J.P. Morgan saved the financial system twice. In 1895, following the Panic of 1893, the Federal Treasury had almost no gold left, following a run on the gold supply. Morgan came to the rescue, heading a syndicate that loaned enough gold to finance a bond issue that restored the Treasury’s surplus. He saved the day once again in the Panic of 1907, persuading New York bankers to follow his example by pledging money to consolidate the banking system.
So it’s ironic that the bank he founded was in some ways at the root of the current crisis. That may sound surprising, given the usual suspects (Lehman’s, AIG, Bear Sterns…). Yet, as Gillian Tett of the Financial Times explains in Fool’s Gold, a team from J.P. Morgan invented a product called Bistro (Broad Index Secured Trust offering) that helped to fuel the massive expansion of the credit derivatives market.