A ring around it

Congress created the Federal Reserve after the Panic of 1907 with broad authority and a range of instruments to assume precisely this type of risk, in support of overall financial stability and economic growth. Timothy Geithner, president of the Federal Reserve Bank of New York, who negotiated the $30 billion loan to JP Morgan that facilitated its acquisition of Bear Stearns. WSJ

~ Bear Stearns ~

NYT asswipe.

Retrospectively more newsworthy:

"The paramount symbol of ... immigrant independence [in the early twentieth century] was the Bank of United States, which served immigrants and within a few years was establishing sixty offices spread out around New York. ... While it was large, because immigrants were arriving fast and saving aggressively, it was not a member of the New York Clearing House, and therefore outside the established network of banks. ... The Bank of United States served the textile and clothing businesses--the rag trade and many other, for depositors would soon number 400,000. From the jewel trade to the wholesale meat business, immigrants were integrating into the New York economy. ...

"That December [of 1930], the Depression took on a new seriousness. Heretofore, most of the banks to fail had been rural banks. Now an important bank in a big city ran into trouble, one that was a member of the Federal Reserve System. It was the young Bank of United States, the one that served so many immigrants--half a million depositors. The trouble at first did not appear so bad: unlike many others, the bank could count on more than $200 million in deposits. Something like half of depositors were small fry--low earners. ...

"The New York state superintendent of banks, Joseph Broderick. organized various potential rescue mergers with Manufacturers' Trust and the Public National. But the Clearing House banks killed the mergers. At the time, many observers saw the bank's problems as a consequence of class differences between the working class and immigrants on the one hand and Anglos on the other. The Establishment believed that the Bank of United States was marginal, and that this was a moment when only the strongest banks, as in Darwin, deserved to survive. But the Bank of United States had relatively strong books--at least as strong as many that were propped up by fellow banks. The problem was not so much individual weakness as bad monetary policy, inconsistent credit policy, and sheer bigotry. The bankers who turned against the Bank of United States were acting like Victorians.

"Broderick begged for the bank's future: 'I said it had thousands of borrowers, that it financed small merchants, especially Jewish merchants, and that its closing might and probably would result in widespread bankruptcy among those it served. I warned that its closing would result in the closing of at least ten other banks and that it might even affect the savings banks. The influence of the closing might even extend outside the city. I reminded them that only two or three weeks before they had rescued two of the largest private bankers of the city and had willingly put up the money needed. ... I warned that they were making the most colossal mistake in the banking history of New York.'

"The bank did suspend payments to depositors, the largest bank in America ever to do so. A leading banker described the attitude that motivated other banks' decision to abandon Bank of United States. 'Let it fail, draw a ring around it, so the infection will not spread.' On December 11, the sixty offices--sixty emblems of hope--closed their doors. ... Only a fraction [of the long lines of its customers that quickly formed] were served. ... It shortly became clear that sacrificing immigrants' banks would not confine American depositors' demand for currency. The infection that the banker had described was too large to draw a ring around. By 1931, panics at the larger banks began in earnest." Amity Shlaes, The Forgotten Man, via