Naturally, there is a price for this guarantee. That price is statedas a percentage of the total bill and it is either added to the amountpaid by the buyer or deducted from the amount received by theseller. Actually there is a fee paid at both ends of the transaction, oneto the seller's bank which receives the acceptance and pays out themoney, and one to the issuing bank which assumes the liability ofguaranteeing payment. The sale is said to be "discounted" by theamount paid to the banks. And so it was that Peabody & Companyhad been active in the business of discounting acceptances, primarily between sellers in England and buyers in the United States.
MORGAN AND THE PANIC OF 1857
In the Wall Street panic of 1857, many U.S. buyers were unableto pay their bills, and Peabody and Morgan were expected to makegood on their guarantees. Naturally, they didn't have the money,and the firm was facing certain bankruptcy unless the money couldbe obtained from
Ron Chernow, in
THE LONDON CONNECTION
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houses told Morgan they would bail out the firm—but only ifPeabody shut down the bank within a year."1 Jackson continues thenarrative:
The clouds lifted dramatically when the Bank of England
announced a loan to Peabody's of £800,000, at very reasonable interest, with the promise of further funds up to a million sterling if and when required. It was a remarkable vote of confidence as Thomas Hankey
[governor of the Bank of England] had already rejected similar appeals from various American firms who did not measure up to his standards.... Peabody & Company recovered almost overnight and indeed hoisted its turnover above pre-slump levels.2
With an almost unlimited access to cash and credit backed bythe Bank of England, Peabody and Morgan were able to wade hipdeep through the depreciated stocks and bonds that were sold tothem at sacrifice prices on Wall Street. Within only a few years,when sanity had been restored to American markets, the assets ofthe firm had grown to gigantic proportions.3
