan even once had the same influence as the President of the United States.Goldman Sachs, which is relatively weak, did not miss the rare development opportunity. In the past 30 years, it has cooperated with Lehman Brothers and completed 56 securities underwriting operations for 114 companies.

It is worth noting that Goldman Sachs has always implemented the partnership system. In Goldman Sachs' hierarchical system, becoming a partner is an important step in promotion.Among the more than 2 employees of Goldman Sachs around the world, only more than 200 can become partners. Their annual salary can reach more than 60 US dollars, and they can participate in the company's dividends.Partners are re-elected every two years, competition is fierce, and most partners serve short terms.This competition is intensifying.In the 20s, the average tenure of a Goldman Sachs partner was 80 years; now it is just 10 years.Intense competition makes Goldman employees work extra hard.Often when other Wall Street banks think of calling on a client, Goldman Sachs has already done so.

Under such a system, the selection of partners once every two years has become a very serious matter, often lasting seven months. Each of the 2 employees wanted to be one of the 7 middle managers, and each of the 2.4 wanted to be one of the 1200 partners.And these 1200 people, with an annual salary of more than 300 US dollars, can also participate in the company's dividends.The characteristics of this mechanism ensure that all Goldman Sachs employees work hard to make money while maintaining a high degree of supervision over the common interests.

A partner once explained the partnership system of Goldman Sachs in this way: "Goldman Sachs looks like there are fifty or sixty small departments operating, and they have full freedom to do what they want. The only way to prestige is business success, and the means to gain economic and spiritual interests is mutual cooperation."

In this way, Goldman Sachs successfully operated under the partnership system for many years.However, in 1998, when the merger of the financial market put Goldman Sachs in an unfavorable competitive position, and the development of Goldman Sachs business required more funds and better financing channels, Goldman Sachs gave up the partnership in due course and transformed into a listed company.

However, Goldman Sachs has become well-known in recent years, mostly because of various troubles and accusations. It is suspected of defrauding investors in product transactions, causing investors to lose about US$10 billion.The Goldman Sachs fraud case also reached a settlement with the SEC.

In the end, Goldman Sachs agreed to pay $5.5 million in fines and compensation to the U.S. Treasury Department and several potential victims to settle the "fraud gate" charges brought by the U.S. Securities and Exchange Commission (SEC), which also set a record for a single Wall Street company. A new record for fines.For Goldman Sachs, $5.5 million can only be regarded as "small money". What is more worrying is that Goldman Sachs' business model is under pressure.The intense investigation into conflicts of interest will result in the firm not being able to juggle its clients and its own interests as well as it once was, as it can no longer act as an advisor, financier and market maker to clients while actively investing for itself.The provisions on securitization conflicts of interest in the US financial reform bill are tailor-made for Goldman Sachs.

On September 2008, 9, the U.S. Federal Reserve Board took the extraordinary step of approving the transformation of Morgan Stanley and Goldman Sachs from investment banks to traditional bank holding companies.This is a historic turning point for Wall Street and the global financial market—this means that the world's No. 22 and No. 2008 independent investment banks will also become a mixed banking institution.Goldman Sachs' century-long glory as an investment bank has become a piece of history in this eventful autumn of [-].Recently, Goldman Sachs quietly purchased a certified storage company of the London Metal Exchange (LME), and a new round of counterattack is brewing.And let us wait and see!
Morgan Group: Wall Street's "Napoleon"

In 1861, when the Civil War broke out in the United States, the old Morgan took the opportunity to sell all kinds of guns and ammunition to the government and made a lot of money. These accumulations became the capital for the Morgan consortium to expand in the future.During the First World War, Morgan & Co. used its relationship in Congress to exclusively arrange the financial business of the United States to Western Europe.Morgan & Co. successively raised US$30 billion in war debt for the British and French governments, and the commission for this alone made a profit of US$3000 million.In World War II, the Morgan Consortium was the government's largest arms contractor.

