Monday, 11 February 2013

Banking Crisis 1873

The present economic turmoil has led people to look at previous economic crashes with particular interest shown in the depression of the 1930s. In reality what has to go back to the late 19th century to denote a recession as deep and long as this one. The Banking Panic of 1873, which began  the world wide Great Depression that lasted 20 years, bears many similarities with the present economic crisis and it was a North Staffordshire born man- Henry Clews- was deeply involved in the drama

 The son of a Cobridge potter he arrived in America in 1853 and started out as a clerk in a firm of wool importers. After few years, he tried to become a stockbroker but his efforts to gain admittance to Wall Street’s inner circle were snubbed until 1857

Clews became responsible for the marketing of the US debt during the Civil War. The reward for the political advice that he gave General Ulysses S Grant during his presidential campaigns was the conventional one: He was offered a role in Government. However he too was engulfed in the Panic of 1873

 The roots of the Bank fright were based on an expansion of credit; land speculation and lack of controls rather like today

The panic here started on a Thursday, Sept. 18th, when a major bank collapsed the result of speculation in an ill-conceived railway development. The bank suspended payment on the notes it had issued akin to declaring bankruptcy. The announcement was devastating to American finance houses.

The following Sunday President Grant came to New York, spending the day in consultation with, Henry Clews and other prominent business men to effect a solution. Businessmen flocked to the Fifth Avenue Hotel declaring that unless the government came to the rescue nothing could save the country from ruin. Of the country's 364 railroads, 89 went bankrupt following the crash. A total of 18,000 businesses failed. Unemployment reached 14% by 1876. Construction work halted, wages were cut, and real estate values and corporate profits vanished. One of the casualties of the crash was Clew’s own bank
Clews bounced back in just four years. By 1877, he had paid his debts and formed Henry Clews & Co, eventually taking over the entire space of the Mills Building opposite the stock exchange, an edifice that still exists today. From then on, Clews prospered as an investment banker and came to be known, like Warren Buffett is known today, as ‘The Sage of Wall Street.