Scenes from a crisis:
“Results of today indicate immediate danger of general national bank panic,” a U.S. senator warned the president. “Government funds should not be drawn upon but should be increased.”
Reportedly, the country’s economy hung in the balance. “Without such action it is impossible to move western produce and we cannot hope to avoid universal panic throughout the country. Immediate action necessary,” the senator added. A leading New York financial official agreed. “Relief must come immediately or hundreds if not thousands of our best men will be ruined.”
Our leaders weren’t certain what was going wrong. But some seemed certain that only the federal government’s immediate intervention could save us.
The crisis noted above could have been ripped from recent headlines, but actually happened more than a century ago. Not during the second George W. Bush administration, but during the second U.S. Grant administration. Historian H.W. Brands tells the story in his recent biography, “The Man Who Saved the Union: Ulysses Grant in War and Peace.”
Brands notes that “Grant reacted cautiously.” He ordered his Treasury secretary to invest $10 million in bonds, a step that provided ready cash for bankers. Then, he waited for the crisis to burn itself out. “This will necessarily go on until balances are settled in all former stock gambling operations either by settlements or the breaking of operators,” the 18th president wrote. “Money will then begin to resume channels of legitimate trade.”
Grant did agree to travel up to New York City, then as now the epicenter of economic activity. But the bankers probably didn’t like what he had to say. “The banks are now strong enough to adopt a liberal policy on their part, and by a generous system of discounts to sustain the business interests of the country,” he told them. Grant made clear he would not bend the law or ask Congress for the power to affect a “rescue” package.
Contrast that with the Bush administration’s hyperactive reaction to a banking crisis.