delanceyplace.com 1/24/12 - the mysterious meeting on jekyll island
In today's excerpt - when the 1907 financial panic hit the United States, there was no central bank, so a consortium of private banks led by JP Morgan had to dramatically intervene to rescue the banking system. America was the only major power without a central bank—a bank with the power to issue currency such as Britain's Bank of England and France's Banque de France. Even though the 1800s had been filled with banking panics, to the banker's dismay Americans had resisted the idea of a central bank, with Thomas Jefferson blocking the renewal of the First Bank of the United States in 1816, and Andrew Jackson blocking the renewal of the Second Bank of the United States in 1836. So after 1907 a renewed effort was made to create a central bank, which included a monumental and secret meeting on Jekyll Island that led to the creation of the Federal Reserve Bank in 1913:
"The 1907 panic exposed how fragile and vulnerable was the country's banking system. Though the panic had finally been contained by decisive action on Morgan's part, it became clear that the United States could not afford to keep relying on one man to guarantee its stability, especially since that man was now seventy years old, semiretired, and focused primarily on amassing an unsurpassed art collection and yachting to more congenial climes with his bevy of middle-aged mistresses.
"Shaken by the crisis, the U.S. Congress decided to act. In 1908, it created the National Monetary Commission, consisting of nine senators and nine representatives, and chaired by Senator Nelson Aldrich, to undertake a comprehensive study of the banking system and to make recommendations for its reform. Over the next few years, the commission produced a voluminous set of studies on central banking in Europe but not much else. Memories of how close the system had come to imploding progressively dimmed and the momentum for reform stalled.
"In 1912, Henry Davison, a Morgan partner, frustrated by the lack of progress and fearing that without changes the next panic would be even more catastrophic, set out to convene a meeting of experts to develop a formal plan to establish an American central bank—the third in the nation's history. Only five men were invited. Besides Davison himself, there was Senator Aldrich; Frank Vanderlip, the forty-eight-year-old president of the National City Bank, the largest in the country; Paul Warburg, of the well-known Hamburg banking family, a forty-two-year-old partner at Kuhn Loeb who, although he had only just moved to New York, was probably the greatest expert on central banking in the United States; A. Piatt Andrew Jr., the thirty-nine-year-old assistant secretary of the treasury, who had been a professor at Harvard and accompanied the original commission on its European study tour; and Benjamin Strong, then thirty-nine years old.
"Davison was worried, and for good reason, that any plan put together by a group from Wall Street would immediately be suspect as the misbegotten product of a bankers' cabal. He therefore chose to hold the meeting in secret on a small private island off the coast of Georgia—in effect creating the very bankers' cabal that would have aroused so much public suspicion. The preparations were elaborate. Each guest was told to go to Hoboken Station in New Jersey on November 22 and board Senator Aldrich's private railroad car, which they would find hitched with its blinds drawn to the Florida train. They were not to dine together, nor to meet up beforehand, but to come aboard singly and as unobtrusively as possible, all under cover of going duck hunting. As an added precaution, they were to use only their first names. Strong was to be Mr. Benjamin, Warburg Mr. Paul. Davison and Vanderlip went a step further and adopted the ringingly obvious pseudonyms Wilbur and Orville. Later in life, the group used to refer to themselves as the 'First Name Club.'
"Disembarking at Brunswick, Georgia, they were taken by boat to Jekyll Island, one of the small barrier islands off the Georgia coast, owned by the private Jekyll Island Club, which had opened in 1888 as a hunting and winter retreat for wealthy northerners. Described by one magazine as 'the richest, the most exclusive and most inaccessible club in the world,' it numbered only some fifty members, including J. P. Morgan, William Vanderbilt, William Rockefeller, Joseph Pulitzer, and various Astors and Goulds. Membership was now closed and had become hereditary.
"For the next ten days, the little party had the club with its skeleton staff to themselves—it had been closed for the summer and would not be open to other members for several weeks. They worked every day from early morning to midnight, convening in the luxurious rambling clubhouse with its turret, fifteen-foot ceilings, and numerous verandas and bay windows overlooking the Atlantic Ocean."