1907 the United States paniced over when the stock market fell. The economy was in recession and there were numerous runs on banks and trust companies. The panic’s primary cause was a retraction of loans by a number of financial institutions, Wall Street and banks that had loaned money for failing schemes.
How did the United States survive? It was all to one man . . . J P Morgan.
What did he do?
Morgan summoned the presidents of the city’s banks to his office. Morgan and his associates had examined the books of all financial institutions and decided, based on their books, their fate. They started to arrive at 2 p.m.; Morgan informed them that as many as 50 stock exchange houses would fail unless $25 million was raised in 10 minutes.
- By 2:16 p.m., 14 bank presidents had pledged $23.6 million to keep the stock exchange afloat. The money reached the market at 2:30 p.m., in time to finish the day’s trading,
- By the 3 o’clock close $19 million had been loaned out. Disaster was averted. Morgan eschewed the press, but as he left his offices that night he made a statement to reporters:
“If people will keep their money in the banks, everything will be all right.”
Friday, however, saw more panic on the exchange. Morgan again approached the bank presidents, but this time was only able to convince them to pledge $9.7 million. In order for this money to keep the exchange open, Morgan decided the money could not be used for margin sales. The volume of trading on Friday was 2/3 that of Thursday. The markets again narrowly made it to the closing bell.
The financial institutions cleaned their own mess. . . .not the Government.
It is a huge mistake for the United States Government getting involved. It is not the obligation of the tax payers, although . . . we need to keep our money in the banks.