There are good reasons why JPMorgan Chase (NYSE:JPM) is one of the most respected banks in America today. Long before it played its helpful role during the recent financial crisis, when it acquired Bear Stearns and Washington Mutual to prevent them from failing, JPMorgan played a central role in the industrialization of the American economy during the Gilded Age.
The Motley Fool's Gaby Lapera and John Maxfield discuss this in the video below, explaining the specific ways that JPMorgan helped the United States to eventually eclipse the United Kingdom as the most powerful economy in the world.
A transcript follows the video.
This podcast was recorded on March 28, 2016.
Gaby Lapera: So we have this first component of banking in the United States set up during the Civil War. Then you get into the Gilded Age; this is post-Civil War. The South, anyways, was totally devastated. People who want to industrialize the South, the North is way ahead in that respect. This is when really industrialization takes off in the United States. You have a lot of foreign money coming in. You have the rise of the railroads. People are linking all of the country via railroads. Railroads really changed America. It's weird to get so excited about trains. It's a pursuit for guys in their basements with their little train sets, which is cool. The railroad itself was an incredible leap forward in America.
John Maxfield: The railroad was so important. If you think ... Not only did it connect one side of the country to the other side of the country -- which didn't happen until 1869 -- but it also was really the birth of these massive, massive industrial concerns. That is where you have ... That's why banks were so important during this period. To fund those.
Lapera: Absolutely. The interesting thing about this period is that we only have the Office of the Comptroller of the Currency, so that means there still no central regulator for banks. So you're having these really frequent panics and financial crises on average every six years. I think.
Maxfield: You had a banking panic or crisis, on average, once every six years during the Gilded Age.
Lapera: You ended up having to fairly big depressions, not as big as the Great Depression, obviously, but in the 1870s and 1890s, these were financially devastating events.
Maxfield: If you think about, you know, we like to think about when you look at United States history, that really the bottom point was the Great Depression of the 1930s, and to a certain extent that's true, but at that point ... That is very unusual to think about today, because even though we went through the financial crisis, it certainly didn't turn into a Great Depression. But at the time, depressions were actually pretty common occurrences. The reason, to allude to what Gaby's getting at, is that because we only had the OCC -- we didn't have the Federal Reserve, we didn't have the FDIC -- banks would fail all the time, and that would take all these people's savings and then they would have no money.
Lapera: Absolutely. Sorry, I just have to laugh because my mother pointed out to me the other day that I say "absolutely" all the time on the show, and I don't say it in real life.
You are correct, John Maxfield. One of the things that was really interesting about this to me, this whole history of the banking crisis, is that a lot of times people portray bankers as these fat cats, like you talked about in the beginning of the show -- especially guys like J.P. Morgan. You hear "J.P. Morgan," you think of this giant investment international bank, right. But the original J.P. Morgan was actually in his own way kind of a good guy, because during these financial crises, the little panics that they had, him and a few other bankers would get together and act a little bit like a central bank to help these other banks out to keep them from failing.
Maxfield: If you think about J.P. Morgan, he is maybe the greatest banker in American history and one of the reasons is during the Gilded Age, we had just this explosion of industrialization. That's really when the United States turned into the economic powerhouse that we are today, is during the Gilded Age. How did that happen? Where did the financing for that come from? That came from, in large part, Europe. J.P. Morgan, what they did, this is the reason they became so successful: They were the primary bank that brought money from Europe -- and England in particular -- over to the United States to invest in railroads, to invest in steel companies and all of these different things.