Irony in Wall Street

Artigo de Thomas Sowell no Townhall

There was a real irony in the recent intervention by the Federal Reserve System to provide the money that enabled the firm of JPMorgan Chase to buy Bear Stearns before it went bankrupt. The point was to try to prevent a domino effect of panic in the financial markets that could lead to a downturn in the economy.

The irony is that it was almost exactly a hundred years ago — 1907, to be exact — that the original J.P. Morgan arranged a bailout of a troubled financial institution for the same purpose of preventing a panic that could end up with the whole economy declining.

The difference is that J.P. Morgan and his fellow bankers used their own money, while the Federal Reserve System used their power to create money. (…)

There is another irony in this situation. There was no Federal Reserve System in 1907. That is why Wall Street bankers like J.P. Morgan had to do their own heavy lifting with their own money.

Somehow that did not sit right with the Progressives of that era who, like today’s liberals, seemed to think that things should not be left to the market when the government can step in and make everything right.

Such thinking led in 1914 to the creation of the Federal Reserve System.

Unlike other countries, the United States had gotten along for generations without a central government bank. But President Woodrow Wilson thought that the monetary system of the country was too important to let private bankers play such a large role as J.P. Morgan had played in 1907.

Describing the Federal Reserve System created during his administration, Woodrow Wilson said: “It provides a currency which expands as it is needed and contracts when it is not needed.”

The power to expand and contract the currency was “put into the hands of a public board of disinterested officers of the Government itself.”

Their task was to prevent financial panics, bank failures and a catastrophic contraction of demand. It sounded wonderful — and such sounds count for a lot in politics.

In reality, however, the biggest financial panic in American history occurred under the Federal Reserve System in 1929, followed by thousands of bank failures and an unprecedented contraction of the money supply by one-third during the Great Depression of the 1930s.(…)

Being a disinterested government official does not mean that you know what you are doing. That fact gets left out of the equation in a lot of proposals for new government programs.

5 pensamentos sobre “Irony in Wall Street

  1. CN

    Masi tarde, foi a JP Morgan quem estava comprometida com enormes quantidades de crédito concedido aos Britânicos durante a WWI.

    Mais tarde, Wilson, eleito com o “He -keept-us-out-of-war”, muda de ideias a meio, pondo em marcha o pior evento do Cristianismo: a queda das monarquias continentais e o tratado de Versailles.

    O facto do FED estar já criado foi o que tornou possível o aumento da despesa sem o correspodneten aumento de impostos, necessário para os EUA entrarem na guerra.

  2. CN

    Vamos dizer assim:

    FED = Grande Depressão = Roosevelt = New Deal
    Wilson = FED = EUA na WWI = WWII

  3. Já agora, para quem se interessa por mercados financeiros conto um pedaço do que aconteceu no crash de 1907: JP Morgan pediu a Jesse Livermore, considerado o maior trader da história, que fechasse as suas posições short nos mercados:

    [i]”He was a millionaire in his early 20’s and by 1907, J.P. Morgan had to personally ask him to stop selling stocks short before he did serious damage to the stock market during a crash. His greatest achievement of all was walking away from the great crash of ’29 with $100 million in profit from selling stocks short when everyone else was going long.”

    “In the panic of 1907, J.P. Morgan personally implored Livermore to stop selling-short, stop pounding the market into oblivion. He made 3 million dollars in one day during the panic.”

    “His first successful “raid” on the stock market based on his sound, fundamental studies occurred during the Panic of 1907. As credit conditions tightened and as a number of businesses and Wall Street brokerages went bankrupt during the summer, Livermore could sense that something was wrong – despite the hopes of the public as evident in the still-rising stock market. Sooner or later, Livermore concluded, there will be a huge break of epic proportions. Livermore continued to establish his short positions, and by October, the decline of the stock market started accelerating with the collapse of the Knickerbocker Trust in New York City and Westinghouse Electric. J.P. Morgan eventually stepped in to avert the collapse of the banking system and the New York Stock Exchange, but only after Livermore managed to make more than one million dollars by shorting the most popular stocks (and covering on a plea from J.P. Morgan himself) in the stock market.”[/i]

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