Above photo: JPMorgan had enough money that he didn’t need to swing a stick at American democracy. But sometimes, he did it anyway.
We don’t speak of the “Money Trust” in the 21st century. But perhaps we should.
These two words had a powerful resonance in the early decades of the 20th century as a label for the tiny number of rich Americans who used their dominance of finance to seize control of vast swaths of industry like railroads, metals, petroleum, to name but a few. Today, their names – the Morgans, the Mellons – can possess a certain ageless, almost noble echo thanks to the passage of time and decades of strategic philanthropy.
But back then, their critics, and they were numerous, verily spit out their names in disgust. The address of J. Pierpont Morgan’s bank, on New York’s famous road of finance, loomed large enough in the public mind that no less than Franklin Delano Roosevelt could promise in 1933 that his cabinet would include “no one in it who knows the way to 23 Wall Street.” FDR’s New Dealers and their heirs knew full well who their antagonists were, and unlike many politicians today, felt no obligation to praise their savvy, intelligence, or far-sightedness.
In his carefully researched manifesto, Goliath: The 100-Year War Between Monopoly Power and Democracy, Matt Stoller reminds us that Americans are heirs to a magnificent tradition of valuing self-government over the power of big-ness, and he seeks nothing less than the recovery of the American antitrust tradition at its apogee. The first task of the original anti-monopolists was to splinter the trusts that had seized control of the commanding heights of the American economy a century ago. But they would later apply themselves, with considerable success, to the enduring challenge of preventing concentration in the first place. And the United States was a better country for it.
As a pejorative, “monopoly” rolls uneasily off the lips today because we are a century removed from the “trusts” as formally organized legal entities, and because it seems to imply that one person or company controls everything in a particular sector. But this is not a board game. Though true monopolies do sometimes appear, the real issue is the concentration of power, and the implications for democracy.
Large corporations might not control every aspect of their respective industries, but they are powerful enough to thwart competition and head off political solutions to the problems they create for the rest of us by warping democracy itself. The cry of anti-monopolists harkens back to the Jeffersonian promise of America’s founding by arguing that a measure of democracy, a decentralization of power, must obtain in the economic sphere, lest we be left with a miserable and unfulfilling version of self-government.
Whenever this democratic dystopia emerges in American history, the Money Trust is at the center of the story as the entity that parasitically manipulates the nation’s productive assets by applying the extractive instincts of finance to industry. In the book, Stoller focuses on the case of Andrew Mellon, the financier-industrialist who came to control a network of banks and industrial companies (notably Alcoa, the aluminum manufacturer) before becoming Secretary of the Treasury. From that perch, Mellon pulled the strings to further enrichen himself until Rep. Wright Patman of Texas, the dogged hero of Stoller’s book, exposes Mellon’s conflicts of interest.
If we squint our eyes a bit at this portrait of days past, swap out the old names for some new ones, and take account of the financier’s penchant for rebranding, then a disturbingly familiar picture to anyone living in the early 21st century emerges from the early chapters of Stoller’s book. The Money Trust may no longer be synonymous with Mellon or Morgan, but it is upon us again.
The giants of American finance today are largely roll-ups of many smaller banks, usually with a century-old entity at their core: JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, and of course Citigroup, the firm on whose behalf the Clinton administration swept away the vestiges of New Deal reforms that separated commercial and investment banking. Chart the size of American banks and you’ll have a hockey stick, with thousands of small players with less than $10 billion in assets and then and a dozen or so behemoths occupying the field, the largest with assets approaching $3 trillion.
Banks, despite some aggressive and shady efforts, don’t directly control industrial assets today, but they have extremely close relationships with the entity that increasingly does, private equity. These firms, with names like Blackstone, Bain Capital, KKR, Carlyle, and Apollo Global Management, followed the Money Trust’s traditional approach of snapping up real assets when the economy was depressed, and money was cheap. Since 2008, private equity (the opposite of the transparent public markets the New Deal created) has exploded in size and scope, as these firms have used multi-billion-dollar funds and leverage to extract wealth from sectors as diverse as housing, health care, predatory lending, and retailing.
Stoller’s book will make you shake your head, if nothing else for the reminders that the Money Trust seldom invents scams anew; it merely reconditions them for successive generations. (The phrase “financial innovation” should raise the hackles of anyone with the slightest sense of history.) Speaking of one powerful bank in the early 1930s, Stoller writes: “its tricks were no different than anyone else’s: holding companies, insider trading, tax loss avoidance strategies, and organizing the control of corporate assets with large amounts of borrowing.” That was the House of Morgan back then. Today it is private equity.
Though Stoller doesn’t dwell on the details, the original private equity deal (best described, then and now, as a leveraged buyout) was a straight-up inside job of looting a going concern, Gibson greeting cards. William Simon, a former Nixon administration official, and his partner seized control of it by laying out $330,000 each and borrowing the rest of the $80 million purchase price. They immediately paid themselves a special dividend, made $4 million by dumping the company’s real estate, bribed management with blocks of shares, and then sold the company into a bull market for $270 million. Simon made $70 million, while Gibson got the debt. Eyes popped on Wall Street not because this company was more productive, efficient, or innovative after than before but because the transaction made its masterminds stinking rich.
Like Andrew Mellon, today’s combination of bankers and buyout moguls have wormed their way into government or used their enormous wealth to bend it to their will. The list is long. Two Treasury secretaries of recent vintage came from Goldman Sachs, another from Citigroup. The top Federal Reserve official for banking supervision was a private equity executive. The chairman of the Securities and Exchange Commission was Goldman’s lawyer. Blackstone’s CEO, Stephen Schwarzman, is an adviser and supporter of President Trump and, like other financiers, disburses cash liberally into election campaigns.
Will the phrase Money Trust make a comeback? Probably not. “Wall Street” has embedded itself as today’s metaphor for this industry in today’s vernacular. And it’s true that there is no small coterie of financiers who single-handedly create today’s monopolies or regulate finance itself, as the original Morgan in fact once did. But as Stoller demonstrates, history doesn’t have to repeat itself precisely for monopoly power to have the same corrosive effects on our democracy that it did a century ago. In the coming decades, any true small-d democrat in the United States will have to be an anti-monopolist too.