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The First Bank of the United States
was
chartered for 20 years by the
United States
Congress
in 1791. Officially
proposed by
Alexander Hamilton,
Secretary of the
Treasury,
to the first session of the
First Congress
in 1790, the concept for the Bank had
both its support and origin in and among
Northern merchants and more than a few
New England
state governments. Neither Secretary of
State
Thomas Jefferson
nor Representative
James Madison
had any particular interest in the
chartering of the Bank of the United
States or a proposed mint. They believed
the South would not benefit from either
a central mint or bank as these were
mostly to the benefit of business
interests in the commercial north.
They didn't like
Hamilton's desire to increase the excise
tax on imported and
domestic spirits to pay for the bank.
Southern congressmen feared the tax
burden would fall disproportionately
heavily on the South, where, declared
Jackson, 'hard liquor was a necessity of
life'. After Hamilton left office in
1795, the new Secretary of the Treasury
Oliver Wolcott, Jr.
informed Congress that more money was
needed. Selling the government's shares
of stock in the Bank, or raising taxes
was the choice and Congress
quickly, above Hamilton objection,
agreed. The bank's charter expired in
1811.
http://en.wikipedia.org/wiki/First_Bank_of_the_United_States |
The
Second Bank of the United States was
chartered in 1816 resulted
because of the U.S. had
experienced severe
inflation
and had difficult financing the
War of 1812.
.
Subsequently, the credit and borrowing
status of the United States were at
their lowest levels since its founding.
The B.U.S. was in no sense a
national bank
but rather a privately held banking
corporation.
The bank's relationship with the federal
government that gave it access to
substantial profits. Its role as the
depository of the federal government's
revenues made it a political target of
banks chartered by the individual
states.. partisan politics highlighted
the debate over the renewal of the
charter. "The classic statement by
Arthur Schlesinger
was that the partisan politics during
the Jacksonian period was grounded in
class conflict. Viewed through the lens
of party elite discourse, Schlesinger
saw inter-party conflict as a clash
between wealthy Whigs and working class
Democrats"(Grynaviski)President
Andrew Jackson
strongly opposed the renewal of its
charter, and built his platform for the
election of 1832 around doing away with
the Second Bank of the United States.
Jackson's political target was y
the very
wealthy
Nicholas Biddle,
financier, politician, and president of
the Bank of the United States. Apart
from a general hostility to banking and
the belief that
specie
(gold and/or silver) was the only true
money, Jackson's reasons for opposing
the renewal of the charter revolved
around his belief that bestowing power
and responsibility upon a single bank
was the cause of inflation and other
perceived evils.
The
Second Bank of the United States thrived
from the tax revenue that the federal
government regularly deposited. Jackson
struck at this vital source of funds in
1833 by instructing his Secretary of the
Treasury to deposit federal tax revenues
in state banks, soon nicknamed "pet
banks"
because of their loyalty to Jackson's
party. The Second Bank of the United
States was left with little money and,
in 1836, its charter expired and it
turned into an ordinary bank. Five years
later, the former Second Bank of the
United States went bankrupt.
Red is from the editor.
http://en.wikipedia.org/wiki/Second_Bank_of_the_United_States
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Panic of 1819, the first major
financial crisis
in the United States occurred because
the Embargo Act and War of 1812 caused
widespread foreclosures, bank failures,
unemployment, and a slump in agriculture
and manufacturing. Economists who adhere
to
Keynesian
economic theory
suggest that the Panic of 1819 was the
early Republic's first experience with
the boom-bust cycles common to all
modern economies.
Austrian
school
economists view the nationwide
recession
that resulted from the Panic of 1819 as
the first failure of
expansionary monetary
policy.
Proposed remedies included increase of
tariffs
(largely proposed by
Northern
manufacturing interests), reduction of
tariffs (largely proposed by
Southerners,
who believed free trade would stimulate
the economy and increase demand),
monetary expansion; i.e., restriction or
suspension of specie payment, rigid
enforcement of specie payment,
restriction of bank credit,
direct
relief of debtors, public works
proposals, stricter enforcement of
anti-usury
laws.
http://en.wikipedia.org/wiki/Panic_of_1819 |
Panic of 1837
was a financial crisis caused
speculative fever.
