Gentleman Bankers

What was the world of banking like 100 years ago? You can get one idea through reading the new book Gentleman Bankers: The World of JP Morgan by Susie J. Pak. There was high finance pre-Depression that included large underwriting for countries around the world. Underwriting syndicates were made and capital flowed with major all getting done through strong cooperation across firms. there was competition but a sense that help was needed to raise the amount of capital needed by borrowers. Unfortunately, theses gentleman bankers were not always gentlemen with biases, racism, anti-semetism and a clubbiness which excluded many from the inside workings of Wall Street.

While I have often taken the view that relationship banking would be good for finance over the transactional banking of today, reading Pak's book makes you think that anonymous banking is fairer for the outsider. Without question, Pak's book suggests that trust drove transactions even when there were social biases and exclusionary practices.

For today, the need for trust in finance is even more important. The trust between Main Street and Wall Street is at a low and the trust between broker and investor is no better. The trust across boarders between finance ministers or central bankers is no better. Policy cooperation is low. Globalization cannot occur without trust in institutions. Finance is a business of trust regardless of who is doing the business and trust cannot be regulated or controlled by law. We contract today for cash flows in the  distant future. All contingencies cannot be written into a contract nor can all clauses be enforced without trust. It can only be learned and experienced over time through  repeated interaction. It is hard to gain and easy to lose, but without trust all of the legal documents signed at a law office are worthless.