A Man for His Time and Place
Vol #76 - April 8th, 2022
“Sometimes, there's a man, well, he's the man for his time and place.”
The “Dude” from the Big Lebowski was certainly the man for early 1990s Los Angeles. Jeff Bridges' character fell into a rug drama accidentally, but in the world of finance you have many competitive characters actively vying to be that man.
2022 might seem like a bingo card from the third dimension, but the role that powerful and charismatic figures play in finance has a long and significant history. What today is battery powered cars and rocket ships, yesterday was railroads and bullion.
His name rings as a staid institution of banking today, but James Pierpont Morgan was a swashbuckling force of nature who dominated late 19th and early 20th century deal making. Born into a successful family, he was able to leverage these connections to bring European investment capital into his newly established banking firm as a twenty something entrepreneur.
As the railroads boomed, he positioned himself at the nexus of this activity, assisting Cornelius Vanderbilt with a massive share transaction in 1879, and then a year later leading the largest bond offering in history for the Northern Pacific Railroad. He helped reorganize a number of other outfits, and launched the first conferences to promote industry coordination.
JP Morgan was known for exerting his will through strong negotiating techniques on several occasions. When the owners of the New York Central and Pennsylvania Railroad were feuding, he locked them on his yacht and sailed around Manhattan until they could come to a deal.
When investments in Argentina, South Africa, and Australia started to go sour in 1893, it set off a run on US bullion, fearing the contagion would spread. This sparked bank runs, and US Treasury holdings in gold reached dangerously low levels for a currency still backed by hard money.
JP Morgan cornered himself in front of newly elected President Grover Cleveland and convinced him that the only way to stop this panic was a purchase of gold from the Rothschilds. This could all be executed using an obscure Civil War statue that allowed for a direct sale to the Treasury, and gave Morgan’s syndicate deeply discounted bonds which they were able to flip only a few years later for a large profit.
The yacht trick came in handy during the Panic of 1907, when Morgan was again positioned as the sole potential savior of the US economy. In all night meetings locked in his library, he brokered a deal to shore up the weakest companies, and again convinced a sitting President to set aside regulation (The Anti Trust Act) to allow for this deal in the minutes before the stock exchange opened.
Fast forward one hundred years, and the man who rules financial markets and skirts regulation wears not a top hat, but smokes pot on podcasts.
Everybody knows that Elon Musk loves to play games. He shot a fake astronaut in a Tesla roadster on the maiden voyage of a Falcon Heavy rocket at SpaceX. 20,000 “Not a Flamethrowers” were sold by the Boring Company. He taunts the SEC repeatedly.
His favorite game is Twitter, as this is where he speaks directly to his enthusiastic supporters and fervent detractors. Musk has used the platform to criticize (ridicule?) politicians, influence (manipulate?) the price of Bitcoin and Dogecoin, and announce important (fictitious?) deals.
If you have a bottomless checkbook ($290 billion and counting), why not spend a little pocket change to buy a piece of your favorite game? Slicing off about 1% of that purse, Musk decided to announce his acquisition of a 9.2% stake in Twitter earlier this week, with the loudly declared intention of adding an edit button.
This captures the sentiment of investing today perfectly. The irreverent bound breaking style of executives like Musk speaks to not just an array of retail investors, but institutions too. Deep pocketed venture capitalists and staid capital gatekeepers talk about disruption and regulatory arbitrage with straight faces ringed by Hermes ties.
Facebook moved fast and broke things (irreparably?), and the last decade has been about faking it until you make it, and then faking it some more. Investors want a story to believe, to see a disruptor upend the status quo.
This season’s TV lineup has WeCrashed, SuperPumped, and TheDropout, about WeWork, Uber, and Theranos. Nothing is more compelling than a larger than life figure who then ultimately fails. When the candle burns too bright, the zeitgeist turns to schadenfreude.
Financial markets (and their meme masters) have internalized the lesson that it is better to ask for forgiveness than permission, and the best practitioners of this have been rewarded handsomely.
When Coinbase wanted to add a high interest lending product, they approached the SEC and were chided for their insolence. BlockFi has been offering this since 2017, and while they were slapped on the wrist by state and federal regulators in the form of $100M fine; they received something invaluable in exchange - regulatory clarity.
The techniques for capturing and wielding power have changed dramatically over the years. Perhaps that’s why many bristle so much at the way that Elon carries himself. Maintaining that power is about being perfectly in sync with your time and place, and making yourself too big to ignore. Let the gravity of your nature bend the rules in your favor.
Morgan and Musk perhaps have more in common than just their outsized influence and personality. JP Morgan was an early investor in Nikkola Tesla’s project to build a transatlantic wireless communications system. Rather presciently, Tesla got distracted by another project, and Morgan never followed on with more capital.