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Scoundrels, savants, and saviors of finance

Book Review: A gallery of figures who made finance and its regulations and laws what they are today

Heroes & Villains of Finance: The 50 Most Colourful Characters in the History of Finance. By A. Baldwin. John Wiley & Sons Ltd., 205 pp. Heroes & Villains of Finance: The 50 Most Colourful Characters in the History of Finance. By A. Baldwin. John Wiley & Sons Ltd., 205 pp.

Chances are you’ve never heard of Thales of Miletus. But you’ve heard of financial options.

Thales of Miletus (624 B.C.-546 B.C.) presented the original option when he correctly predicted an excellent olive harvest and negotiated the future rights of use of a number of local olive presses. He made a killing by renting the presses for much more than his contract price when the bumper crop came in.

While the option market has developed into a sophisticated and complex market, it had its origin in the Greek olive oil trade.

History frequently is financial history, filled with a wide variety of actors. Heroes & Villains Of Finance is presented chronologically and begins in Greece with Thales, but is populated with many other figures.

Amadeo Giannini. Karl Marx. Hetty Green. J.P. Morgan. Milton Friedman. Michael Milken. Bernard Madoff. Warren Buffet.

You may not know every person on this list, or the larger list that it came from, but all 50 people mentioned in Heroes & Villains played a role in forming today’s financial landscape. Both the famous and the infamous shaped many of the financial instruments and theories we have today.

Through the adventures and misadventures of the good and the bad, this book is both a brief and fascinating look at the personalities who helped shape the course of banking, finance, and investing.

Here is just a sample of some of the people you can read about:

Chanakya of India

Known as one of the greatest-ever contributors to the development of economics and political thought was Chanakya.

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He taught that sound economies had paramount importance for the duties and obligations of a king. He stated, notably,  that “taxation should not be a painful process for the people.”

That’s a sentiment that can be appreciated in any era.

Proto-international bankers

Of particular interest was the first establishment of multinational banking; the crusaders—in multiple senses—behind that were none other than the Knights Templar from the Crusades period.

As the book points out, “legend has it that the Knights Templar were the protectors of the Holy Grail, although the identity of the Holy Grail is still disputed—many believe it to be the chalice that Jesus drank from at the Last Supper, others consider it to be the shipping routes to the Orient, whilst some say it was their organizational structure of their multinational bank.”

Ruling class and money’s value

Nicole Oresme developed a thesis on the quantity theory of money while living through the 1300s, a period of extreme currency devaluations and revaluations at the whims of the ruling French monarchs of the time.

“As the author of the first independent, comprehensive economic thesis,” the book states, “Oresme represents a key milestone in the development of early economic literature.”

Arts, architecture, and piles of money

The Medici Family, at their height in the 15th century, operated the largest bank in Europe and was Europe’s wealthiest family. They also counted multiple popes and queens in their family. They were the original private bankers and their clientele included European royalty, nobility, and many famous artists.

Unfortunately for them, those connections were also the start of their undoing, when England’s Edward IV was unable to repay his loans following the Wars of the Roses and then the 1494 invasion of Italy led to the final collapse.

The unlawful John

The first “infamous” character in the author’s chronology—depending on how you feel about the Medici clan—is John Law.

Law’s story begins with him winning a duel over a love interest. He is imprisoned for murder, but escapes.

He then gambled through Europe while studying finance and rose to be both the Controller General of Finances for France and head of one of its most successful public companies.

Law was printing money and driving up the price of his company when rumors about some of his holdings began to circulate. Investors rushed to sell shares creating the first ever stock market bubble.

In the end, Law died impoverished at the age of 57 after gambling away what little he had left.

Popping a bubble with a Blunt instrument

Another great example of stock market bubbles comes in the 1700s with Sir John Blunt.

The bubble created over Blunt’s South Seas Company is a teaching example of the “greater fool investment,” where speculators buy stocks hoping someone will pay more and they can get out before the bubble bursts. Today’s politically correct term would be “momentum investing.” 

