H.D.S. Greenway: The Panic of 1907

September 23, 2008, New York Times, H.D.S. Greenway: The Panic of 1907

There was more than a little déjà vu in the dead-tired appearances of Treasury Secretary Henry Paulson and Ben Bernanke of the Federal Reserve, the desperate late-night meetings, and the dramatic scenes in New York board rooms as the assets drain began to gurgle on Wall Street.

It is said to be the worst financial crisis since 1929, and no one today can say whether anything will work, or whether another Great Depression is about to descend.

But I am thinking of a financial crisis 101 years ago, the "Panic of 1907," as it was called.

In late October of that year, the greatest banker of his day, and perhaps any day, J.P. Morgan, 70 years old but at the height of his power, returned early from a meeting of Episcopalians in Virginia to gather titans of Wall Street together in the red room of his famous library. He was suffering from a bad cold, but got through the following days and nights on heavy doses of Havana cigars.

All around him markets were crumbling, venerable companies were going into receivership, banks were about to go under as crowds of people lined up to get their money out before the entire edifice collapsed.

President Theodore Roosevelt's secretary of the treasury, George Cortelyou, went up to New York by train, but he was to play a minor role to Morgan's.

Morgan rallied the great money men. John D. Rockefeller, when asked if he would put his securities in the pot, said yes, "and I have cords of them, gentlemen, cords of them."

Over the following days, excited and desperate men would burst in on Morgan with reports of leaking assets that needed ever more money to save them from sinking. When Morgan rode down to Wall Street in his Brougham, according to one biographer, people shouted: "There goes the Old Man. There goes the Big Chief."

There were times when Morgan banged his fist down on the table and even locked the door rather than let money men go home before he got what he wanted. Finally, at quarter of five on a November morning, Morgan presented the assembled bankers a document telling them what they were going to throw into the kitty to restore confidence.

According to the artist Edward Steichen, meeting Morgan's "black eyes was like confronting the headlights of an express train bearing down on you."

The bankers meekly signed, and the crisis was over. Of course the amounts then, even though the money was worth more, were small compared with the figures being bandied about today. And the system was fairly simple compared with the masses of derivatives and packaged mortgage equities. Back then, perhaps for the last time, Wall Street could take care of its own panics. Today, only governments have the resources, and it is not even certain that Bernanke and Paulson can pull it off.

Not everyone thought Morgan a hero. Populist politicians claimed he had done it only for his own gain. But even Teddy Roosevelt, who once viewed Morgan and his ilk "malefactors of great wealth," was in awe.

The "Panic of 1907" led to important reforms, such as the formation of the Federal Reserve. Who knows what new regulations and federal controls the present crisis will produce?

There are ironies heaped on ironies.

The United States has touted free markets as the holy grail, and even liberal democracies have been excoriated by Washington for not wringing out their last vestiges of socialism. Today, however, much of the U.S. economy is about to be run by the central government, which is supposed to be where socialism went wrong. Today, China is looking to the United States for inspiration on what to nationalize rather than privatize.

Neither John McCain nor Barack Obama seem to have a clue what to do, and they vie in denouncing Wall Street, just like old Soviets used to do. President Bush seems little more than a bewildered bystander.

As for Wall Street, good guys and bad guys alike must be longing for the days when all this could have been settled in a red room with Havana cigars.