Lesson+5—Fed+History+_Early+Days_

Lesson+5—Fed+History+_Early+Days_ - Lesson...

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Lesson 5—Fed History (The Early Days) Panic of 1907 Federal Reserve Bank of Boston http://www.bos.frb.org/about/pubs/panicof1.pdf Historical Beginnings….The Federal Reserve System Federal Reserve Bank of Boston http://www.bos.frb.org/about/pubs/begin.pdf
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Knickerbocker Trust—The Panic of 1907
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One of the FED’S GOVERNER RESIGNED- KEVIN WARSH KEVIN WARSH JOINED IN 02
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Knickerbocker Trust—Corner of 5th and 34 th Streets, NYC The year 1907 saw an unsettled, declining stock market, a budget crisis in New York City, continued economic fallout from the San Francisco earthquake the year before, and other financial problems. In October, several banks connected with Charles W. Morse and F. Augustus Heinze failed. Both men were held in low regard by many in the financial community. Indeed, Mr. Morse was convicted for bank fraud in 1910 in an unrelated case and, according to “The Panic of 1907” by Robert F. Bruner and Sean D. Carr (Wiley, 2007), while in prison met Charles Ponzi, who developed the infamous pyramid scheme. (NYT, March 5, 2009)
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Charles Barney—President of the Knickerbocker Trust Company When it became known that Mr. Morse and Mr. Heinze were associated in some projects with Mr. Barney, he was obliged to resign from the bank he had helped create on Monday, Oct. 21. But in that nervous climate, rubbing shoulders with such men was enough to precipitate a run on the Knickerbocker. On Tuesday, Oct. 22, so many depositors showed up that the police were called in to keep order.
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The “Run” against the Knickerbocker spread to other banks The Knickerbocker attempted to borrow reserves from other NYC banks, but was denied. Barney turned to JP Morgan, but was refused Barney resigns from Knickerbocker and later takes his own life The Knickerbocker was forced to close
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J.P. Morgan Ultimately Came to the Rescue Morgan demanded that presidents of New York trust companies — then a type of second-class bank — act together to save one of their own, the Trust Company of America, from a bank run. Morgan, then the dominant figure in American finance, called the presidents to a Saturday meeting in his library — and locked the door. Not until dawn Sunday did he let them out, after they had committed the needed cash. Effectively Morgan restarted interbank lending, encouraged the Treasury Department to hold larger balances at NYC banks, and put at risk the reserves of JP Morgan Trust, actions not dissimilar to what the Federal Reserve has done in response to the crisis of 2007-2009 JP MORGAN ALLOWED LIQUIDITY.
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National Monetary Commission--1908 In 1908, the Congress created the National Monetary Commission. This Commission, led by Nelson W. Aldrich- congress man of rhode island , composed a plan of how the central bank would look like. and composed of members of the House of Representatives and the Senate, was charged with making a comprehensive study of the necessary and desirable changes to the banking system of the
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This note was uploaded on 03/23/2011 for the course ECONOMICS 220 taught by Professor Clare during the Spring '08 term at Rutgers.

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Lesson+5—Fed+History+_Early+Days_ - Lesson...

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