Monday, May 18, 2009

America and Recurring Panics

"History never repeats itself; at best it sometimes rhymes."
-Mark Twain

The history of the Federal Reserve is one defined by various Panics throughout US history, and the subsequent granting or elimination of Fed powers as a result of the supposed "lessons" learned from the Panic. Obviously, none of these Panics possessed the exact same set of circumstances, however, owing to the simplistic brilliance of Mark Twain, it is clear that there is some rhyming happening.

In October of 1907, the Knickerbocker Trust Company failed. The Company, run by one of J.P Morgan's good buddies, was allegedly involved in a multi-institution scheme designed to manipulate the price of copper(gone bad). Regardless though, the failure of Knickerbocker stoked a considerable amount of Panic, leading to additional bank runs/failures and a 48% decline in the Dow Jones Industrial Average. As a certain version of history tells it, the Panic subsided due to the heroic actions of James Pierpont Morgan, who stepped in to provide confidence and financial backing for the system as a whole. Of course, we must include the fact that Mr. Morgan benefited from the whole episode, as many failed insitutions were enveloped by his empire in the midst of the mayhem. More importantly however, the Panic of 1907 created the political impetus for the creation of the Federal Reserve. While conspiracy theorists cite more sinister motives for the Fed's creation, we would posit that men like JP Morgan simply wanted some other entity to shoulder the burden of the financial system during the next inevitable Panic. This is not to say however, that vested interests did not play a role in this story.

The "Crisis" that errupted in October of 2008 certainly has some parallel to the events of 101 years prior, the bulk of which we theorize is yet to come via reforms at the Federal Reserve. If you are in fact a conspiracy theorist, it should be quite easy to discern who or what helped spur the Panic of 2008: Simply make a list of who stands to benefit the most from potential reform of the financial system.
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