“The men who through their control over the funds of our railroads and industrial companies are able to direct where such funds shall be kept and thus to create these great reservoirs of the people’s money, are the ones who are in position to tap those reservoirs for the ventures in which they are interested and to prevent their being tapped for purposes of which they do not approve. The latter is quite as important a factor as the former. It is the controlling consideration in its effect on competition in the railroad and industrial world.”
HAVING YOUR CAKE AND EATING IT TOO
But the power of the investment banker over other people’s money is often more direct and effective than that exerted through controlled banks and trust companies. J. P. Morgan & Co. achieve the supposedly impossible feat of having their cake and eating it too. They buy the bonds and stocks of controlled railroads and industrial concerns, and pay the purchase price; and still do not part with their money. This is accomplished by the simple device of becoming the bank of deposit of the controlled corporations, instead of having the company deposit in some merely controlled bank in whose operation others have at least some share. When J. P. Morgan & Co. buy an issue of securities the purchase money, instead of being paid over to the corporation, is retained by the banker for the corporation, to be drawn upon only as the funds are needed by the corporation. And as the securities are issued in large blocks, and the money raised is often not all spent until long thereafter, the aggregate of the balances remaining in the banker’s hands are huge. Thus J. P. Morgan & Co. (including their Philadelphia house, called Drexel & Co.) held on November 1, 1912, deposits aggregating $162,491,819.65.