It was precisely the lobbying of arms dealers headed by the Morgan Consortium in Congress that finally led to the US government passing the "Lend-Lease Act" to allies. In the "World War II", the United States provided its allies with weapons and resources totaling nearly one trillion U.S. dollars in principal and interest according to the Lend-Lease Act. Who knows how much the Morgan Consortium has earned in it? After the "Second World War", the Morgan consortium has never stopped the arms business.In the wars that the U.S. government waged around the world after the war, there were weapons bought by the Morgan consortium everywhere. After the outbreak of the Vietnam War, General Electric, a subsidiary of the Morgan consortium, received orders worth US$1967 billion in 14 alone. .

The reason why such a story is chosen to start is because such things have appeared many times in the history of the Morgan consortium.

The relationship between power and wealth has always been inseparable, and the political impulse of the Morgan consortium has always been perfectly combined with profitable opportunities.

Morgan Sr., the founder of the Morgan Consortium, was born into a financial family. Both his grandfather and father have been engaged in banking and insurance. Over the past 150 years, the old Morgan and his descendants have been very good at using politics and power tactics to achieve economic goals, which has allowed the Morgan consortium to expand rapidly and become a financial hegemon that dominates Wall Street and the world: During the two world wars, Morgan has become a take-all winner beyond the two warring parties; in the two economic crises that destroyed the world, Morgan brought the US economy back to life twice; until today, in the 2008 global financial turmoil, Morgan expanded his sphere of influence...

Morgan has made many presidents and billionaires around the world their pawns and tools; Morgan has created a precedent for people other than family members to serve as CEO, and has become a model for family businesses to last forever; as the world's first electric lighting Edison himself was the electrician who installed the lightbulbs in his family; and the headquarters of the old Morgan has been located at the corner of Wall Street in a very low-key way, and it doesn’t even have a signboard.

In the early 20th century, Morgan Sr. put Theodore Roosevelt on the presidency.In order to repay the favor, this Roosevelt administration followed the instructions of the Morgan consortium everywhere.President Woodrow Wilson was also able to overwhelm his opponent to power with the support of the Morgan consortium.The Morgan consortium would later push this U.S. government into World War I.Herbert C. Hoover was pushed onto the political stage by the Morgan Consortium, and eventually became the spokesperson of the Morgan Consortium and the President of the United States. In the 20s, in the Truman administration, the three successive secretaries of state were all involved with the Morgan consortium.All three secretaries of defense in the Eisenhower administration had close ties to the Morgan consortium.Because the Morgan consortium firmly controlled the government in the first half of the 50th century, it was able to receive various economic protections and obtain a steady stream of government orders, thereby reaping huge profits.

The main forces of the Morgan Consortium are concentrated in Western Europe and Canada, but in the era of colonialism in the 19th century and the first half of the 20th century, the Morgan Consortium also expanded into those backward countries in Asia, Africa and Latin America.For example, during the period of the Qing government in our country, it once obtained the right to build the railway from Guangzhou to Hankou, but later gave up because of the massive protest movement launched by the Chinese people.But the Morgan consortium still took the opportunity to claim more than US$600 million in compensation from the Qing government.The Edison Light Bulb Factory, Shenchang Foreign Firm, and Steel Car Company established by its subsidiaries in old Shanghai were all well-known enterprises on the beach at that time.Of course, the economic interests and various privileges of the Morgan consortium in China disappeared with the establishment of New China in 1949.

The Morgan consortium took advantage of the economic crisis in 1893 to obtain the exclusive right to build railways leading to the western United States, thus controlling 30% of the total length of American railways. In 1901, it acquired 13 more steel companies, forming the world's largest steel industry monopoly organization. At that time, some of the world's largest steel companies (such as U.S. Steel) were under the control of the Morgan consortium.Before the Second World War, it had dominated the financial industry and the steel, electrical, transportation, telecommunications and other sectors of the United States, with total assets of 300 billion U.S. dollars, accounting for half of the total assets of the eight largest consortiums in the United States at that time. The giant chaebol, whose power has reached its peak.

