May 10, 2014

WHICH WAS ALREADY PRETTY AMAZING...:

Alexander Hamilton Was Even More Amazing Than You Thought (Peter Coy,  May 09, 2014, Business Week)

Today, a blog post from the Federal Reserve Bank of New York credits Hamilton with being the inventor of a bank crisis-management technique that's usually attributed to a Brit who came 80 years later.

Hamilton's innovative bank rescue came in the Panic of 1792, which authors James Narron and David Skeie call "Wall Street's first crash." A speculator named William Duer tried to corner the market in U.S. Treasury bonds, borrowing heavily to finance his purchases. When the bonds' prices fell and Duer defaulted, panic ensued. To stabilize the market, Hamilton, in coordination with the Bank of New York, stepped in as a buyer of last resort of Treasury bonds. He bought from whoever wanted to sell, but acquired only fundamentally sound assets, and he paid less than the full price, so only parties in desperate straits would resort to raising money that way.

What Hamilton did is close to what Walter Bagehot, a British journalist who was editor-in-chief of the Economist, advocated in his 1873 book, Lombard Street, which contains the concept of lending freely in a crisis at a penalty rate against good collateral.
Posted by at May 10, 2014 1:41 PM
  
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