Chapter 30

The peaceful campus life did not last long. As soon as the weekend arrived, Li Xu left Auckland High School and returned to the villa in Marin County. His father had come from New York and had already indicated over the phone that he wanted to talk to him.

"I must say, Second Generation, you always manage to surprise me." Sitting in the high-backed chair in the study, his father looked through the documents while exclaimingly saying, "Mortgage securitization, and even synthetic mortgage securitization, truly a genius idea."

"Thank you." Li Xu raised an eyebrow without showing any emotion.

It's just CDOs and synthetic CDOs, no need to be so surprised, right? And CDS hasn't even been introduced yet. Although CDOs are the main source of subprime loans, without the amplification effect of CDS, the situation wouldn't have become so severe.

CDOs, in short, are closely related to mortgage securitization; without CDOs, there would be no subprime loans.

CDS, or Credit Default Swaps, in simple terms, if you want to take out a loan from a bank to buy a house or acquire another company, but the risk is too high, the bank is worried about not recovering the investment. So you go to an insurance company for a guarantee, paying a certain percentage of insurance fees annually. If you can't pay back the loan, the insurance company will cover the loss.

This way, the bank's risk is reduced, you get the loan, and the insurance company gets the premium. Everyone is happy, and profit is created out of thin air, a perfect fit for Wall Street!

To be fair, the design of CDS is actually quite good, greatly promoting the flow of capital.

However, any beautiful beginning does not necessarily lead to a beautiful end. Stopping capital from crossing the line to seek profit is as impossible as stopping bureaucrats from seeking political achievements to climb the ladder.

"So, Dad, tell me, what do you, Morgan Stanley, think about it?" Li Xu asked at this point.

"Regarding the junk bonds, some people have reached a consensus, but... the old guys are still blocking the way." His father showed a helpless expression.

"Including Baldwin?" Li Xu raised an eyebrow again.

"Strictly speaking, Robert maintained a neutral stance; he wants to play both sides," Old Edward shrugged. "But Robert has indeed lost his drive."

"So..." Li Xu drew out the word, his tone questioning.

"Don't rush, Second Generation, it still needs some time," his father smiled. "After Grandpa called me, I already thought of a solution, and I believe Grandpa has thought of it too."

"Oh? Did you write the solution on your palm and then reveal it together to see if you were on the same wavelength?" Li Xu asked immediately.

"Are you talking about some Eastern anecdote again?" His father sighed, looking at him.

"Alright, please continue." Li Xu made a gesture inviting him to proceed.

"I think Grandpa, when he talked to you about this, definitely didn't mention someone." Old Edward smiled.

"Henry Morgan?" Li Xu immediately understood. He had lived in this family for 18 years and could see through things easily.

Jack Morgan, also known as J.P. Morgan Jr., had two legitimate children: Junius Spencer Morgan III, born in 1892 and named after his grandfather, and Henry Sturgis Morgan, born in 1900.

Yes, he was born in the same year as Li Xu's grandfather, Andrew Charles Li, or Andrew Charles Morgan, but two weeks later.

Regarding the illegitimate child, Junius Morgan didn't say much, but Henry Morgan hated him and was always at odds with him from a young age.

It seemed like he was defending the family's honor, but Li Xu thought the main reason Henry Morgan hated his grandfather was that he was born two weeks later.

If it weren't for J.P. Morgan Jr.'s requirement in his last few years that his younger son must give the illegitimate child a partnership position at Morgan Stanley, it would have been difficult for his grandfather to enter Morgan Stanley.

Well, that's what his grandfather said, but from Li Xu's perspective, if it was J.P. Morgan Jr.'s requirement, it was likely to ensure the family's security.

Power is not eternal, or rather, history always moves in a spiral. After reaching the peak, it will eventually decline. Whether it can decline slowly, and whether it can recover quickly after stopping the decline and re-climb to the peak, is a great test for the leader.

Henry Morgan clearly could not bear this responsibility. Although his grandfather might have exaggerated, his actions did not show much exaggeration.

For example, last year, IBM planned to issue a $1 billion industrial bond. As a board member of IBM, his grandfather secured the underwriting opportunity for Morgan Stanley.

However, due to the economic downturn, IBM wanted to reduce the risk and hoped that Morgan Stanley and Salomon Brothers would co-underwrite the bond. This would not only dilute the profit but also place Salomon Brothers' name after Morgan Stanley on the issuance document. Henry Morgan strongly opposed this.

Despite being demoted to a limited partner in the early 1970s for refusing to do business with the International Workers' Union, he was still a Morgan and had significant influence at Morgan Stanley.

