Character and Credit – JP Morgan

After the near collapse of the stock market of 1907, many in Washington felt that J.P. Morgan wielded way too much power because of his bank. It was Morgan that loaned money to banks and propped up bonds in order to keep the stock market from totally collapsing that year. It led to the formation in 1913 under president Woodrow Wilson of the Federal Reserve Act and the Federal Reserve Board. This system utilized multiple private banks and a central board in Washington to ease the public reliance on any one private bank in times of emergency. It was to take the place of the Morgan bank and provide economic stability. In 1912 JP Morgan was called to testify before the House Banking and Currency committe regarding the amount of power he wielded as a world banker. These were called the Pujo Hearings. This exchange was between Morgan and Samuel Untermeyer and presents the premier banker’s attitude regarding credit.

Untermeyer: Is not commercial credit based primarily upon money or property?
Morgan: No sir. The first thing is character.
Untermeyer: Before money or property?
Morgan: Before money or anything else. Money cannot buy character. A man I do not trust could not get money from me on all the bonds of Christendom.

Credit comes from a word that means to believe. It makes sense then that character is more important than money or property. Character is at the root of trustworthiness. Trustworthiness is at the root of credit worthiness. Credit is a powerful ally, but an unforgiving enemy also. Understand the proper uses of credit.