|William Duer and the Crash of 1792
There once was a man named William Duer. Born in England in 1743, Duer was the son of a very successful West Indian planter. Educated at Eton, Duer settled in America in 1773, became sympathetic with the colonists grievances against Britain and, at the same time, he quickly began to hold positions of importance in New York society. Duer regaled his friends and associates at dinner at his home on Broadway, not far from Wall Street, where Trinity Church is still located. At his wedding to Catherine Alexander ("Lady Kitty"), the bride was given away by George Washington.
Duer became a member of the Continental Congress, a New York judge, and a signer of the Articles of Confederation. He was also secretary to the Board of the Treasury (appointed by Alexander Hamilton), a position that made him privy to the inner workings of American finance in the late 1780s. Hamilton, our first Treasury Secretary, was honest and never profited from his government position. Duer, on the other hand, saw nothing wrong with using information he was privy to to try and make a fast buck.
The Duer/Hamilton relationship was to have its trying moments. Duer had been instrumental in helping Hamilton establish the Bank of New York. Hamilton would attempt to bail Duer out of some major problems, later.
Duer had made his fortune in land and speculating on the Revolutionary debt. In 1791, Duer resigned his Treasury position and entered into a partnership with Alexander Macomb, one of New York's richest and most prominent citizens. They agreed to combine Macomb's money and Duer's speculative talents and insider connections with the Treasury Department. Duer began speculating on Bank of New York stock when there were rumors that it was to be bought by the Bank of the U.S. If true, the stock was sure to rise. But while long in the market with Macomb, he was short (betting the stock would go down) Bank of New York in his own account. If the merger failed, Duer and Macomb would lose, but Duer, on his own, would make a fortune. Since his agreement with Macomb called for using Macomb's money, not his own, all Duer had to lose by double-crossing his partner was honor, a sacrifice he seemed perfectly willing to make.
Hamilton, unaware of Duer's duplicity, but appalled at his speculative activities wrote on March 2, 1792. "'Tis time, there must be a line of separation between honest Men & knaves, between respectable Stockholders and dealers in the funds, and mere unprincipled Gamblers."
Duer became the center of attention and many were only too anxious to lend him money in hopes of getting in on the bandwagon. He began to buy other bank stocks for future delivery, betting that rising prices would enable him to pay for them when the time came.
But at the same time there were others who had an interest in seeing that prices fell, namely the Livingston clan, one of the richest families in the New York area. To ensure this, they began to withdraw gold and silver from their bank deposits, contracting the local money supply and forcing banks to call in loans, thus instituting a credit squeeze. Interest rates soared to as much as one percent a day.
This was ruinous for Duer and others who had borrowed to speculate. Desperate, he tried to borrow more to cover his obligations (All-Tech and Momentum Securities weren't around then to help him out), but there was none to be had.
With his fall, panic ensued. Immediately, Duer was thrown in debtors prison and Macomb ended up there as well. Alexander Hamilton, however, rode to the rescue and ensured that the country as a whole didn't suffer. He ordered the Treasury to purchase several hundred thousand dollars worth of federal securities to support the market, and he urged banks not to call in loans. Soon, calm quickly returned. According to historian John Steele Gordon, "It would be 195 years, until the great crash of 1987, before the federal government once again moved decisively to prevent a panic."
Because Duer often traded on insider information, he earned the distinction of being the first to do so. Within a month of his collapse and the crash that followed, the auctioneers and dealers resolved to move themselves in from the street and the coffeehouses and to find a more permanent location. It became apparent that the marketplace needed a central location so that dealings could be better controlled and better records kept. In May 1792, dealers and auctioneers entered the Buttonwood Agreement. Meeting under a buttonwood tree, today the location of 68 Wall Street, the traders agreed to establish a formal exchange for the buying and selling of shares and loans (bonds).
And what became of Duer? Hamilton tried to intervene on his behalf but was only able to obtain a short reprieve. Duer soon ended up back in prison and he died there in 1799.
"Wall Street: A History," by Charles Geisst
"The Great Crash of 1792," an article in the May/June issue of American Heritage magazine, written by John Steele Gordon]"