In 1907 one man caused a banking panic that nearly collapsed the US economy, he fixed it with his personal fortune.
This is John Pierpont Morgan, he was 70 years old in October 1907
He was not the US government
He was not the Treasury
He was a private banker who ran J.P. Morgan and Company from a library in his Manhattan townhouse
On October 22, 1907, the Knickerbocker Trust Company, New York's third-largest trust, suspended payments
A run had started after rumors spread that it had been involved in a failed attempt to corner the copper market
The run spread to other trusts and banks within hours people lined up around the block to withdraw their savings
Stock prices fell 50% in three weeks
• There was no Federal Reserve
• There was no FDIC
• There was no government mechanism to backstop the panic
President Theodore Roosevelt was on a hunting trip in Louisiana
The Treasury Secretary had $25 million in reserves
The hole was $100 million
A group of New York's most powerful bankers met at Morgan's library on 36th Street
Morgan locked the doors
He did not let them leave until they had agreed on a rescue plan
He personally organized $25 million from Treasury, $10 million from New York banks, and enough from trust companies to stop the immediate runs
He decided which institutions deserved saving and which did not
• He let some trusts fail
• He kept others alive
• The panic stopped
When it was over, Congress spent five years studying what had just happened
Their conclusion: one man should not have that much power over the financial system
In 1913, Congress established the Federal Reserve
The institution created specifically to do what Morgan had done
So no private individual would ever need to do it again
Morgan died in March 1913
Two months before the Federal Reserve Act was signed into law
He never saw the institution he made necessary
His estate was valued at $80 million
Rockefeller, who was worth $900 million at the time, looked at the number and said:
"And to think he was not even a rich man"
He lost $20 billion in two days. Banks had no idea how much he owed because he invented a way to hide it.
Meet Bill Hwang grew up in South Korea
His father was a pastor
He moved to the US at 18 with almost nothing and worked his way through UCLA
He got a job at Tiger Management, one of the most successful hedge funds in history
He was good enough that Julian Robertson, Tiger's legendary founder, helped seed his own fund
By 2012 that fund, Tiger Asia Management, had $10 billion under management
Then the SEC charged him with insider trading on Chinese bank stocks
He paid $44 million to settle and pleaded guilty to wire fraud
He was banned from managing outside money
He came back as a family office
Officially he was just managing his own personal wealth
Family offices face almost no disclosure requirements
He named the new firm Archegos
Greek for "leader"
With no outside investors to answer to he had no limits on what he could do
He discovered a financial instrument called "a total return swap"
A total return swap lets a bank hold the shares while Archegos collects all the gains and losses
Because the bank technically owned the shares, Archegos never had to disclose the positions publicly
He ran the same strategy simultaneously at Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura, UBS, and Deutsche Bank
None of those banks knew what the others were doing
None of them knew how leveraged he actually was
By early 2021, Archegos had over $100 billion in total stock exposure
On leverage of roughly 8 to 1
On March 22, 2021, ViacomCBS announced a stock offering that pushed its share price down
Archegos held a massive position in ViacomCBS through swaps at multiple banks simultaneously
The price fell
Margin calls started arriving
Hwang got on a conference call with his prime brokers
He told them he could handle it
He asked them to hold and not sell
Goldman Sachs and Morgan Stanley hung up the phone and started selling immediately
Credit Suisse and Nomura held back to give him more time
That decision cost them both everything
Goldman and Morgan Stanley dumped billions in stock in enormous block trades on Friday March 26 before dawn
They limited their losses to almost nothing
Credit Suisse lost $5.5 billion
Nomura lost $2.85 billion
UBS lost $774 million
Total bank losses: roughly $10 billion
ViacomCBS fell 27% in a single day
Discovery fell similarly
Hundreds of thousands of retail investors who owned those stocks lost money
They had no idea a family office they had never heard of had secretly accumulated 60% of the float using instruments that required no disclosure
Hwang had gone from $10 billion to an estimated $36 billion in net worth
By the end of March 2021 he had nothing
Bloomberg reported it was the fastest personal wealth destruction in history
He was arrested in April 2022
Convicted on 10 of 11 counts in July 2024
Sentenced in November 2024
His stated net worth at sentencing: $55 million
At his peak he was worth $36 billion
The man who was banned from managing outside money because of insider trading
Built a $36 billion position managing only his own money
And lost it all in 48 hours without anyone knowing he had it
