Bagehot by James Grant

Author:James Grant
Language: eng
Format: epub
Publisher: W. W. Norton & Company
Published: 2019-05-05T16:00:00+00:00

The Bank of England now manage well, and they used to manage ill. The directors used to let the reserve run low, and at every period of consecutive failures there was then the probability of a panic. Now the Bank of England manage well, keep their till full, and the failure of fifty discount companies, and the depreciation of all manner of shares, produces no real effect on the world at large.

By the time the Overend Gurney directors met in the first week of May to consider a capital call, the situation was irretrievable. Their only recourse was to their former savior, and, subsequent to 1857, their nemesis, the Bank of England. Would the Old Lady extend a helping hand to the troublesome people at 65 Lombard Street? The Bank dispatched a three-man team to inspect the supplicant’s books. The verdict was negative—the Corner House was insolvent—and the Bank declined to assist. The heretofore unimaginable occurred at 3:30 p.m. on Thursday, May 10. Overend Gurney closed its doors.

The ensuing panic exhausted the descriptive powers of the financial press. One observer likened the crisis to an earthquake: “It is impossible to describe the terror and anxiety which took possession of men’s minds for the remainder of that and the whole of the succeeding day. No man felt safe.”30 There were exceptions, though: prospering bears who had sold short the overvalued shares of Overend Gurney and those of its major clients, some of whom had, in addition, hammered the shares of innocent financial institutions about which they had planted malicious rumors. In the best of times, not many banks and discount houses could have exchanged their liabilities for gold sovereigns if the depositors demanded their money at once. In the worst of times, such a transformative feat was impossible.

On Friday—Black Friday, and therefore, inconveniently for the Economist, a going-to-press day—Bagehot scribbled a live report to Chancellor William Gladstone:

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