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June 30, 2001

The Last Partnerships: Inside the Great Wall Street Money Dynasties by Charles R. Geisst (McGraw Hi

By Gregory Bresiger

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  • The Last Partnerships: Inside the Great Wall Street Money Dynasties by Charles R. Geisst (McGraw Hi
  • Page 2

Partnerships built Wall Street. And the rest of the American economy. Today the scions of these partnerships are financing much of the rest of the world, including some of the poor fish who for generations were believers in the hocus pocus of those who railed that markets equaled exploitation and investment bankers should be stood up against a wall.

Corporations and publicly traded companies, the business entities that now dominate our lives, were unknown quantities in the early 19th century. Just about all the great securities firms and investment banking shops used the partnership form at the beginning of their existence.

Background History

What were these partnerships? This excellent book attempts to briefly answer that question. Eccentric, often cranky, individuals founded and ran partnership firms. These firms financed railroads, found money for new industries and even, on occasion, bailed out the United States government several times in the era between the War of 1812 and the end of World War II.

This was a 130-year period of dramatic growth in the United States. It was a time when the nation transformed itself from a backwoods, agricultural society of yeoman farmers to a mature industrial nation, which inherited the throne of the wealthiest nation on the planet along with a standard of living that much of the rest of the world rivaled.

Many of the partnerships detailed in this book - Goldman Sachs, Lehman, Kidder Peabody, Salomon Brothers, E.F. Hutton, Lazard Freres, J.P. Morgan and Morgan Stanley-helped fund this economic transformation. And these firms were in turn forced by business pressures to transform themselves by adopting the corporate form and going public.

There is an interesting parallel that the author doesn't explore: Wall Street went from small, entrepreneurial firms controlled by a handful of investors to big corporations that were funded by tens of thousands of shareholders. At the same time, America went from Jeffersonian society, a nation of decentralized, quasi-libertarian government that often looked to the states to govern themselves to a highly centralized, big government in which Washington was expected to do everything from provide endless social welfare services and micro manage American society to an extent that even some of the welfare state zealots today wonder if maybe our masters on the Potomac's wholesale social engineering hadn't gone too far.

At the same time that Washington was growing ever bigger - and selling the Babbitts throughout the nation on the nonsensical notion that it, and it alone, was the savior, an idea that still finds favor among many of our credulous elites - Wall Street in the mid and late 20th century was moving away from the individual owner. The partnership couldn't hack it in this kind of world, Geisst writes.

"Traditionally, partnerships had allowed the individual partners to cash out when they retired or occasionally to tap the partnership pools for money," he writes of Lehman, which faced pressures because of its partnership form in the past World War II period.