The Blue Raccoon

Friday, August 10, 2007

Panic Attack

Back in the day, that is, way past the far corners of most living memories, when a national economic downturn beat down the U.S. economy it was referred to as a "Panic."

Pictured above, from the North Trek Promotions site, and imager Eric P. Newman, is an example of Minnesota scrip. The caption is worth repeating: "Following the Panic of 1893, currency was difficult to obtain, and actually carried a premium in the month of August. To facilitate payments to providers of grain during the harvest, some companies issued notes such as this one from the Minneapolis & Northern Elevator Company. The issues were short-lived."

The Panic of 1893 sunk the major finances of the country until the 1898 outbreak of the Spanish-American War. [Another conflict caused by false intelligence, a compliant and hysterical media, worsened by poor planning, malaria, and imperial delusions -- our first ever "splendid little war" -- but the U.S. won.]

The Panic of 1893 is little mentioned or remembered now, considering the precipice upon which we stand now, it may be worth a visit. Because the 1890s were far less statistics mad than the present era, the causes aren't understood in full, while the proximate intitiating factors can be gleaned. Various historians have their assorted theories, though some seem to have a political or theoretical bias to push. You know, the past isn't safe reading for the present, so you have to spin that, too.

Besides the financial panic, in the U.S., the big socio-cultural display was the enormous Chicago World's Fair and its stunning "White City." That event was given a proper analysis in the excellent and compelling narrative non-fiction work Devil in the White City, by Erik Larsen. Here, in a plot worthy of either an unfettered Theodore Dreiser or German dramatist Frank Wedekind, the stunning effort of many people who sought to realize the boldest possible declaration about the U.S.'s unlimiate future is juxtaposed against the activity of a charming serial killer "Dr. Harry Howard Holmes" who used the exposition as a cover in which to lure his usual young female victims. (Image from )

If you've not read this book, and this period interests you, and you enjoy reading absolute fact that reads like masterful fiction -- you need to pick it up.

David O. Whitten of Auburn University, linked above, notes:

"The Depression of 1893 was one of the worst in American history with the unemployment rate exceeding ten percent for half a decade... [It] was accompanied by violent strikes, the climax of the Populist and free silver political crusades, the creation of a new political balance, the continuing transformation of the country's economy, major changes in national policy, and far-reaching social and intellectual developments. Business contraction shaped the decade that ushered out the nineteenth century.

....The depression struck an economy that was more like the economy of 1993 than that of 1793. By 1890, the US economy generated one of the highest levels of output per person in the world -- below that in Britain, but higher than the rest of Europe. Agriculture no longer dominated the economy, producing only about 19 percent of GNP, well below the 30 percent produced in manufacturing and mining...Throughout the country few families were self-sufficient, most relied on selling their output or labor in the market -- unlike those living in the country one hundred years earlier."

One of the first indicators that things were spiraling out of control was a trainwreck in the railroad industry, with companies going out of business. Railroad failures caused setbacks in the steel industry, and thus initiated cascading misfortune. This was the late 19th century version of a high tech bubble bursting. In the agricultural sector, where farmers were unable to pay their mortgages, lending institutions turned turtle, and foreclosures increased. There were labor riots, other civil violence, and general weirdness.

San Jose University's Thayer Watkins observes,
"As has happened in other times some politicians went on record stating that the American economy was in a high state of prosperity just before the financial panic began and 500 banks and 16,000 businesses declared bankruptcy."

But something else was quite wrong in the exuberant U.S. Nowhere is the darkness more evident in the often gruesome and belief-defying narrative of Michael Lesy's 1973 The Wisconsin Death Trip.

As Amazon describes it, "The last decade of the 19th century was, for some Americans, a time when great fortunes were to be made. For many others, however, the period was a time of economic dislocation, when the gap between city and countryside, rich and poor, grew ever wider. As the Indian Wars ended and the Gilded Age extended into America's first Imperial Age, social critics such as Mark Twain and William Dean Howells began to examine the dark side of the American dream: violence, poverty, degenerate behavior, suicide, and insanity."

I discovered this book at some social event years ago--maybe in college--and because I'm just this kind of sort, while everybody else was having a high old time, I sat in the corner and was drawn into this distant, cruel world that seems even now more relevant. The town of Black River Falls, Wisconsin, was not a weird chapter from the past, but a prefiguration--or iteration--of some of the vivid and awful component parts of the world.

This is American gothic. For real.

My suspicion is that were it released today, The Wisconsin Death Trip would get sniped at from online sources about being pilfered, filched, fabricated and digitally altered. Sometimes, though, truth is just truth, and awful to behold.

From the production notes of the 2000 film of the same name

"Lesy discovered a striking archive of black and white photographs in the town of Black River Falls dating from the 1890’s and married a selection of these images to extracts from the town’s newspaper from the same decade.The effect was surprising and disturbing. The town of Black River Falls seems gripped by some peculiar malaise and the weekly news is dominated by bizarre tales of madness, eccentricity and violence amongst the local population. Suicide and murder are commonplace. People in the town are haunted by ghosts, possessed by devils and terrorized by teenage outlaws and arsonists."

Panic, perhaps, is just a state of being here. Best thing to do is make art, love well, live within your means, don't give in to envy, strive for friendship, and save your money in a jar. Well. I don't, but maybe I should.

The star of the New York Times article this morning titled, "Modern Finance Suffers Its Version Of Run on the Bank" is the 1907 Panic that Doctorow mentions in his Ragtime, when financier J.P Morgan with his own checkbook prevented a complete melt down of the U.S. economy. Writer Floyd Norris shows how this event nudged into being the Federal Reserve, and the Great Depression begat Federal Deposit Insurance.

"But a new financial architecture emerged in the last decade," Norris writes. "--one that relied more on securities and less on banks as intermediaries. With the worth of those securities now being questioned -- and no equivalent of deposit insurance -- some who financed the securities want their money out, a fact that has created the 21st century equivalent of a run on the bank.

Left to deal with the run are the institutions that were created to deal with the old system's problems -- notably the central banks like the Federal Reserve and the European Central Bank. But, in contast to their close involvement with the banking system, these banks have little regulatory oversight of the securities that are in trouble and may not even know who is holding them."

Loans are financed directly by investors, Norris explains, instead of through the indirect method by bank depositors. These investors can be anything from hedge funds to influential capitalists. They felt assured by this approach because the bulk of the securities "were blessed as very safe by the bond rating agencies like Moody's and Standard & Poor's."

The moral is: you go into an international financial downturn with the economic system you have, not the econonic system you want.

And the beat goes on.

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