Jp Morgan Gp Morgan, Knickerbocker Trust, John Pierpont Morgan discussed on The Indicator from Planet Money


Hey, everybody it is. Stacey Vanik Smith and all this week. We have been running some of our favorite indicators from the year. So far today in episode that originally aired in April, but which originally happened more than one hundred years ago still timely. So, okay. Describing years. Like cou stick. Your voice gets really powerful. Just looks like the kind of place where you might have to whisper, you know does I'm of course Shia and I'm Stacey. MAC Smith described, we are. We're standing in the entrance rotunda of Pierpont Morgan's library. That would be John Pierpont Morgan j. p. Morgan, the banker. He built this library next door, his house in midtown Manhattan back in nineteen. Oh six. He built it to house his collection of rare books manuscripts and art works. Jennifer Tonka vich. One of the curator's at the library showed us around this room for us please. Well, I think you walk into this room and. You're kind of overwhelmed by the richness of these beautiful walnut. Bookshelves that go up three tiers with their rich brass railings and a giant tapestry hanging above the fireplace, which is rather spectacular. It really is rather spectacular. It's pretty sweet. And for two days in one thousand nine hundred seven, this room was basically the central Bank of the United States show the panic of nineteen o seven. What happened in this room and why it's especially relevant even now. Support for this podcast and the following message come from swell investing and impact investing platform, invest in high growth companies of the future, innovating and clean water, renewable energy and medical breakthroughs claim a fifty dollar bonus through swell investing dot com. Slash indicator back in nineteen o seven. The US was in kind of in awkward phase. The economy was growing and expanding. It was a really dynamic time we'll roads were opening up the whole country to commerce. The financial system was trying to keep up with all of this, but it was unstable and there was no central Bank, no authority overseeing everything. Meanwhile, these things called trusts had gotten really big, not trust operated a lot like banks could loan out money. They took deposits, but banks were subject to a bunch of regulations. They had to keep a certain amount of cash on hand. And banks also couldn't lend out money for risky things like speculating in the stock market. But trust on the other hand, they were like the. Wild west of finance back when the wild west was actually still thing in one thousand nine, seven gene Strauss's the altar of Morgan American financier. She says, trust had a lot of money tied up in lucrative risky ventures. Things like railroads and mining, and one of them had loaned money to this copper company that failed. And suddenly there was a run on this trust company called the Knickerbocker trust in mid October of nineteen. O seven depositors started pulling their cash out of the Knickerbocker trust. And it was really like a scene out of the movies with depositors lining up to get their money out. The Knickerbocker trust suspended operations, and people could not get their money out investors and other trust our panic, and then they started pulling their money out. The whole financial system started looking shaky and suddenly everybody's looking to one person. JP Morgan GP Morgan was a banker ped- of j. p. Morgan and company. But he was also this kind of self appointed backstop of the US economy. Jean said, he just had this gift for understanding the US financial system. He could read the pressure in financial markets. The way a doctor reads, the pressure in a patient's arteries. So trust were really small part of the economy, but JP Morgan knew that they had become very interconnected with the whole system banks, the stock market all had a lot of money wrapped up in trust and GP Morgan knew that if the trust failed, it could rattle the whole economy. That's right. And remember at the time nineteen seven, there was no central Bank to step in and inject those trust with cash and liquidity to stabilize them and thereby also stabilizing the rest of the economy. There was no mechanism for that Morgan was the mechanism. Morgan was the mechanism in this became increasingly obvious as the crisis world on in late October of nineteen. Oh seven. So for example, j. p. Morgan called up his banker friends and got them to put up their banks assets to help save a couple of trusts. But the crisis just kept going at one point. New York City couldn't meet its payroll. JP Morgan helped get the money and one another trust company was about to go bus. Just yet again, JP Morgan stepped in, saved it, and the stock market was low on cash and couldn't make its trades. Morgan again found a solution. So yeah, Morgan was the mechanism, but a couple of weeks after the initial run on the Knickerbocker trust, the mechanism wasn't feeling so hot, his terrible cold by this time. So one of the headlines reads

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