Legends Of Finance: The Good, The Bad And The Ugly
This week we’re doing something a bit different. We’re taking a leap back in time to look at the lives of legendary financiers – people who have shaped the history of finance, and the general public’s perception of our world.
Mayer Amschel Rothschild
Rothschild (1744–1812) was the “founding father of international finance”. As a young man, Rothschild became a dealer in Frankfurt, buying and selling rare coins. Business expanded rapidly following the French Revolution, when Rothschild handled payments from Britain for the hire of mercenaries. In 1798, he dispatched his third-born son, Nathan, to England to further the family interests. Soon he sent his youngest son, Jacob, to Paris, creating the world’s first international network of banking services. By the early 19th Century, Rothschild began to issue his own international loans. After Napoleon invaded Germany in 1806, Rothschild moved his funds to London and profited from importing goods in circumvention of Napoleon’s continental blockade.
John Pierpont Morgan (1837–1913) looms large in the imagination, a man who helped to transform American business and ultimately make the United States the world’s largest economy. His achievements include the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric. During the Progressive Era, Morgan exerted huge influence over large corporations and even finances of the nation. He left en estate of $80 million, prompting John D. Rockefeller to say, “he wasn’t even a rich man”. And let’s not forget Morgan’s son, John Pierpont Morgan Jr, who guided the family business into one of the world’s leading financial institutions. J.P. Morgan Jr positioned his company as the leading broker for financing to foreign governments both during and after WWI. As sole munitions purchaser during WWI for the British and French governments, J.P. Morgan & Co received a 1% commission on $3,000,000,000, pocketing a cool $30,000,000 in fees.
More infamous than famous, Ponzi (1882-1949) is synonymous with financial crime. Born in Italy, he hit the headlines in 1920s as a con artist in the United States. The deal was simple – he promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. In truth, he was paying earlier investors using the investments of later investors. After a year, the house of cards collapsed, losing investors over $20 million. We should note that Mr. Ponzi did not invent the so-called Ponzi scheme – that dubious honour belongs to William Miller, a bookkeeper from Brooklyn who used the same scheme to swindle $1 million from investors in 1899.
George Soros is the man who supposedly “broke the Bank Of England” with a huge short sale of Sterling (worth $10 billion) during the 1992 Black Wednesday UK currency crisis, resulting in a whopping $1 billion profit. One thing is certain – he is one of the most successful investors in the world, with a net worth of $25.2 billion. He started his first hedge fund, Double Eagle, in 1969, and later came Soros Fund Management, in 1970. Soros attributes his success (in part) to Karl Popper’s General Theory of Reflexivity, which he has applied to capital markets in order to identify asset bubbles, value discrepancies and the fundamental value of securities. He is famous for giving back, too, pursuing progressive and liberal causes, and playing a role in the peaceful transition from communism to capitalism in Eastern Europe in the late 1980s.
Enter the Junk Bond King. Michael Robert Milken is associated with money, crime and charity. He practically created the high yield bond market, becoming the epitome of the 1980s greed is good era. Milken’s compensation in the late 1980s exceeded $1 billion in a four-year period. However, in 1989 Milken was indicted for racketeering and securities fraud and was sentenced to ten years in prison, fined $600 million and permanently barred from the securities industry. Since leaving prison, Milken has founded the Milken Family Foundation and donated significant amounts to cancer research and other healthcare initiatives.
Perhaps the quintessential swashbuckling corporate raider, Icahn began as a stockbroker, before forming Icahn & Co in 1968 with a focus on risk arbitrage and options trading. A decade later, he started taking controlling positions in individual companies and become known as a “raider” after his hostile takeover of Trans World Airlines in 1985. He soon sold TWA’s assets to repay the capital he borrowed to buy the company, an act that has become known as “asset stripping.” The deal netted him a personal profit of $469 million. Today, Icahn has a net worth of $15.9 billion, making him the world’s fifth wealthiest hedge fund manager.
Warren Buffet is an investment legend who has based his investment philosophy on value investing, earlier pioneered by Benjamin Graham. After meeting wingman Charlie Munger, Buffett created the Buffett Partnership. His firm acquired a struggling textile manufacturing firm called Berkshire Hathaway and transformed it into a diversified holding company. The rest is history. Right now the “Sage of Omaha” is the second wealthiest person in the US and the fourth wealthiest in the world, with a net worth of $76.5 billion. Buffet has pledged to give away 99% of his fortune to philanthropic causes, mainly via the Bill & Melinda Gates Foundation. What a guy!
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These bankers and investors are all legendary in their own right, operating against the backdrop of war, peace and everything in between. What binds them together is their commitment to innovation. Throughout the ages, financiers have pushed the boundaries of what’s possible in order to get deals done. It’s sad and unfair that the behaviour of the few colours the perception of the many, but that’s the nature of the business. Now a new breed of financiers is picking up the mantle from the likes of Buffet, driving the global financial economy forward and creating new legends.