Saturday, November 15, 2008

GLOBAL MELTDOWN & THEREAFTER !

What goes up that comes down; this old adage is still valid. We all know that. But when it makes a free fall, then it crashes. This exactly happened in the all major stock markets all over the world, the Wall Street took lead. Thank god! History of Wall Street suggests what comes down crashing, stands up sooner or later. Sooner the better and worse the later; this is true with the recovery, as witnessed, no less than ten crashes, in the last century. Let us recapitulate what we have seen in the last century. Since it is going to be a long narrative, I shall write it in few installments. Hope you will hold your patients.
The first financial crash Wall Street witnessed in last century was in 1907. The New Year saw Wall Street in very depressed condition. The stocks were traded at 25% lower prices. It was due to tight money supply condition. At that time Otto Heinze came with a get-rich-quick scheme. He was joined by his brother Augustus Heinze, who was a copper magnet. Finally the triumvirate was formed when ice-king Charles W. Morse (mind you; they were pre refrigerator days, when ice were sold!) joined them. They started buying aggressively the stocks of United Copper. They thought they would turn copper into gold! With their plan they failed miserably and with them failed are those who financed them; the banks, the trusts. Banks went bankrupts as depositors ran to withdraw their money, sooner they got even slight inklings or heard rumors that those had links with the trio. In less than two weeks 9 banks and trust companies went bankrupt. The panic struck, public lost faith in the banking system. There was no deposits insurance in those days. With the banks going bankrupts, ordinary people lost their life’s savings! United States had no central bank at that time.
Do you know who came forward to bail out American economy at that time? It was JPMorgan, the 70 years old financier, who made the presidents of 50 trust companies agree to contribute $25 million each as loan. This rescued American economy from the 1907 crises. The American government woke up! Foreseeing the absence of JPMorgan like personality could cause the disaster, formed the Federal Reserve System. What we call now US Fed!

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