I just finished reading "The Panic of 1907" by the Boston Fed. It is an interesting read of a near-collapse of the banking system . . . when there was no Federal Reserve System to save us. It begins with the efforts of Augustus Heinze to corner the copper market. When he failed, the savings bank he owned also fail, followed by the Mercantile National Bank, where he was President. When the public learned Heinze was a friend of the head of Knickerbocker's Trust Company, depositers began a run on that healthy bank, demanding their deposits in cash immediately. The headline of the Boston Globe said "Crash, Crash, Crash."
As fear spread from one bank to the next, there was only one man who so dominated America's financial markets that he could stop the run, i.e., J. Pierpoint Morgan. He did not benefit financially, at least directly, but only by saving the nation. I don't know if he was a patriot, but he did save the country, as well as his own fortune.
Seeing the importance of having a bank-of-last-resort, Congress began the process of creating the Federal Reserve System, which happened on December 23, 1913. But, could we do that today?
In the aftermath of the 1907 panic, the President was blamed, of course. Yet, his opponent, William Jennings Bryan, defended President Theodore Roosevelt, saying "Don't blame the Sheriff, but the horse thief." I don't recall Senator Harry Reid defending President Bush when the latest crash occurred, nor do I recall Senator Mitch McConnell defending President Obama who inherited it.
Since Pierpoint Morgan is dead and Congress could never legislate a new bank-of-last-resort, I'm thankful we have the Fed. They are the only economic adults in Washington.
