It only took rumours and guilt by association to start a bank run that brought the financial system in the United States to its knees in 1907. Not that you could blame worried depositors. If a bank went under, so did your savings.
The US Federal Reserve didn't exist to step in (some would say that's a good thing). That particular institution wasn't created for another six years. But this being the era of the great bankers and industrialists, there was one man who had pockets deep enough to make Janet Yellen turn green with envy John Pierpont Morgan. Old JP (he was 70 years old by this point) took it upon himself to shore up the banking system.
The trouble began with an audacious attempt by Fritz Augustus Heinze in mid-October to corner the market in United Copper Company stock. When he failed, the market panicked, and Heinze resigned as president of the Mercantile National Bank.At this time, the Wall Street banking community was a close-knit one. It was also more or less self-regulating. So, when confidence was shaken in one bank, such as the Mercantile, it soon spread to the others, and depositors queueing out of the door to get their money back.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Charles T Barney, head of the Knickerbocker Trust Company, had been an associate of Heinze and the top brass at the Mercantile, and it wasn't long before he found depositors lining up outside his door. On 22 October, things had got so bad that, according to the Boston Fed, $8m was withdrawn in just three hours.
That same day, JP Morgan went over the books. He decided the Knickerbocker Trust Company couldn't be saved, but the Trust Company of America was in better nick, so he set about bailing that out. A meeting with the Treasury Secretary followed in which the government pledged to inject $25m of liquidity into the banking system.JD Rockefeller chucked in another $10m and castigated depositors for being foolish and unpatriotic all very well for an oil magnate to say. The people outside, however, remained unconvinced. Meanwhile, entrepreneurial types were charging fellow depositors $10 a day to hold their place in the queue.
By 24 October, the Trust Company of America was taken out of intensive care and placed in the recovery ward. JP Morgan and his cabal of bankers had saved the day. Confidence slowly returned, and by November, while shaken, everyone agreed the worst of the Panic of 1907 was over. Everyone except for Charles T Barney of the failed Knickerbocker Trust Company. He killed himself a few days later.
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
-
31 August 1957: the Federation of Malaya declares independence from the UK
Features On this day in 1957, after ten years of preparation, the Federation of Malaya became an independent nation.
-
13 April 1960: the first satellite navigation system is launched
Features On this day in 1960, Nasa sent the Transit 1B satellite into orbit to provide positioning for the US Navy’s fleet of Polaris ballistic missile submarines.
-
9 April 1838: National Gallery opens in Trafalgar Square
Features On this day in 1838, William Wilkins’ new National Gallery building in Trafalgar Square opened to the public.
-
3 March 1962: British Antarctic Territory is created
Features On this day in 1962, Britain formed the British Antarctic Territory administered from the Falkland Islands.
-
10 March 2000: the dotcom bubble peaks
Features Tech mania fanned by the dawning of the internet age inflated the dotcom bubble to maximum extent, on this day in 2000.
-
9 March 1776: Adam Smith publishes 'The Wealth of Nations'
Features On this day in 1776, Adam Smith, the “father of modern economics”, published his hugely influential book The Wealth of Nations.
-
8 March 1817: the New York Stock Exchange is formed
Features On this day in 1817, a group of brokers moved out of a New York coffee house to form what would become the biggest stock exchange in the world.
-
7 March 1969: Queen Elizabeth II officially opens the Victoria Line
Features On this day in 1969, Queen Elizabeth II took only her second trip on the tube to officially open the underground’s newest line – the Victoria Line.
