delanceyplace.com 6/28/10 - morgan meets cleveland
In today's excerpt - after the Panic of 1893 brought on a severe economic depressionin the United States, a highly reluctant President Grover Cleveland met with legendary banker J.P. Morgan:
"By law and custom the Treasury was expected to maintain $100 million in gold, usually a sufficient cushion against the quotidian buffets of supply and demand. But the extraordinary circumstances after the 1893 panic suggested this wasn't enough. During 1894 the Treasury's reserve flirted with the $100 million floor; by year's end the hoard was barely above the mark. ... On January 24, 1895, the gold reserve fell to $68 million; one week later it was $45 million. As large dollar-holders converged on the Treasury and scrambled to convert their paper to gold, the panic resembled runs that had brought down thousands of commercial banks since the depression began. But now the imperiled institution was the federal government. The solvency of the republic was at risk.
"The danger of the dollar overwhelmed [banker J.P.] Morgan's reluctance to show himself in public. He left the comfort and security of New York, where he was respected, if not exactly loved, and headed for Washington, where his enemies clustered. He traveled by private railcar, to avoid the hostile glares as long as possible. Grover Cleveland learned he was coming. The president hadn't invited the banker; even as the country approached the brink, Cleveland hoped something would occur to spare him the ignominy of turning to Morgan. And when Morgan reached the capital, Cleveland tried to keep him at a distance. He sent his secretary of war and closest confidant, Daniel Lamont, to intercept Morgan at Union Station. Lamont said the president would not meet with Morgan; he would find another solution to the problem.
"Morgan refused to be put off. There was no other solution, he said. And having ventured this far into enemy territory, he wasn't going to retreat without accomplishing his mission. 'I have come down to see the president,' he told Lamont. 'And I am going to stay here until I see him.' He climbed into a cab and drove to a hotel near the White House.
"All that evening Cleveland agonized. Morgan's journey to Washington had been reported in the papers; his presumed intervention heartened investors and diminished the pressure on the Treasury. The president wondered if he could somehow capture the financial benefits of Morgan's proximity without paying the political costs. Lamont brought word of Morgan's determination to remain in Washington; Cleveland considered riding out the siege. Morgan affected nonchalance. Reporters circled his hotel, swarming the entryways and infiltrating the lobby. He remained inside, silent and unseen. His few friends in the capital dropped by to visit; he greeted them one by one. After the last visitor left, he stayed up playing solitaire. Hotel workers later told reporters that the light in his room didn't go out till after 4 a.m.
"But the next morning by 9:00, he was shaved and ready for breakfast. He received with his juice the first reports of the opening of business in New York, and learned that the run on the Treasury had resumed. He hadn't even lit his post-breakfast cigar when a messenger arrived from the White House. The president would see him. ...
"The president's discomfort was obvious. He spoke of the crisis in terms suggesting he still hoped to avoid a Morgan rescue. Morgan listened briefly, then brought the matter to a head. His sources had told him that the Treasury's reserve was around $9 million. Other sources revealed that a single investor held a draft of $10 million against the Treasury's gold. 'If that $10 million draft is presented, you can't meet it,' Morgan declared. 'It will be all over before three o'clock.'
"Cleveland realized he had no choice. 'What suggestion have you to make, Mr. Morgan?' Officials at the Treasury had been considering a public bond offering; Morgan declared this method too slow. A private sale was necessary, he said. He would gather a syndicate that would take the government bonds and give the Treasury the gold it needed to stay afloat. ...
"Cleveland asked Morgan how large a transaction he had in mind. One hundred million, Morgan replied. Cleveland groaned. To the public it would appear that Morgan wasn't simply rescuing the Treasury but taking over the place. The president said $60 million would have to do.
"He then asked the critical question. 'Mr. Morgan, what guarantee have we that if we adopt this plan, gold will not continue to be shipped abroad, and while we are getting it in, it will go out, and we will not reach our goal? Will you guarantee that this will not happen?' Morgan didn't hesitate. 'Yes, sir,' he said. 'I will guarantee it during the life of the syndicate, and that means until the contract has been concluded and the goal has been reached.'
"Morgan was as good as his word, and his word was as good as gold—quite literally. As soon as news of the rescue flashed along the telegraph lines to New York and London, the gold that the Morgan syndicate pledged to deliver was almost superfluous. The fact that Morgan had become a cosigner on the federal debt was what impressed the markets. Within days the Treasury's condition stabilized; within weeks the dollar's danger had passed."