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When Washington Shut Down Wall Street:
The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy
William L. Silber

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Quotable Quotes

From the Introduction

  • Less than three weeks after the outbreak of the European conflict, Woodrow Wilson reviewed a roadmap for America's march to world financial supremacy.
  • November 11, 1914, the day the dollar's discount disappeared on world markets, and four years to the day before the Armistice, marks the turning point in America's battle for international financial leadership.
  • A panic in 1914 would have been the second act in an American financial tragedy. Alexander Noyes, the contemporary business editor of the New York Times, highlighted the drama when he said: "It is not too much to say that as a matter of financial history, the United States stood during those two or three weeks of August at the parting of the ways."
  • [Treasury Secretary William G.] McAdoo succeeded in August 1914 because he did not hesitate to bludgeon the crisis with a sledgehammer… McAdoo could apply massive force because he had implemented a plan to restore normal functions. Failure to include a strategy for withdrawal either promotes toothless emergency weapons, like a placebo to treat a serious disease, or imposes unnecessary costs.
  • McAdoo's imprint -- decisive leadership combined with a roadmap for crisis control -- turned a potential financial disaster into a monetary triumph.

From Chapter Four

  • Nothing darkens a crisis like the disappearance of a market. Routine transactions that barely merit a second thought become impossible and business relationships, normally taken for granted, disappear. The double-barreled closures on July 31, 1914 [of the New York Stock Exchange and the foreign exchange market] disrupted the financial linkages that greased the wheels of American commerce.
  • In August 1914 American bankers met the crisis like generals backed with heavy artillery... The demand for cash did not simply melt away under banker swagger in 1914. The financiers appeased the public by dispensing emergency currency like a tranquilizer.

From Chapter Five

  • Relief from potential embarrassment remained far off. The potential gold drain that assaulted American credibility [in August 1914] was about to intensify. The ban on stock trading had suddenly sprung a leak. McAdoo needed help to preserve American honor.

From Chapter Six

  • McAdoo brandished the New York Stock Exchange like a sledgehammer against the gold drain. He denied everyone a liquid market - Americans as well as Europeans. Not everyone took it lying down.

From Chapter Seven

  • In August 1914, less than eighteen months into his tenure as head of J.P. Morgan and Company, Morgan Jr. found his country on the verge of its second panic in seven years. Unlike his father, he succeeded in helping America avoid financial collapse.
  • McAdoo's assistance to New York City in 1914 marks the birth of the "Too Big to Fail" doctrine in American finance. The federal loan guarantees during the 1970s to the Lockheed Corporation, a giant defense contractor, to the Chrysler Corporation, at the time an American car manufacturer, and the bailout of Continental Illinois bank, the seventh largest bank in the United States in 1984, continued a tradition that began with McAdoo's decision to rescue New York City in 1914.

From Chapter Eight:

  • William Gibbs McAdoo could not ignore both Benjamin Strong and Paul Warburg. The unlikely duo -- Warburg, a German-Jewish immigrant with a central banking mission, and Strong, of Puritan stock with a patrician's sense of obligation -- formed a powerful counterweight to McAdoo. Warburg knew more about central banking than anyone in the System, but operated within McAdoo's sphere of influence. Strong's position as Governor of the New York Reserve Bank gave him a measure of independence, like the viceroy of some distant province.

From Chapter Nine

  • William G. McAdoo changed everything. At the outbreak of the Great War he honored America's commitment to gold, just like Britain, and turned the United States into a contender for the international financial crown.
  • A suspension of convertibility in 1914, the second American panic in seven years, could have been a decisive setback, like the one-two punch that halts a challenger for the Heavyweight Crown. Britain could have easily remained the undisputed, if somewhat battered, Champion of International Finance until the Second World War. It almost happened.
  • If Wilson had allowed [William Jennings] Bryan's view to prevail, the United States would have joined the entire world -- save for Britain -- in rejecting gold. After the war everyone would have forgiven America but they might not have trusted her -- like they trusted Britain -- to behave like a monetary superpower.

From the Epilogue

  • Alan Greenspan was one of fifteen students in my Advanced Theory of Money and Income class in 1966. I had just arrived at NYU as a twenty-three year old Assistant Professor. Greenspan was already a well-known forecaster with his own consulting firm, Townsend-Greenspan & Company. I don't remember much about what I taught, but the future Federal Reserve Chairman got an A.
  • Arthur Burns, Chairman of the Federal Reserve Board from February 1, 1970 until January 31, 1978, knew far more economics than either Paul Volcker or Alan Greenspan... [But] he failed to translate his expertise into action…An important distinction between a Great Thinker and a Great Leader is that a leader knows when to get the job done…and does it.
  • William G. McAdoo had no formal economics education. He was a lawyer by training and an entrepreneur by vocation. By virtue of his position as Treasury Secretary he became the first Chairman of the Federal Reserve Board. None of the central bank's crisis management tools were in place when the European conflict threatened American finance in August 1914. McAdoo triumphed, in part, precisely because he did not have an operational central bank. The absence forced McAdoo to improvise, allowing his practical bent to flourish.
  • McAdoo's victory in 1914 serves as a blueprint for crisis management. He would probably insist on including instructions that come with a tourniquet: Apply the restraint quickly to stop the hemorrhaging, repair the wound, and then restore normal functions. Hesitation at any stage can prove fatal.

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File created: 1/22/2008

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