The bubble
burst in 1837 NY City when every bank
began to accept payment only in
specie
(gold
and
silver
coinage).
Economic
policy of both the previous
administration of Andrew Jackson and
recently elected current administration
of Martin Van Buren, were blamed as
well as bank excesses.
Within
two months the losses from bank failures
in New York alone aggregated nearly $100
million. "Out of 850 banks in the United
States, 343 closed entirely, 62 failed
partially, and the system of State banks
received a shock from which it never
fully recovered."
The publishing
industry was particularly hurt by the
ensuing depression. According to most
accounts, the economy did not recover
until 1843.
Most economists also agree that there
was a brief recovery from 1838 to 1839,
which then ended as the Bank of England
and Dutch creditors raised interest
rates.
However, economic historian
Peter Temin has argued that, when
corrected for deflation, the economy
actually grew after 1838.
http://en.wikipedia.org/wiki/Panic_of_1837 |
Panic
of 1857 was brought on
mostly by the people's over-consumption
of goods from Europe to such an extent
that the Union's
Specie
was drained off, overbuilding by
competing railroads, and rampant land
speculation in the west..
The
recession ended a period of prosperity
and speculation that had followed the
Mexican-American War
(1846-1848) and the discovery of gold in
California. Gold poured into
the economy causing inflated.
After a large increase in state banks in
the early 1850's, by July 1856, state
banks began to lend far more money than
they could back up in
specie
even as deposits began to fall.
The
panic began with a loss of confidence in
an Ohio bank, spread as railroads
failed, and fears that the US Federal
Government would be unable to pay
obligations in
specie.
More than 5,000 American businesses
failed, the stock market declined
by 66% compared with inflation, and
unemployment resulted in urban protests.
An October
bank holiday was declared in England and
New York to avert runs on those
institutions.
The
Tariff Act of 1857
reduced the average tariff
rate to about 20%. Written by
Southerners and supported by most
economic interests nationwide, except
for sheep farmers and some Pennsylvania
iron companies, it had the effect of
removing the tariff issue as a major
source of North-South contention. The
South was much less hard-hit than other
regions, because of the stability of the
cotton
market. No recovery was evident in the
northern parts of the United States for
a year and a half, and the full impact
did not dissipate until the
American Civil War.
http://en.wikipedia.org/wiki/Panic_of_1857
and
http://en.wikipedia.org/wiki/James_Buchanan#Panic_of_1857 |
Panic/Depression
of 1873-1879 began when the he
post civil war rail road boom ended and
the passage of the
Coinage Act of 1873, which
took the United off a bimetallic (gold
and silver) money standard. The
immediate effect was to depress silver
prices which hurt Western mining
interests, who labeled the Act "The
Crime of '73." It also reduced the
domestic
money supply raising interest rates
and hurting farmers and other large
debtors. The
resulting outcry created the fear of an
unstable money supply and investor
shunned bonds and other long-term
obligations. This lack of confidence in
bonds slowed the
railroad boom and exacerbated the
economic situation. For example, Jay
Cooke & Company, a major component
of the United States banking
establishment, cancelled plans for a
second transcontinental railroad as two
major funding sources disappeared.
In 1873 he was unable to market several
million dollars in
Northern Pacific
Railway
bonds and lost out on a $300 million
government loan as reports circulated
that his firm's credit was worthless.
The firm declared
bankruptcy
in September of 1873.
The
failure of the Jay Cooke bank, followed
quickly by that of
Henry Clews,
set off a chain reaction of bank
failures and temporarily closed the New
York stock market on September 20 for 10
days. Factories began to lay off workers
and the effects of the panic were
quickly felt in New York, more slowly in
Chicago, Virginia City, Nevada and San
Francisco. Of the country's 364
railroads, 89 went bankrupt. A total of
18,000 businesses failed between 1873
and 1875.
Unemployment
reached 14% by 1876. Construction work
halted, wages were cut, real estate
values fell and corporate profits
vanished.
http://en.wikipedia.org/wiki/Panic_of_1873 |
The
Panic of 1893 was a serious
economic depression
in the
United States because of railroad
overbuilding and shaky railroad
financing which set off a series of bank
failures. Compounding market
overbuilding and a railroad bubble was a
run on the
gold
supply and a policy of using both gold
and silver metals as a peg for the US
Dollar value.
http://en.wikipedia.org/wiki/Panic_of_1893
In
1896 the Cross of Gold speech,
delivered by
William Jennings
Bryan at
the
Democratic
National Convention
in
Chicago.
advocated
bimetallism.
