America's Bank: The Epic Struggle to Create the Federal Reserve (34 page)

“a majority of the bankers”:
Ibid.

“New York bankers are, with few exceptions”:
Richard T. McCulley,
Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897
–1913
(New York: Garland, 1992), 89–90.

“If you go away from New York City”:
Adler,
Jacob H. Schiff,
284–85.

“The immediate effect has been”:
Vanderlip to James Stillman, April 27, 1906, Vanderlip Papers, Box 1-2. Details on Stillman’s mansion from Burr,
James Stillman,
248, 275. See also Kerry A. Odell and Marc D. Weidenmier, “Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907,”
Journal of Economic History
64, no. 4 (December 2004).

“The drain which California”:
Vanderlip to James Stillman, May 4, 1906, Vanderlip Papers, Box 1-2.

In April and three times later:
Andrew, “The Treasury and the Banks Under Secretary Shaw,” 543.

a short-term loan of $10 million:
Ibid., 545.

“granaries and warehouses were empty”:
Annual Report of the Secretary of the Treasury on the State of the Finances,
1906, 39, 41.

“business men returned to their desks”:
Ibid., 41–42.

“with great benefit”:
Ibid., 39, 42.

The total funds at his disposal:
Richard H. Timberlake Jr.,
The Origins of Central Banking in the United States
(Cambridge, Mass.: Harvard University Press, 1978), 220–21.

fully 11 percent:
Harold van B. Cleveland and Thomas F. Huertas,
Citibank: 1812
–
1970
(Cambridge, Mass: Harvard University Press, 1985), 49.

“had begun to smell kerosene”:
McCulley,
Banks and Politics During the Progressive Era,
123.

“a ring of powerful Wall Street speculators”:
Timberlake,
The
Origins of Central Banking in the United States,
179
.

“finds its level about as quickly”:
Annual Report
of the Secretary,
1906, 42–43.

some future “autocrat”:
Timberlake,
The Origins of Central Banking in the United States,
179.

“Outside relief in business”:
Andrew, “The Treasury and the Banks Under Secretary Shaw,” 544, 559, 561, and 565.

Shaw immodestly suggested:
Shaw specifically claimed that if he was given $100 million to be deposited with or withdrawn from banks at his pleasure, and was permitted to set reserve requirements, he could avert any panic that threatened either the United States or Europe: see
Annual Report of the Secretary,
1906, 46, 49.

the ABA championed a bill:
McCulley,
Banks and Politics During the Progressive Era,
92–93; and Robert H. Wiebe,
Businessmen and Reform: A Study of the Progressive Movement
(Chicago: Elephant, 1989), 63–64.

But the prospect of branch banking:
McCulley,
Banks and Politics During the Progressive Era,
92, 95–97, 124, and 133; and Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era,” A.B. thesis, Harvard College, 1960, vi, x, and xi.

“The bankers are still divided”:
Wiebe,
Businessmen and Reform,
65.

the system was run by “God”:
Henry F. Pringle,
The Life and Times of William Howard Taft
(New York: Farrar and Rinehart, 1939), 2:716.

“abhorrence of both extremes”:
Paul M. Warburg,
The Federal Reserve System: Its Origin and Growth—Reflections and Recollections
(New York: Macmillan, 1930), 1:12.

“You ought to write”:
Harold Kellock, “Warburg, the Revolutionist,”
The Century Magazine
90 (n.s. 68—May to October 1915).

“The Bank of England is extremely nervous”:
Vanderlip to James Stillman, March 22, 1907, Vanderlip Papers, Box 1-2.

London raised its interest rate:
Andrew, “The Treasury and the Banks Under Secretary Shaw,” 548 (also the source for Reichsbank).

directing British banks to liquidate:
O. M. W. Sprague, National Monetary Commission,
History of Crises Under the National Banking System,
61st Cong., 2d sess. (Washington, D.C.: Government Printing Office, 1910), 241.

“the Wall Street boom punctured”:
McCulley,
Banks and Politics During the Progressive Era,
125.

