The stock market slumped causing most of the over extended banks to falter. But in steps J.P. Morgan offering to save the day.
People will do strange things when in a panic, and this might explain why Morgan was authorised to print $200 million from nothing. He then used the $200 Million to prop things up. Some of the troubled banks with less than 1% in reserve had no choice. It was accept this solution or go under. Even if they had worked out that their problems had been caused by the same people now offering the solution, there is not a lot they could have done about it.
J.P.Morgan was hailed a hero.
“All this trouble could be averted if we appointed a committee of six or seven men like J.P.Morgan to handle the affairs of our country.”
But not everyone was fooled.
“Those not favourable to the money trust could be squeezed out of business and the people frightened into demanding changes in the banking and currency laws which the Money Trust would frame.”
Rep. Charles A. Lindbergh (R-MN)
Apart from making a small number rich at the expense of the many, in this case the instability also served the second purpose of encouraging the public to believe that they would be better off living under a Central Bank and a Gold Standard.
Unfortunately, desperate people have little time for logic and the path was opened to establish The Federal Reserve.