Following the
Coinage Act (1873)
the U.S. was on a
de facto
Gold Standard. In
1896, the
Democratic Party
wanted to standardize the value of the
dollar to silver and opposed a
monometallic
gold standard.
The
inflation
that would result from the
silver standard
would make it easier for farmers and
other debtors to pay off their debts by
increasing their revenue dollars. It
would also reverse the
deflation
which the U.S. experienced from 1873 to
1896.
Backers of a
monometallic gold standard felt that
protection against inflation was of
paramount importance, and they believed
that a monometallic gold standard was
the best way to achieve this end.
Inflation is disadvantageous for
creditors, and degrades the value of
savings. Saving represents deferred
spending and a source of capital for
lending.
William Jennings
Bryan secured the Democratic Party
nomination at the convention, but was
beaten in the presidential election by
William McKinley. This situation was
repeated in the year 1900 and the United
States adopted the monometallic gold standard
de jure
in that year. By the first decade of the
twentieth century, only Kong remained on
the
silver standard.
http://en.wikipedia.org/wiki/Cross_of_Gold_speech
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Panic of 1901 resulted when
the first NY Stock Exchange crashed
as financiers struggled over control
of the of the Northern Pacific
Railroad.
http://en.wikipedia.org/wiki/Panic_of_1901 |
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Panic of 1907,
known as the 1907 Bankers'
Panic, was a financial crisis
that occurred
when the
New York Stock
Exchange
fell close to 50% from its peak the
previous year. There were
runs on banks
and
trust companies.
Many
state and local banks and businesses
entered into
bankruptcy.
New York City bank liquidity
problems, loss of confidence among
depositor,
exacerbated by unregulated
side bets
at
bucket shops
caused the panic.
The crisis was Triggered by the
failed attempt in October 1907 to
corner the market
on stock
of the
United Copper Company,
lending banks
suffered runs that later spread to
affiliated banks and trusts, leading
a week later to the downfall of the
Knickerbockers
Trust Company—New
York City's third-largest trust. The
collapse of the Knickerbockers spread
fear throughout the city's trusts as
regional banks withdrew
reserves
from New York City banks. Panic
extended across the nation as vast
numbers of people withdrew deposits
from their regional banks.
Industrial production dropped
further than after any bank run
before then, while 1907 saw the
second-highest volume of
bankruptcies to that date.
Production fell by 11%, imports by
26%, while unemployment rose to 8%
from under 3%. Immigration dropped
to 750,000 people in 1909, from 1.2
million two years earlier.
The panic may
have deepened if not for the
intervention of financier
J. P. Morgan,
who pledged large sums of his own
money, and convinced other New York
bankers to do the same, to shore up
the banking system.
At the time, the United States did
not have a
central bank
to inject liquidity back into the
market. By November the
financial
contagion
had largely ended, yet a further
crisis emerged when a large
brokerage firm borrowed heavily
using the stock of
Tennessee Coal,
Iron and Railroad Company
(TC&I) as
collateral.
Collapse of TC&I's stock price was
averted by an emergency takeover by
Morgan's
U.S. Steel
Corporation—a
move approved by
anti-monopolist
president Theodore Roosevelt.
A commission investigation
lead to
the
Federal Reserve
System.
http://en.wikipedia.org/wiki/Panic_of_1907 |
1929 The Great Depression
was a severe worldwide economic
depression that began sudden and total
collapse of US stock market prices on
October 29. As for causes, historians
emphasize structural factors like
massive bank failures and the stock
market crash, while economists point to
monetary factors such as actions by the
US Federal Reserve that contracted the
money supply, and Britain's decision to
return to the Gold Standard at pre-World
War I parities (US$4.86:£1).
Demand-driven causes include
Keynesian economics,
the breakdown of international trade,
and Institutional Economists
who point to
under
consumption, an
over-investment economic bubble,
malfeasance
by bankers and industrialists, and
incompetence by government officials.