Wall Street tried to replace:
Ibid., 119; and Sprague,
History of Crises,
241.

“I have felt for some time”:
Cleveland and Huertas,
Citibank,
51–52.

“buoyancy and hopefulness”:
Perkins to J. P. Morgan, April 30, 1907, George W. Perkins Sr. Papers, Box 9.

“a great number of people and houses”:
Perkins to J. P. Morgan, May 31, 1907, ibid.

“make loans for any length of time”:
Perkins to J. P. Morgan, June 19, 1907, ibid.

“a partial fulfillment of hopes”:
“Currency Outlook Under Aldrich Law,”
The New York Times,
March 4, 1907.

“There seems to be a general feeling”:
Perkins to J. P. Morgan, May 27, 1907, Perkins Papers, Box 9.

CHAPTER
FOUR
: PANIC

“A panic grows”:
Walter Bagehot,
Lombard Street: A Description of the Money Market
(London, 1873), 20.

“Who is to be Mr. Morgan’s successor?”:
Ida Tarbell, “The Hunt for a Money Trust, III. The Clearing House,”
American Magazine,
July 1913, 42.

“The present head of the department”:
Richard H. Timberlake Jr.,
The Origins of Central Banking in the United States
(Cambridge, Mass.: Harvard University Press, 1978), 184.

“Not so
loud,
please, Mr. Street”:
Frank A. Vanderlip with Boyden Sparkes,
From Farm Boy to Financier
(New York: D. Appleton-Century, 1935), 165–67.

“a little let-up in general business”:
Perkins to J. P. Morgan, July 12, 1907, George W. Perkins Sr. Papers, Box 9.

The New York money market tightened:
Jon Moen and Ellis W. Tallman, “The Bank Panic of 1907: The Role of Trust Companies,”
The Journal of Economic History
52, no. 3 (September 1992), 617.

“There is nothing special to report”:
Perkins to J. P. Morgan, October 3, 1907, Perkins Papers, Box 9.

“We are all very well”:
Perkins to J. P. Morgan, October 12, 1907, ibid.

manipulate a copper-mining stock:
The speculator, whose name I omitted to avoid deluging the reader with an abundance of characters, was Frederick Augustus Heinze, one of the three so-called copper kings of Butte, Montana. The mining stock was that of United Copper Company. This account is largely based on O. M. W. Sprague, “The American Crisis of 1907,”
The Economic Journal
18, no. 71 (September 1908).

And while a dollar in the national banks:
Jon R. Moen and Ellis W. Tallman, “Why Didn’t the United States Establish a Central Bank Until After the Panic of 1907?” (unpublished manuscript, September 2007), 27, table 3; the figures are for New York City only. Note the precise reserve figures were 5.8 percent (5.8 cents per dollar of deposits) for trusts and 25.7 percent for banks.

“had been of an extreme character”:
Sprague, “The American Crisis of 1907,” 357.

two of the Morse banks:
Ibid., 358.

Morse seems to have ratted out:
“Knickerbocker Will Be Aided,”
The New York Times,
October 22, 1907. This article says that Morse urged the New York Clearing House to continue its probe into other banks, and that Morse and Barney were “at odds.”

Barney and the unsavory Morse:
Robert F. Bruner and Sean D. Carr,
The Panic of 1907: Lessons Learned from the Market’s Perfect Storm
(Hoboken, N.J.: John Wiley and Sons, 2007), 75–76. Bruner and Carr also maintain that growing rumors of the two men’s connections both contributed to Barney’s downfall and “gained credence” when Barney was forced to resign.

private railcar:
Vincent P. Carosso,
The Morgans: Private International Bankers, 1854
–
1913
(Cambridge, Mass.: Harvard University Press, 1987), 536.

Davison was immediately confronted:
New York Clearing House, Minutes, October 21, 1907, cited in Moen and Tallman, “Why Didn’t the United States Establish a Central Bank,” 12.

