There’s a story about JP Morgan and Andrew Carnegie, from the Panic of 1873. Carnegie was a client of the Morgans, with $50,000 on deposit plus some stocks. After selling his $10,000 interest in a railroad, Carnegie supposedly came by the office to pick up a check for $60,000. To his surprise, JP Morgan handed over a check in the amount of $70,000, explaining that the bank had underestimated how much cash Carnegie had on deposit. Given what seemed like an obvious overpayment, Carnegie refused to take the extra funds at first. He said, “Will you please accept these ten thousand dollars with my best wishes?” But Morgan replied, “No, thank you. I cannot do it.”
A clue as to why JP Morgan would so magnanimously Carnegie more than he expected, is found in his famous 1912 testimony before Congress, when he brought up the subject of character:
Q: Is not commercial credit based primarily upon money or property?
JPM: No, sir. The first thing is character.
Q: Before money or property?
JPM: Before money, or anything else. Money cannot buy it.
In light of this exchange, it’s clear that JP Morgan acted the way he did with Carnegie because he wanted to preserve his reputation of high character. Character, after all, was in his mind crucial to creditworthiness.
Why is character so important? Because credit is all about trust. When a bank extends credit to a debtor, the bank is trusting that he will honor his word, and repay the debt on time. It doesn’t matter if the debtor is wealthy. If he is dishonest, he’ll have a hard time getting credit. It makes sense. As JP Morgan said later on in his testimony: “A man I do not trust could not get money from me on all the bonds in Christendom.”
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