Looking Backward Into the Present

Using the Popular Culture of the Past to Help Answer Perplexing Questions in the Present

Would the American Government Ever Need Bailed Out Like Wall Street in 2008?

Would the American Government Ever Need Bailed Out Like Wall Street in 2008? This question was inspired by government seizure of the failed Washington Mutual and the selling of a majority of its operations to JPMorgan Chase on September 23.  It should also be noted that JPMorgan Chase also bought Bear Stearns, one of the largest global investment banks, when it collapsed in early 2008 under the strain of the sub-prime mortgage crises.  The deal was brokered by the Federal Reserve

 

This incident reminded me of the actual person, John Pierpoint Morgan, the robber baron financier, who was probably best known for buying out Andrew Carnegie and creating U.S. Steel, the first billion dollar company.  Here is a popular picture of him sitting in a chair. 

 

 

Notice how the way the reflection of the metallic arm chair looks like he’s holding a dagger.

Image of John Pierpoint Morgan: Notice how the way the reflection of the metallic arm chair looks like he’s holding a dagger.

 

 

At the height of Morgan’s power and influence, America was struggling through the Panic of 1907, which was caused by the failure of several prominent New York City banks that led to a chain reaction of bank failures across the country.  Sound familiar?  Apparently I was not alone in drawing that historical parallel.  Many financial newspapers across the Globe have reported this.  For example, Canadian writer Terrence Corcoran wrote in the September, 30, 2008, article, “Financial Markets Go and Down as they Should,” accessed through the online version of the Financial Post:

 

In 1907, J.P. Morgan almost singlehandedly rescued the United States and the world from a financial panic and possible depression. He did it by personally overseeing a series of bailouts of failing or troubled businesses. Of his efforts, the famed art critic Bernard Berenson (who had an affair with Morgan’s librarian) wrote: ‘Morgan should be represented as buttressing up the tottering fabric of finance the way Giotto painted St. Francis holding up the falling Church with his shoulder.’

 

The Federal Reserve was created in the wake of the Panic of 1907 in effort to provide liquidity to the markets in the periods of instability. 

 

What is not so well known, was that as a result of an earlier panic in 1883, J.P. Morgan was called upon by President Grover Cleveland to help bail out the U.S. Treasury, which was running out of money in lieu of a gold crisis.  According to the book, An American History by David Saville Muzzey:

 

Mr. Morgan arranged with the President to furnish the Treasury some $65,000,000 in gold in return for the government’s 4 per cent bonds.  The price Mr. Morgan charged for the gold secured him the bonds at a considerable lower figure than the public were paying for them at the time, and a cry went up from the Western Democrats and Populists that Cleveland had entered into an unholy alliance with the money lenders, and was squandering the country’s resources to enrich the bankers of New York and London.

 

So was this an unholy alliance or was J.P. Morgan the savior of the country?  In all the complexity and passage of time, we may never know for sure.  But we may look to the Centre for Research on Globalization for a little insight into both the Panic of 1907 and the Panic of 2008.

 

In the May 14, 2008 article, “The Secret Bailout of J. P. Morgan: How Insider Trading Looted Bear Stearns and the American Taxpayer,” Dr. Ellen Brown wrote: 

 

In the United States…John Pierpont Morgan again used rumor and innuendo to create a panic that would change the course of history. The panic of 1907 was triggered by rumors that two major banks were about to become insolvent. Later evidence pointed to the House of Morgan as the source of the rumors. The public, believing the rumors, proceeded to make them come true by staging a run on the banks. Morgan then nobly stepped in to avert the panic by importing $100 million in gold from his European sources. The public thus became convinced that the country needed a central banking system to stop future panics, overcoming strong congressional opposition to any bill allowing the nation’s money to be issued by a private central bank controlled by Wall Street; and the Federal Reserve Act was passed in 1913.

 

How does that factor into the American financial crisis nearly a century later?  In the same article, sheds some insight in her discussion of the demise of Bear Stearns in 2008: 

 

The “rescuer” was not actually JPMorgan but was the Federal Reserve, the “bankers’ bank” set up by J. Pierpont Morgan to backstop bank runs; and the party “rescued” was not Bear Stearns, which wound up being eaten alive. The Federal Reserve (or “Fed”) lent $25 billion to Bear Stearns and another $30 billion to JPMorgan, a total of $55 billion that all found its way into JPMorgan’s coffers. It was a very good deal for JPMorgan and a very bad deal for Bear’s shareholders, who saw their stock drop from a high of $156 to a low of $2 a share. Thirty percent of the company’s stock was held by the employees, and another big chunk was held by the pension funds of teachers and other public servants. The share price was later raised to $10 a share in response to shareholder outrage and threats of lawsuits, but it was still a very “hostile” takeover, one in which the shareholders had no vote.

 

So are we entering a second Gilded Age of American history or is this a genuine rescue of the markets?  The quickest way to answer that is to find out who is profiting from the 2008 financial crisis and follow the money. 

 

J.P. Morgan may have said it best, “A man always has two reasons for doing anything: a good reason and the real reason.”

 

 

When Was Killing a Journalist Not Considered Murder? Click on Image for More Information About My Book About the Connection Between Dueling and the Origin of American Journalism

When Was Killing a Journalist Not Considered Murder? Click on Image for More Information About My Book About the Connection Between Dueling and the Origin of American Journalism

 

 

 

 

 

 

 

 

 

 

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