Saturday, May 08, 2010

Today's Lesson - the First Bank Bailout

From Caesar and Christ, by William Durant (Simon and Schuster, 1944, pp. 331-332):

The famous "panic" of A.D. 33 illustrates the development and complex interdependence of banks and commerce in the Empire. Augustus had coined and spent money lavishly, on the theory that its increased circulation, low interest rates, and rising prices would stimulate business. They did; but as the process could not go on forever, a reaction set in as early as 10 B.C., when this flush minting ceased. Tiberius rebounded to the opposite theory - that the most economical economy is best. He severely limited the governmental expenditures, sharply restricted new issues of currency, and hoarded 2,700,000,000 sesterces in the Treasury. The resulting dearth of circulating medium was made worse by the drain of money eastward in exchange for luxuries. Prices fell, interest rates rose, creditors foreclosed on debtors, debtors sued usurers, and moneylending almost ceased. The Senate tried to check the export of capital by requiring a high percentage of every senator's fortune to be invested in Italian land; senators thereupon called in loans and foreclosed mortgages to raise cash, and the crisis rose. When the senator Publius Spinther notified the bank of Balbus and Ollius that he must withdraw 30,000,000 sesterces to comply with the new law, the firm announced its bankruptcy. At the same time the failure of an Alexandrian firm, Seuthes and Son - due to their loss of three ships laden with costly spices - and the collapse of the great dyeing concern of Malchus at Tyre, led to rumors that the Roman banking house of Maximus and Vibo would be broken by their extensive loans to these firms. When its depositors began a "run" on this bank it shut its doors, and later on that day a larger bank, of the Brothers Pettius, also suspended payment. Almost simultaneously came news that great banking establishments had failed in Lyons, Carthage, Corinth and Byzantium. One after another the banks of Rome closed. Money could be borrowed only at rates far above the legal limit. Tiberius finally met the crisis by suspending the land-investment act and distributing 100,000,000 sesterces to the banks, to be lent without interest for three years on the security of realty. Private lenders were thereby constrained to lower their interest rates, money came out of hiding, and confidence slowly returned.*

*Footnotes: Tacitus, Annals, vi, 16-17; Suetonius, "Tiberius," 48; Davis, Influence of Wealth, I. Renan, in Lectures on the Influence of Rome on Christianity, 25, and The Apostles, 170, compares Tiberius' relief measures to the Credit Foncier of France in 1852; and Haskell compares the situation with the "easy money" period in the United States, 1923-9, the crisis of 1929, and the Reconstruction Finance Corporation (The New Deal in Old Rome, 183, 188).


Anonymous same old same old said...

Same period.

Soothsayers would foretell the future by studying the entrails of freshly killed animals. Apparently quite successfully because being wrong meant death.

Contrast that with the the "never right but always positive" "economists" of today.

1:22 PM EDT  

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