In the 19th century, the trade with between the European continent and America was booming.
This led to the emergence of an international commerce for physical commodities that deals in (specific grades and origins, quantities, delivery prices and payment conditions) and the need for the purchase and sale commitments for delivery in the future, rather on the spot.
With seaborne trade in particular, the buyer would know in advance what the commodity were like, the quantity available and at a specific location – but not without uncertainty about quality the exact timing of the delivery.
For instance, buyers could purchase such commitment in the expectation that prices would go up- The contract could then be resold at a profit at the port of delivery.
Likewise, sellers could sell the contract in the expectation that the price would fall and that they would be able to purchase back their delivery obligation at a lower price, thereby making a profit.
J. Pierpont Morgan, a commodity trader
A local sea captain was stuck with a ship of coffee and no buyers. An immediate action was required or the coffee would spoil.
Using the firm’s money, J. Pierpont Morgan purchased the coffee and sold it to New Orleans Merchants. He pulled it off, managing to turn a little tiny profit in the process.
In New York, the partners of the bank weren’t impressed.
They were angry and thought the venture was risky. But Morgan believed that fortune smiled on those who acts fast. He believed that his instinct about people would always make him a winner.
J. Pierpont Morgan engineered what was the 1st in-kind bailout of the history.
It is a fantastic banking, finance, monetary policy and historical perspective from the United States…
Banks have many roles-Funding is only one of the services that bankers offer to the economy.
Banks also make dialogues between the governments and the agents in the economy. A strong & vibrant banking industry contributes effectively to stability.
1861 to 1865. Tumultuous times in the Union.
Morgan avoided the civil war but it is also during these times that he developed remarkable skills in the business world that would play a determinant role in the future of the United States.
In 1873, the post-war railroad boom triggered a series of bank failures and a run on gold.
Without gold, the capacity of the young nation to repay its debt was meaningless.
All along the 19th century there is a constant capital outflows from Europe to the United States.
The British banks, heavily invested with American assets, became alarmed and started withdrawing even more gold.
The market was broken.
J. Pierpont Morgan promised to form an international syndicate to buy gold and protect the Treasury from further withdrawals.
As he saw it, his efforts to stem the drain, avert default and restore confidence in the dollar would protect the billions invested in the U.S. and restore the channels for foreign capital.
President Grover Cleveland decided instead to compel Congress to authorize gold bonds for sale.
However, by the time the President would get the authorization and start selling the bonds it would be too late.
J. Pierpont found a loophole.
As the situation worsened, Morgan told the president he had located a still-valid 1862 law, passed during the Civil War, that authorized the Secretary of the Treasury to issue bonds to buy gold coins without having to get congressional approval.
Pierpont brokered the deal, protected the interests of the nation and made money in the process.
J. Pierpont, the most ferocious bulldog that ever existed or the benevolent patriot and business genius ?
Admire the picture:
The author has many years of experiences in Commodities Transactions, Financial & Risk Analysis bringing together the know-how of the Dry/Wet Cargoes Transportation and the Commodity Trade Administration.
He consults full-time with hedge, traffic and logistics desks in commodity trading and end-user firms.
Contact Simon Jacques 1 226 348 5610
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