The sidewalk in front was besieged:
“Pays Out $8,000,000 and Then Suspends,”
The New York Times,
October 23, 1907.

“stacks of green currency”:
Quoted in Bruner and Carr,
The Panic of 1907,
78.

green-marbled public area:
Ibid.

“The consternation of the faces”:
Lester V. Chandler,
Benjamin Strong, Central Banker
(Washington, D.C.: Brookings Institution, 1958), 28.

“with Mr. Morgan presiding”:
“Knickerbocker Will Not Open,”
The New York Times,
October 23, 1907.

“This, then, is the place”:
Thomas W. Lamont,
Henry P. Davison: The Record of a Useful Life
(New York: Harper and Brothers, 1933), 76.

Harry Davison had been reared in:
Ibid., especially 15.

Strong had been raised:
Background on Strong from Chandler,
Benjamin Strong;
see also “Mrs. Strong Kills Herself,”
The New York Times,
May 11, 1905; and Lamont,
Henry P. Davison,
59–62.

“making figures as we went along”:
Carosso,
The Morgans,
539–40.

the fifth straight of panicky conditions:
Ibid., 540–41; and Jean Strouse,
Morgan, American Financier
(New York: Random House, 1999), 579.

By then, a new crisis was erupting:
Carosso,
The Morgans,
542.

the Treasury’s surplus was exhausted:
Annual Report
of the Secretary of Treasury on the State of the Finances,
1907, 53–54. Cortelyou said his hands were “virtually tied.”

“We sat quietly”:
Vanderlip,
From Farm Boy to Financier,
174–75.

Grateful tributes streamed in to:
The letters of appreciation to Morgan can be found in the Pierpont Morgan Papers, Box 7, book 12. See also Ron Chernow,
The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
(New York: Grove Press, 1990), 125; “J. P. Morgan Has a Cold,”
The New York Times,
October 26, 1907; and “Lord Rothschild’s Tribute to Morgan,”
The New York Times,
October 26, 1907.

New York’s trusts lost:
Author interview with Ellis W. Tallman, who cited call reports of the New York Superintendent of Banking. According to Tallman, from August 22 to December 19, 1907, deposits in New York City trusts fell 47.8 percent. The figure was inflated by the shuttering of the Knickerbocker, but even if the Knickerbocker is omitted from the calculation, deposits fell a hefty 33.7 percent.

With panic spreading, clearinghouses:
A. Piatt Andrew, “Substitutes for Cash in the Panic of 1907,”
The Quarterly Journal of Economics
22, no. 4 (August 1908), 509.

banks were forced to hand out:
O. M. W. Sprague, National Monetary Commission,
History of Crises Under the National Banking System,
61st Cong., 2d sess. (Washington, D.C.: Government Printing Office, 1910), 290.

Many railroads, mining companies:
Andrew, “Substitutes for Cash in the Panic of 1907,” 510–13.

By mid-November, approximately half:
Ibid., 501; the exact figures in the survey were 71 of 145 cities. In addition, Sprague,
History of Crises,
reports that 60 of 110 established clearinghouses made use, specifically, of loan certificates (p. 290). Quotations and other details in this paragraph come from Andrew, “Substitutes for Cash in the Panic of 1907,” especially 497, 504, and 507–8.

$500 million of cash substitutes:
Andrew, “Substitutes for Cash in the Panic of 1907,” 515. Andrew calculated (p. 507) that $238 million, or nearly half of the estimated total of cash substitutes, consisted of “regular” clearinghouse certificates, including $101 million of such certificates in New York.

“to a greater or less degree”:
Ibid., 501–2.

Council Bluffs . . . Providence:
Ibid., 502A. For banks’ discretion, see also Sprague,
History of Crises,
287.

in many states they encouraged banks:
Andrew, “Substitutes for Cash in the Panic of 1907,” 498–500; and Sprague,
History of Crises.

“the most extensive and prolonged breakdown”:
Andrew, “Substitutes for Cash in the Panic of 1907,” 497.