4. Market Shocks

When Preston assumed Morgan’s helm, his first task was to deal with a series of market shocks that proved especially challenging for financial institutions. They included the second oil shock after the Iranian Revolution in 1979 and the shift in US monetary policy under Paul Volcker whereby interest rates were allowed to rise to record levels to combat accelerating inflation. The International Economics Department assessed the implications of these developments for the global economy and for interest rates and exchange rates. Morgan Guaranty was able to cope with the market gyrations better than most financial institutions because of its coterie of highly seasoned traders. By early 1982, however, there were indications that record interest rates and a resurgent dollar were taking a toll on the US and global economies.