BAILOUT!!!

. . . in the long -- the very long -- 18th century

Alexander Hamilton, dreaming of a better way, in a letter to Philip Livingston, April 2, 1792:

I observe that certain characters continue to sport with the Market & with the distresses of their fellow Citizens. ’Tis time there should be a line of separation between honest Men & knaves; between respectable stockholders and dealers in the funds, and mere unprincipled Gamblers. Public infamy must restrain what the laws cannot.

When he wrote that, Hamilton was exhausted. He’d just yanked his entire financial system—to him, that system was the very basis for stability in the new federal government of the United States—out of a crash. For the second time. In only one year.

The system was supposed to work, yet twice now he’d been driven to extremes of over-the-top, all-nighter creativity to keep the machine from bringing itself down, via the force on which it relied for its own energy: personal avarice. That fundamental problem, which he evidently couldn’t see as fundamental, was now pushing Hamilton, the author of the connection between American public finance and American nationhood—what his mentor Robert Morris called “the Money Connection”—into the state of infuriated bafflement reflected in the quotation above.

What made the problem fundamental was that literally no way existed for doing what Hamilton was dreaming about doing: drawing a bright line through the financial markets to separate good guys from bad guys, putting respectable investors and brokers on one side and lowlife gamblers on the other. Hamilton’s biographers have had a hard time dealing with the stark facts of the commercial world he lived in and the approach to doing business taken by his closest allies. Those two near-crashes had been caused, more or less single-handedly, by one William Duer, an astonishing hustler on the Madoff-SBF-Holmes arc, painted by some Hamilton biographers as a grubby aberration from more ethical commercial players of the day.

But Duer was anything but grubby. A bright light of his generation, the top finance superstar, he wasn’t just a longstanding friend of Hamilton but also recently his assistant at the Treasury Department; Hamilton had also placed Duer at the head of the board of a startup he was encouraging. Hamilton wasn’t naive. He knew Duer’s get-rich-quick obsessions well. He knew the frenzy Duer’s schemes generated among both an eager investing public and a lending industry eager to earn high interest on loans borrowed for the purpose of wild speculation. Duer’s leadership enabled Hamilton’s pet startup to exceed its its first-round-financing goal almost overnight. That same kind of frenzy enabled Hamilton’s major national project, the Bank of the United States, to sell out all of its shares within hours on opening day.

Without frenzy, nothing. Duer, the magic money man, the ultimate insider dealer, was a great conjurer of frenzy.

And he took things to extremes. That was both the glory and the problem. (The situation may sound familiar.)