Monetarists believe what started
as an ordinary recession was made worse
by significant policy mistakes by
monetary authorities (especially the
Federal Reserve which shrink the money
supply which greatly exacerbated the
economic situation).
Recovery began in the spring of
1933 with unemployment at 25%. However,
the U.S. did not return to 1929 GNP for
over a decade and still had an
unemployment rate of about 15% in 1940,
and entry into WWII brought unemployment
under 10%.
http://en.wikipedia.org/wiki/The_Great_Depression |
1981-82 recession
was severe and occurred when the
Federal Reserve to began lowering
inflation by drastically lowered the
money supply.
In the wake of
the
1973 oil crisis
and the
1979 energy
crisis,
stagflation
began to afflict the economy of the
United States.
Banks had a tough time as a recent wave of
deregulation had phased out a
number of restrictions on banks'
financial practices, broadened their
lending powers, and raised the
deposit insurance limit from $40,000
to $100,000 (raising the problem of
moral hazard).
Banks rushed into
real estate
lending, speculative lending, and
other ventures just as the economy
soured. In 1982 Congress further
deregulated banks as well as savings
and loans letting banks offer
money market
accounts
in an attempt to encourage deposit
in-flows, removed additional
statutory restrictions in real
estate lending, and relaxed
loans-to-one-borrower limits. This
encouraged a rapid expansion in real
estate lending at a time when the
real estate market was collapsing,
increased the unhealthy competition
between banks and savings and loans,
and encouraged overbuilding of
branch banks.
In 1984, Continental Illinois
National Bank,
the nation's seventh-largest bank
failed and, federal regulators were
willing to let the bank fail in
order to reduce moral hazard and
encourage safer practices but
Congress and the press felt
Continental Illinois was
"too big to
fail."
and a $4.5 billion rescue package
resulted.
Unemployment gradually improved from 10.8% in Dec of
1982 to 7.2% in November of 1984
Inflation fell from 10.3% in 1981 to
3.2% in 1983.
http://en.wikipedia.org/wiki/Early_1980s_recession |
1980s and 1990s S&L crisis
was the failure of 747 S&Ls aka
thrifts that cost about
$160
billion, of which about $125 billion was
paid for by a US governmentl bailout.
Causes included the
Tax Reform Act of 1986
which
removed many real estate tax shelters
thus decreasing real estate values tied
to said shelters,
the
deregulation of
S&Ls
which gave them many of the capabilities
of banks, without the same regulations
as banks, the
"moral
hazard" of insuring already troubled
institutions who in order to improve
liquidity, made unsound real
estate loans
on riskier assets, particularly land and
a "asset-liability
mismatch" at S & L's, who having made
long-term loans at a fixed rate, found
themselves borrowing at an ever
increasing rate and needing riskier
loans to cover these higher rates.
http://en.wikipedia.org/wiki/Savings_and_loan_crisis#Causes |
2007- 20
Great Recession
began in the US and spread to much
of the industrial world.
Triggered
by the collapse of a specific kind
of derivative, the
mortgage-backed
security
derivatives, which were protected
from regulation by some federal
regulators who believed the free
market could manage itself.
The Austrian School of
economics blamed "easy"
credit-based money caused an
unsustainable economic boom. Others
blame the extremely indebted US
economy. The failure rates of
subprime mortgages were the first
symptom of a credit boom tuned to
bust and of a real estate shock.
These low-quality mortgages
acted as an accelerant to the fire
that spread through the entire
financial system. The latter had
become fragile as a result of
several factors that are unique
to this crisis: the transfer of
assets from the balance sheets of
banks to the markets, the creation
of complex and opaque assets, the
failure of ratings agencies to
properly assess the risk of such
assets, and the application of fair
value accounting. To these novel
factors, one must add the now
standard failure of regulators and
supervisors in spotting and
correcting the emerging weaknesses.
By October 2009, the unemployment
rate had risen from 4.9% to 10.1%.
In March 2009, Blackstone Group CEO
Stephen Schwarmzman said that
up to 45% of global
(stock market) wealth had
been destroyed in little less than a
year and a half. Home prices,
which didn't move much between 1990
and 1997, dropped
dramatically, have come back some,
and are about
twice their 1997(1990) value.
http://en.wikipedia.org/wiki/Late-2000s_recession |