Interestingly, a famous name who was on the losing side of this investment was Sir Isaac Newton. (Perhaps plummeting share prices confirmed his notion of gravity?)

Not quite the first economist, but early

Adam Smith, the “Godfather of Economics,” wrote books that still influence us today. He is credited with laying the foundations for the 19th century era of free trade and economic expansion, in an age when protectionism had been the norm.

The Rothschild Family

This multigenerational family of financiers is one of the most well-known banking families and they pioneered well-known financial instruments that we have today, such as stocks, bonds and debt instruments.

This family still has prominence to this day. And it is perhaps unique among banking dynasties to have had a Hollywood movie and a Broadway musical named for it.

Italian-American banking giant

The largest bank in the U.S., as many of us know, is Bank of America. Its origins were with Amadeo Giannini, who only became a banker when the death of his father-in-law forced him to take over his position at a small bank in San Francisco.

Giannini tried to convince the bank’s owners to expand its banking and lending to the working class population, to no avail. Banking was reserved for the wealthy.

This prompted Giannini to start his own bank in 1904. Soon after, the Great Earthquake of 1906 shook San Francisco which destroyed 80% of the city. Giannini was confident the city would rebuild and set-up a make-shift office with two barrels and a plank for a desk and began lending money to small businesses and individuals.

Giannini was regarded as a local hero for his efforts and he became confident in his ability to bring banking to everyone regardless of their wealth. He financed the Golden Gate Bridge’s construction, early Walt Disney movies, and a host of other projects.

Mr. Pyramid

A name that many people are familiar with is Ponzi—of the infamous term “Ponzi Scheme” which comes from Charles Ponzi. He arrived in the U.S. from Italy with $2.25 and within months became a millionaire from his financial scam. He hit his peak in 1920 and mere months later he found himself surrendering to federal authorities.

Never steal anything small

While bank tellers are trained to detect counterfeit money no one detected Alves dos Reis’ fraud. He takes his place among our 50 notable figures with one of the largest cash frauds. He forged a contract for producing Portuguese money in a bank name and introduced over $1 billion of phony notes into circulation. His fraud was finally uncovered by the media and he was sentenced to 20 years in prison.

Man behind the big bank name

Another familiar name to most is J.P. Morgan. He prevented a bank crisis, his skills at corporate reorganization brought about the term “Morganization,” he supplied gold to the Treasury to finance a bond issue, and was a pivotal figure for the United States of America while building his financial empire.

Basement to penthouse story

A famous rags to riches story is that of Sidney Weinberg; starting as a 15-year-old dropout who was hired as a janitor and rising thru the ranks to be CEO of Goldman Sachs.

Famously infamous

Spending four years in a row on the Forbes wealthiest people in the world list was Robert Vesco. By age 33, he was worth over $50 million.

After he was accused of stealing hundreds of millions of dollars, he fled and led a life on the run. He tried to buy an island to establish his own country and avoid extradition to the U.S. to face his crimes. He eventually ended up in Cuba where he was jailed for “fraud and illicit economic activity” and sentenced to 13 years.

A villain in our own time, doing time

A list of infamous fraudsters wouldn’t be complete without Bernie Madoff, who orchestrated the biggest financial fraud in history. While he didn’t create the “Ponzi Scheme”—we mentioned the inventor a moment ago—he certainly took it to new levels with investors being defrauded by almost $65 billion. He is currently serving a federal prison sentence with a release date of Nov. 14th, 2139.

Wizard of Omaha

A name that is frequently in the news, and considered a business hero by many, is Warren Buffet.

Buffet bought his first stock shares at age 11 and was filing a tax return at age 14. He has been reported as the wealthiest man in the world (2008) but lives modestly and has pledged 99% of his fortune to charitable causes.

Lisa  Rabinsky

Lisa Rabinsky, senior vice-president and commercial relationship manager, CenterState Bank, frequently reviews books for www.bankingexchange.com.

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