Chapter 4Credit Crunch

According to our belief, there is no other man in this country who could have done what he [  J.P. Morgan] has done on this occasion.

—Commercial and Financial Chronicle, September 21, 1907

By mid‐spring 1907, the annual financing cycle agriculture had resumed in earnest. While 1906 had yielded a bumper crop in the western United States, 1907 seemed less promising; a weak harvest would have a possible negative impact on exports from the United States and the subsequent ability of U.S. firms to find financing in Europe. Anxieties about the capital available in London soon surfaced among leading financiers. On May 2, Teddy Grenfell wrote to his partners at J. P. Morgan & Company in New York: “Can you give me any information as to further shipments of gold? We are getting short at Bank of England and may have to raise bank rate sharply. I am hoping [to] get [ J. Pierpont Morgan] lunch at Bank of England tomorrow with the Governor. What is wrong with your market and is there any fear serious troubles?”1

What was wrong with the U.S. financial markets was the economy. A recession in output commenced in May 1907 that would not bottom out until June 1908.2 On May 24, the Commercial and Financial Chronicle reported “violent declines” in selected stocks and that “security markets remain very unsettled.”3 By June, Jack Morgan was writing to his partners in London, saying, “All the world is still in the dumps here, and with it we have everything else that comes ...

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