Editing Federal Reserve (section)

=== Morgan the Fixer ===
Morgan had a reputation for fixing these kind of problems. Back in 1893 he had all but single-handedly diffused a similar crisis. In 1890 when the Barings bubble collapsed in Argentina, British capital fled the new world, spurred along by fears that the US government would begin experimenting with bimetallic currency.<ref>Chernow, Ron. ''The House of Morgan'', p 105</ref> In 1893, with US gold reserves evaporating, Grover Cleveland approached John Pierpont Morgan Sr. and August Belmont Jr., the American representative of the London Rothschilds.<ref>Spence, Richard B. ''Wall Street and the Russian Revolution: 1905-1925'', p42</ref> They offered him him $50 million at 3.75%, an outrageous rate which Cleveland declined. But on the night of February 7th Morgan and his coterie arrived at the white house; informed that they could not simply drop in on the President of the United States, Morgan replied “I have come down to see the president, and I am going to stay here until I see him,” and there he waited, playing solitaire through the night.<ref>Chernow, ''The House of Morgan,'' 109</ref> In the morning they were received, and Cleveland told them a public issue of bonds, as opposed to their private scheme, had been decided on. Morgan declared this impossible, and Cleveland asked for his alternative.<blockquote>Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in New York and London would gather 3.5 million ounces of gold, at least half from Europe, in exchange for about $65 million worth of thirty-year gold bonds. He also promised that gold obtained by the government wouldn’t flow out again. This was the showstopper that mystified the financial world—'''a promise to rig, temporarily, the gold market''' .... When the syndicate bonds were offered, on February 20, 1895, they sold out in two hours in London, in only twenty-two minutes in New York.<ref>Chernow, ''The House of Morgan,'' 110</ref></blockquote>So in 1907, when the sky was falling on top of New York finance, Morgan seemed the man to call. He formed a team of young bankers loyal to him, including '''Henry P. Davison''' of First National Bank and '''Benjamin Strong''' of Morgan's own Bankers Trust. He sent these men to audit Knickerbocker's books, and found them wanting. Knickerbocker was allowed to fail October 22.<ref name=":2">Chernow, ''The House of Morgan.'' 166-67</ref>

At this point, even Morgan felt himself out of his depth, and he sought government assistance. Already, back in September, with crisis all but inevitable, Morgan had appealed directly to Theodore Roosevelt. At that time, the Treasury shifted millions of dollars to commercial bank deposits around the nation and tried to limit government withdrawals. Now, October 23, Morgan and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortel, and the following day Cortel put $25 million in government funds at Pierpont’s disposal.<ref name=":2" /> Through the rest of October and into November Morgan affected a series of last minute miracles, saving the New York Stock Exchange, a number of trusts, and New York City itself. By November, the Treasury was again intervening, issuing "$150 million in low-interest bonds and certificates and permitted the banks to use the government securities as collateral for creating new currency — an expedient device for pumping up the money supply in a hurry."<ref>Greider, William. ''Secrets of the Temple: How the Federal Reserve Runs the Country''. Simon and Schuster, 1989. p278</ref> Effectively, the alliance between Morgan and the US treasury was attempting to act as a central bank by providing emergency liquidity.

In all, the devastation was palpable. New York's trusts had lost 48% of their deposits.<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. 68</ref> 68 The stock market plunged 40% and steel production was severely reduced.<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. 71</ref> In the wake of such a crisis it was readily apparent that something had to be done. A decade before, Morgan and his syndicate had defused the 1893 Crisis with relative ease, but in 1907 Morgan needed the backing of the US treasury and even then it was a close thing. The age of paternalistic Morgan bailouts had come to an end, and Morgan himself was growing old. After the panic subsided, Senator Nelson W. Aldrich declared, “Something has got to be done. We may not always have Pierpont Morgan with us to meet a banking crisis.”<ref>Chernow, ''The House of Morgan,'' 173</ref>