J. P. Morgan

We'll be focusing mostly on LBOs today as that's what most people mean when they talk about private equity, and there's a long history of transactions like this as people have been borrowing money to buy out businesses as long as businesses have existed.

J. Pierpont Morgan's acquisition of Carnegie Steel in 1901 for $480 million is considered the first true major buyout, and the first leveraged buyout was the purchase of Pan Atlantic Steamship Company and Waterman Steamship by McLean Industries in 1955. where the buyer borrowed $42 million for the transaction and were able to pay off $20 million of that debt as soon as the transaction closed using the cash and assets of the acquired companies.

Up until the 1980s, the LBO remained an obscure financing technique as since the Great Depression, companies had kept their debt loads low.

Robin Wigglesworth described in the FT how KKR's 1978 purchase of Houdet Industries using only $1 million in equity for the $380 million purchase was private equity's genesis moment.

I

mean, he's the equivalent of the, you know, the J.P. Morgans, the Rockefellers.

You know, the people that built the country.

Yes, they're all evil.

But the U.S. didn't have any royalty.

So when new industrialists rose up, like Rockefellers, Carnegies, J.P. Morgans, Harrimans and all that, was no one you know against them no royalty against them so they just when workers tried to rise up and get free health care national health care and for your media they were just squashed and so uh that's why the us is so behind you know in those kinds of you know areas the European countries.

In the US, you had all these Rockefellers, Harrimans.

JP Morgan's Julius Pierpont is John Pierpont Morgan's name.

I mean, they have their own armies, drone armies, high-end robotics, satellite systems, Starlink, and... geopolitically all of the, you know, this is the most powerful group of people that has ever lived.

I mean, even more powerful than like, The robber barons, the JP Morgans, these people have access to technology that is way far beyond anything that private citizens have ever had access to.

And they have more data and information on people, including their own leaders, than anyone has ever had.

And it has made them godlike and omniscient.

It's Jay Cooke, the dominant financier of the era.

He was John Pierpont Morgan before John Pierpont Morgan was anybody.

So it's such a psychological shock that this shock that first maybe starts in Europe and ricochets over to the US, then ricochets back to Europe and it starts feeding on itself and just becomes an epic financial crisis, one of the biggest we've seen in the world, and it leads to this very long, nasty recession.

Which became known as

You don't really know much about him these days because he's kind of in popular consciousness.

John Pierpont Morgan became the big American... that exemplified American banking.

But really, Jay Cooke was the daddy.

He was the guy that single-handedly helped finance the North's victory in the Civil War.

You remember the era of the robber barons? Yeah, that's the Rockefeller, Andrew Carnegie, Cornelius Vanderbilt, J.P.

Morgan era.

This is the late 1800s.

And you look at how much power they yielded.

Andrew Carnegie built Carnegie Steel.

Vanderbilt dominated U.S. shipping.

J.P. Morgan, the financier who bought out Carnegie Steel, performed U.S. Steel, even bailed out the government in the early 1900s.

They wielded so much power, so much influence.