How businesses get big.(Deals of the Century: Wall Street, Mergers, and the Making of Modern America)(Book Review)

Deals of the Century: Wall Street, Mergers, and the Making of Modern America By Charles R. Geisst Wiley, 330 pages, $29.95

Charles Geisst's Deals of the Century is a chronology of 100 years of mergers and acquisitions, and their effects on America. He presents a synopsis of major deals that illustrate Wall Street's contributions to the growth of U.S. firms across three distinct eras of corporate dealmaking. Geisst plays his history straight, but leaves a bitter taste with his insistence that mergers are bad for everyone except investment bankers and corporate officers.

Beginning at the height of Pierpont Morgan's empire in the early twentieth century, Geisst wanders through the evolution of mergers and acquisitions, attempting to extract conclusions about the motivations of the parties involved, and the economic effects of the deals. Though the typical takeover and the role of the Wall Street establishment have changed over the last hundred years, the end result, according to Geisst, has remained consistently disappointing.

According to Geisst, before the Federal Reserve System, bankers held sway over corporations through access to cash. Without a central bank to increase the money supply and decrease interest rates, corporations were laid prostrate before their bankers in times of economic disruption. The banks, notably Barings in Europe and J. P. Morgan & Co. in the U.S., used this to their advantage with clients struggling to remain in the banks' good graces. They exploited their power by demanding seats on corporate boards and advising the heads of the companies. Bankers were thus able to force the geniuses of American enterprise--the Carnegies, the Edisons, and the Bells--to abdicate control and agree to be sold by merger or acquisition. Banks made windfall profits.

The roaring stock market of the 1920s allowed bankers to attract investors into financing merger deals, and "trust banking" continued to spur mergers in retail, automobiles, and utilities until the Depression. When the market finally crashed, it was only a matter of time until government regulators ended the party by passing the Banking Act of 1933, which fenced off economic sectors banks were allowed to participate in.

But after World War II there was another wave of mergers that created conglomerates, and bankers took on a new role. Without direct access to capital from the insurance companies with which they used to be intertwined, bank merger specialists turned themselves into corporate technical advisors. They explained how financial rules and accounting practices could be used to allow a company to grow its bottom line.