The Medici Meltdown....timeless lessons.

[Dover]

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In these times of financial woe, some journalists have been timidly exploring the past for precedents, pushing the horizon as far as the 1929 Great Depression. Very few have looked beyond that traumatic event, assuming that capitalism in its current form has no earlier historical roots. But this is hardly true--earlier history might indeed teach us valuable lessons.

Raymond De Roover, a Harvard historian, published in 1963 his classic The Rise and Decline of the Medici Bank (1397-1494), which opens with the statement that "modern capitalism based on private ownership" was invented by Italian merchants and bankers, by far the most active businessmen in the Middle Ages. Joint stock companies did not exist until the 1600s, "but the Medici Bank had foreshadowed the holding companies in certain respects."

In its heyday, the Florentine banking conglomerate was the largest in Europe. It had branches in Geneva, Avignon, Bruges and London as well as in Rome, Naples, Venice and Milan. Founded in 1397 by Giovanni di Bicci, the bank's fortune reached its peak under the wise management of Cosimo de' Medici, the famous patron of the arts.

The expansion of the banking activities continued at an extraordinary pace until his death in 1464. Gold and cash deposits along with commercial ventures and merchandise exchanges guaranteed a continuous flow for high-interest lending, which was wisely supervised. But the Bank soon began to overstretch itself.

Now, as then, the coordination between different branches or departments continues to be a major issue confronting administrators in business as well as in governments. Choosing the right person as a manager is no less difficult than finding the right heir to the business or the reign...cont'd

http://www.forbes.com/2008/10/30/medici-banks-meltdown-oped-cx_ms_1031simonetta_print.html

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The Medici Bank, perhaps the most famous bank of Renaissance Italy, rose to the top rank of European financial institutions during the fifteenth century. It accepted time deposits, the sum of which was several times larger than the invested capital, and was a lending institution. This was unlike some of the exchange banks of the time that were primarily involved in fund transfers associated with international trade. The Medici Bank was the chief bank for the Curia, and it had branches in the major cities of Italy, as well as London, Lyons, Geneva, Bruges, and Avignon.

In Renaissance Italy openly charging interest (usury) was prohibited, but interest charges were hidden in bills of exchange through which foreign currency was purchased for delivery at a future date. Profit was at the mercy of the foreign exchange markets. What was called a dry exchange involved no transfer of goods or foreign exchange and effectively guaranteed interest to the lender. In 1429 dry exchanges were outlawed in Florence, but the law was suspended at least temporarily in 1435, right after the Medici became the de facto, if not legal rulers, of Florence. The Medici Bank was organized as a partnership with the Medici family being the largest investor in the parent company and the parent company being the largest investor in the branch partnerships. The parent company functioned like a modern holding company. The system of branch banks was organized such that one branch could be declared independent by rearranging accounts. Such arrangements protected the parent bank from the bankruptcy of individual branches due to localized economic difficulties.

Members of the Medici family entered the Florentine banking business in the latter 1300s. In 1393 Giovanni di Bicci de’ Medici (1360–1429) took ownership of the Roman branch of a bank owned by one of his Florentine cousins. He removed the headquarters of his bank to Florence in 1397, the official founding date for the Medici Bank. At the time Rome was a source of funds, whereas Florence offered a better market for making loans. By 1402 the Medici Bank had opened a branch bank in Venice, another important outlet of investment opportunities. By then the bank boasted a total of seventeen employees at its headquarters in Florence, five of whom were clerks.

In the fourteenth and fifteenth centuries wool and cloth industries were the export mainspring of the Florentine economy. In 1402 the Medici Bank loaned 3,000 florins (nearly one-third of its original capital) to finance a Medici family partnership to produce woolen cloth. The year 1408 saw the establishment of a second and more successful shop for producing woolen cloth. In addition to banking, the Medici traded wool, cloth, alum, spices, olive oil, silk stuffs, brocades, jewelry, silver plate, citrus fruit, and other commodities, diversifying their risks by investing in a range of ventures...cont'd

http://e-articles.info/e/a/title/The-Medici-Bank/


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The Renaissance Connection
http://www.renaissanceconnection.org/innovations_patrons.html

Medici Bank
http://en.wikipedia.org/wiki/Medici_bank


(Medici Bank Portal)

[Greyhound]

1. Fascinating, thank you for posting this. n/t

:kick: & R