Perhaps to target his old rival, or to protect the Morgan brand—when the Morgans dominated the U.S. financial market, Salomon Brothers were nothing—plus the internal desire to take over the entire deal, IBM eventually canceled the transaction and had Salomon Brothers lead a consortium of other securities firms, significantly impacting Morgan Stanley's business.

Moreover, Henry Morgan was not very interested in Morgan Stanley's affairs. He had an office there more out of family duty. In 1956, to make his eldest son, Charles Morgan, a partner, he even threatened to remove the Morgan name from Morgan Stanley.

The partners of Morgan Stanley eventually reached a deal with Henry Morgan, but the seeds of dissatisfaction were sown. So when Henry Morgan tried to make his second son, John Adams Morgan, a partner, he faced unanimous opposition.

Not only that, but they also took advantage of an incident where a partner's son-in-law caused trouble while drunk at the company to introduce an "anti-nepotism law." His grandfather also fanned the flames, saying he would leave Morgan Stanley if his son was capable of taking over his partnership, and if not, he would not let him become a partner.

Although Henry Morgan was furious, he ultimately had to swallow the bitter pill. Ironically, Charles Morgan had no interest in finance; he preferred architecture. It was his son, Adams Morgan, who had talent in this area and now worked as the head of the financing department at Dominick & Dominick Securities.

When Li Xu was 8 and visited Morgan Stanley, he saw a middle-aged man in a suit squatting at the entrance, using a screwdriver and a wrench to fix a doorknob.

Upon learning that he was Charles Morgan, he was taken aback. "You're a partner at Morgan Stanley, right? You're a Morgan, right? You're here to fix a doorknob with a screwdriver? This is too bizarre!"

However, sometimes things happen in unexpected ways. So Li Xu thought that if J.P. Morgan Jr. really required a position for his grandfather at Morgan Stanley, it was likely to ensure the family's security.

But he didn't know if J.P. Morgan Jr. anticipated that the enmity between Henry Morgan and his grandfather could reach the point where one would support and the other would oppose.

Actually, Henry Morgan could be considered a gentleman. Li Xu had met him a few times, and he was a very gentle old man. He didn't give him any bad looks after learning his identity. Even when facing his father, he was just a bit cold, and his father and Charles Morgan actually got along well in private.

However, some things would never change. The statement that one supports and the other opposes might be exaggerated, but the mutual criticism and attacks never ceased. So when his father mentioned Henry Morgan, Li Xu knew what he was thinking.

"Are you planning to have Henry oppose Baldwin, or have Grandpa support Baldwin, and then have Henry oppose?" Li Xu asked immediately. "If the former, Henry has no reason to oppose Baldwin. If the latter, it will still involve you, Dad."

"Neither." Old Edward shook his head, pondered for a moment, and then, facing Li Xu's questioning gaze, said, "Alright, first, someone will question Robert's ability, and then Father will privately express support for Robert, and this will quickly spread."

Li Xu's eyes lit up, already grasping Old Edward's intention. Although his grandfather had left Morgan Stanley, his influence remained. Just like when J.P. Morgan Jr. was around, Morgan Stanley only listened to him, and Henry Morgan was largely a figurehead.

So, if someone inside Morgan Stanley questions Baldwin's ability, and his grandfather's private support for Baldwin spreads, Henry Morgan will definitely make the opposite choice. After all, he is also part of the old guard and was one of the targets of the "Rude Six."

Then...

"Then, stir up the waters, spark an internal discussion, and fan the flames," his father continued. "Once the trend of wanting Robert to step down is created, I will contact a few people. If Robert really steps down, the successor must be one of us!"

Li Xu raised an eyebrow: "Do you have a candidate?"

Old Edward clearly misunderstood: "No, not me, but Parker Gilbert!"

Indeed! Li Xu clapped his hands in his mind. As someone who had read books about Morgan Stanley in his previous life, he knew the significance of this name.

Parker Gilbert, the stepson of Harold Stanley and the godson of Henry Morgan, was also favored by Robert Baldwin. He had the skills, the influence, and the connections. In the original history, Baldwin was forced to step down in 1983, but he designated Gilbert as his successor. Gilbert did an excellent job and reorganized Morgan Stanley, listing it on the New York Stock Exchange in 1986. Over the next few decades, he repeatedly saved the firm from crises, preventing its culture from being destroyed by those who didn't understand it—according to the books, at least.

His father and grandfather were indeed formidable. If this plan succeeds, not only will it reform Morgan Stanley, but it will also remove his father from the center and win a powerful ally. Bankers are not ordinary people.