After the end of the "First World War", with the United States becoming a big creditor country, the tide of business mergers rose again.By 1923, this wave was advancing more rapidly. In the first year of the world panic (1929), how was the financial capital of the Morgan system allocated?The Morgan family system includes Bankers Trust Company, Guarantee Trust Company, and First National Bank, with a total capital of $34 billion.

The Morgan Alliance has a total capital of more than 48 billion US dollars and is composed of the National City Bank and the Contract National Bank. The Morgan Alliance and the Morgan family are collectively known as the Morgan Alliance.In the Morgan Alliance, with Morgan Corporation as the axis, the chain leadership of directors is carried out, and the main financial institutions with less than five major financial capitals and more than 20 are connected with each other, thus forming a huge and well-organized "Morgan System".This financial group occupies 33% of the financial capital of the United States, with a total value of 200 billion US dollars!There is also 125 billion US dollars of insurance capital, accounting for 65% of the US insurance industry.

In fact, in the history of the development of the Morgan Consortium, there have been several economic crises, but the Morgan Consortium has been constantly looking for "opportunities" in panic. As a result, it has not only survived the crisis, but even found opportunities to make profits from it.

The "economic panics" that occurred in the United States in 1837, 1857, 1873, and 1893 were the result of "bankers' regular loosening of monetary policy, waiting for the overheating of the economy to produce severe bubbles, and then shrinking monetary policy."The financial oligarchs are accurately calculating the time and expected results of the financial crisis: "First, it must be able to shock American society, let the facts show how fragile American society is without such a central bank; second, it must be able to squeeze out and annex small and medium-sized competitors Opponents, especially trust and investment companies that are eye-catching; the third is to get the long-coveted enterprise or industry."

In the months leading up to the crisis of 1907, the "Morgans" in New York had been vacationing between London and Paris, meeting with major international bankers.When they returned to New York, in October 1907, rumors about "several important investment companies going bankrupt" quickly spread like a virus, and there was a "running wave", a severe shortage of cash, and banks also demanded immediate repayment of loans from investment companies, and the crisis began The outbreak broke out, and by October 10, the New York Stock Exchange was almost suspended.

At this time Morgan appeared as the savior.The chairman of the New York Securities and Exchange Commission came to Morgan's office and begged him to help solve the financial difficulties, otherwise the stock market would be closed, and there would be no other way.After a meeting, 16 million US dollars was raised in 2500 minutes to "issue loans at high interest rates to solve the shortage of funds", saving the "New York Stock Exchange".But eight banks and trust companies failed.Morgan went to New York to clear the bank, using "bills issued" as a temporary currency in response to severe cash shortages.

Then, on November 11, in the same way, "Morgan" tried to save the "Mooresley" company (which is the main creditor of the Tennessee Mining and Steel Company and owns iron mines and mines in Tennessee, Georgia, and Alabama) coal resources) proposed a "package plan", which would greatly strengthen the monopoly position of "U.S. Steel Corporation" under the control of Morgan.But this plan must be approved by the president to escape the constraints of the Monopoly Act.So on the night of November 2 (Sunday), Morgan sent people to Washington to persuade President Roosevelt, who was "unambiguous about antitrust": "Be sure to approve the "Save Morse" before the New York stock market opens on November 11. "The Lay Company Package" came into effect. Morgan's attitude is very clear, that is, it must be approved on time.

As a result, in the face of a huge financial crisis, and taking into account the crisis that the political crisis would have on the presidency, the president was forced to sign the city-under-the-city alliance 5 minutes before the market opened on Monday.The stock market rallied on the news that day.

Every financial crisis is a long-planned and precisely targeted explosion, and new financial buildings are always built on the ruins of thousands of bankrupts.At that time, Morgan bought the "Tennessee Company" at an ultra-low price of 4500 million U.S. dollars, and its actual market value was more than 10 billion U.S. dollars.

(End of this chapter)