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A Lion In The Street
How J. P. Morgan, like a “one-man Federal Reserve,” calmed the bankers and helped ease the Panic of 1907
June 1957 | Volume 8, Issue 4
Morgan had saved the Trust Company of America for the day; he still felt that the other trust companies must take up the burden on the morrow. But it was not until late in the evening that, under continued pressure from Morgan, they agreed to contribute to the support of the Trust Company of America. Even so, the key factor in their decisions was the willingness of Secretary Cortelyou to make federal funds available to the trust companies indirectly. At a time when the trust company presidents were deadlocked, Perkins had slipped away from the meeting and had gone to Cortelyou’s room at the Manhattan Hotel. Cortelyou had agreed to allow the banks (where he could legally deposit the government’s cash) to lend the money to the trust companies if they in turn would make it available to the beleaguered Trust Company of America. Thus a $10,000,000 fund was raised, seemingly enough to bolster the company against any trouble.
But the next day, October 24, brought only further crises. Morgan arrived at his office at about ten to find the building jammed with frightened bankers and brokers. The fact that the Trust Company of America was able to pay off its demand deposits had not ended the run; indeed, the panic now had struck at another institution, the Lincoln Trust Company. Still worse, the Stock Exchange itself was in serious trouble. In a matter of hours blue chip securities lost 8 to 10 per cent of their value. Money for loans had practically disappeared, and hundreds of brokers faced ruin. Speculators ready and willing to meet their obligations and take their losses, men possessed of ample (and solid) securities, simply could not borrow money at any price. Morgan was besieged by men with tears in their eyes, others feeble and benumbed with terror, all faced by the dread specter of bankruptcy. Early in the afternoon the president of the Exchange, R. H. Thomas, squeezed his way into the House of Morgan with the dreadful news that the Exchange must close down if countless failures were to be avoided.
Morgan would not hear of this. The crucial moment for the Exchange would come at about twenty after two when it was customary to compare the day’s sales and adjust accounts. Morgan summoned the city’s leading bankers to a two o’clock meeting. When they arrived he told them that $25,000,000 must be raised in ten or twelve minutes. James Stillman promptly offered $5,000,000 of National City Bank cash, and others fell in line. By sixteen minutes past two the subscription had been filled. The word was announced to the waiting brokers, who cheered wildly and then rushed out to save themselves. When the market closed at three (after absorbing $18,000,000 of the $25,000,000 in half an hour) a mighty roar went up from the floor that Morgan heard in his office up the Street; upon inquiry he learned that the members of the Exchange had been cheering him as the savior of the situation.
Morgan, however, did not share in this feeling of relief. As he and his inner circle of advisers headed uptown to the Morgan Library for further conferences they were despondent. The runs on the trust companies had not slackened. The $10,000,000 trust company fund had almost evaporated. Millions of dollars of actual cash had been poured into the troubled situation by Cortelyou without producing any improvement whatsoever. During the evening Clark Williams, the state superintendent of banks, informed the group that Governor Charles Evans Hughes was considering a two-day bank holiday and wished to know what the bankers thought of the idea. Everyone but Morgan approved; he said that closing the banks would be disgraceful. But shortly after midnight word came that Hughes had decided that he lacked the authority to declare a bank holiday. At one o’clock the weary group broke up, feeling, as one of them remarked, “that we had about reached the end of our rope and no one having any idea what would happen the next morning.” To cap their troubles, the twenty-fifth was a Friday. The psychological effect that this fact might have on superstitious and already frightened investors added to the general gloom.
Dawn did nothing to revive their spirits. In the morning the Morgan offices were once more haunted by desperate men facing utter ruin. By noon the Stock Exchange was in trouble. Money was simply not to be had at any price, for the trust companies were calling their loans right and left in a desperate effort to re-trench. Morgan had served notice on “the big bear operators” that “if they attempted to break prices and throw the market into a panic he would crush them.” Through Perkins he asked President Thomas to stop executing orders on margin and the brokers had responded “most splendidly,” but even so, by early afternoon the demands for money became critical.
Again Morgan called the bank presidents to a meeting, this time at the Clearing House. He asked them to raise another $15,000,000 but could get promises for only $13,000,000. Many felt that their reserves had already been depleted beyond the danger point. (Morgan was contemptuous of this attitude. When, earlier in the panic, one banker had protested that his reserve was already down to 26 per cent, Morgan had said with scorn: “You ought to be ashamed of yourself…. What is a reserve for if not to be used in times like these?”) But time was short; Morgan took what he could get.