Art Cashin recalls how it all started 81 years ago. Naturally, it "ended" with World War 2. Will history rhyme, or will "this time be different"?
On this day (-1) in 1930, American savers, the Federal Reserve and a Republican President all got a nasty surprise. The banking system had been shaky for a year or two but it looked like things might finally be beginning to stabilize. That is until today.
On this day, a major financial institution, The Bank of the United States went belly up. And, with it went the savings, "in whole or in part", of over 400,000 depositors.
The Bank of the United States has been a historically unlucky name for several institutions. The first “Bank of the United States” was proposed by no less than Alexander Hamilton. It was a privately held central bank for the United States some 125 years before the Fed was created. It was very controversial as Southerners saw it as a boon and tool of the mercantile North while the South’s main industry, agriculture, didn’t need strong banking. The bank’s charter was allowed to expire and the bank disappeared.
Without a strong central bank, however, the young government had found it very difficult to finance the War of 1812. So, Congress proposed another Bank of the United States. This one succeeded for a while until Andrew Jackson and his Southern coalition determined to kill it. They succeeded and the result, many feel, was the Panic of 1837, one of the worst economic contractions in American history.
Now back to the other Bank of the United States.
In the early 1900’s, immigrants were pouring through Ellis Island and onto the streets of New York. A fellow immigrant and a very successful garment merchant realized they would need a place to put their meager earnings and savings. Perhaps to convey an image of governmental security or even an implied guarantee, he named his enterprise, “The Bank of the United Sates”.
As previously noted, when it went under it had over 400,000 depositors. They all began to scramble for money anywhere which tended to strain the other banks. The large New York garment industry was pushed to the edge and merchants desperately sought credit. Lines began to form at other banks. Soon the nation was sinking into the Depression.
To celebrate meet a couple of auditors at the Olde TARP Trust Lounge. Have a few perfect Rob Roys and explain that these days’ surprises are federally reserved for things like birthdays - not economic events. Crises, like dinosaurs, are now ancient history. Then have several more sips.
The stock market slumbered its way to another 180 point gain. The impetus was the European Summit.