wars through cartels, and the only way to stop them was to integrate railroad companies into groups i.e. to merge. Before 1890, most of railroad and industrial firms were closely held by families or small group of investors. Within two decades American governance was transformed by massive reorganizations and mergers, which allowed banks to control these firms. Apart from mergers, reorganizations also arose due to the financial stress and political pressure that these firms faced. The merger movement and the Great Depression of the 1890s thus ushered in financial capitalism, a new governance paradigm in United States. This led to a rise in financial control, and the period—from roughly 1890 to 1920—came to be known as the era of finance capital. According to historian Lewis Corey (1930), J. P. Morgan and other leading bankers were able to take advantage of the dispersal of stock because of their control over capital, on which most non-financial firms were dependent. The bankers’ tools for control were the voting trusts or board representations. …show more content…
Morgan & Co., First National Bank, National City Bank, Guarantee Trust Co. and Bankers’ Trust. Bank concentration and the perception that banker- directors encouraged collusion led to widespread criticism. Louis Brandeis made the most articulate case against financial capitalism in his book “Other People’s Money and How The Bankers Use It” arguing that banks controlling industrial corporations encourage monopoly whose static and dynamic costs are very large. He also argued that a banker-director can force management to take actions that are detrimental to minority shareholders, thus shattering the belief that banker control was the most efficient form of economic