Deja Vu

An Interesting Experience

Tags:

Ben Bernanke,

economics,

Federal Reserve,

J.P. Morgan,

treasury

“Lawmakers Battle Over Rescue Plan,” The Wall Street Journal, Sept. 22, 2008.

WASHINGTON -- Lawmakers are scrambling to put their mark on the Bush administration's $700 billion plan to save financial markets -- a fast-moving test of wills that could reshape one of the biggest bailouts in U.S. history.

There's no sign yet that Congress will delay or derail the proposal. Democrats are looking to add provisions that include beefed-up congressional oversight, aid for individual homeowners and changes to bankruptcy laws.

"Letter," J. P. Morgan Jr. to J. S. Morgan & Company, March 29, 1907.
The Panic of 1907—not the Great Depression—has been tapped as the clearest financial precedent to Wall Street’s current woes. Unfolding in two parts, the first in March, the second in October, the Panic led directly to J. P. Morgan’s personal bail-out of the entire Wall Street system and to the subsequent creation of the Federal Reserve. In this memo to his partners in London, Morgan’s son, J. P. “Jack” Morgan Jr., assures that the U.S. Treasury’s decision to inject government gold into the market has averted any further losses. In October, though, Otto Heinze attempted to corner the copper market, igniting the second—and more serious—phase of the Panic.

The two panics within the last ten days have given people a big scare, and the losses of course are frightful. The fact that no one has failed is more of the nature of a miracle than of ordinary business, but it simply shows, as far as I can see, that practically no one was overtrading….My own belief, however, is that the panic is over, and the fact that the Treasury is putting out money rather fast and that that action has really been the cause of the restoration of confidence makes me feel that it was at bottom a money panic. Not a money panic such as we have heretofore had, but an apprehension that, in view of enormous calls being made upon huge stock issues during the next few months the market might be so far drained of money that those who were obliged to pay the calls would have difficulty in arranging to get the necessary fund. The whole thing has been an interesting experience, although an extremely painful one and I shall be greatly relieved when matters finally drift—as they seem to be doing—into a state of dullness and cheaper money….From all this long screed you may see that I am tired but hopeful, hopeful because of the simple fact that three is a tremendous productive capacity in this country, and that this productive capacity has not been one whit reduced by the colic we have all been having.

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