Wall Street History

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Wall Street History

08/06/1999

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.

[Sources: "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]

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