J. P. Morgan & the $10 million draft

"With the recession that began in 1893, demand for farm goods waned and prices fell. At the time, U.S. currency was backed by gold , and the government had a gold reserve of $100 million to exchange for dollars. To increase the money supply and, hopefully, create demand for farm goods, the government began issuing dollars convertible into silver, a less desirable exchange, particularly to European investors. These investors feared the new money would cheapen the value of the dollars they held. As a result, they rushed to convert large quantities of dollars into gold, shipping the metal to Europe.

The drain turned critical in 1895 as the reserves neared exhaustion. If the gold ran out, the government would default on any outstanding dollars presented for exchange. Knowing that default would make it impossible to sell U.S. securities in Europe, Morgan boarded a train for Washington to see President Grover Cleveland. For political reasons, Cleveland, though friendly with Wall Street, had to avoid appearing sympathetic to supporters of the gold standard. American farmers were a large voting bloc, and politicians such as Williams Jennings Bryan were blaming Wall Street bankers for nailing farmers to a "cross of gold." Fearful of the political ramifications, Cleveland initially refused to see Morgan.

Undaunted, Morgan announced he was not leaving Washington until he saw the president. That night he calmed himself by playing hours of solitaire in his hotel room as he puffed on cigars. The next morning he returned to the White House.

During the meeting with Cleveland, Morgan sat in quiet frustration, crushing an unlit cigar in his hands while the president and others debated what to do. The meeting was interrupted when a message arrived stating that the Treasury was down to $9 million in gold [in reserves]. Morgan seized the opportunity to tell the president of a $10 million draft that he claimed

[!] was going to be submitted. Cornered, Cleveland asked the financier for his solution.

Morgan told the president that he could arrange for the delivery of 3.5 million ounces of gold in exchange for $65 million worth of 30-year gold bonds. The government would float the bond issue, which Morgan would sell, under a statute enacted in 1862 granting the president emergency powers to buy gold. Reluctantly, Cleveland conceded, saving the government from default."

[Did the $10 million draft really exist? A shrewd judge of other people, J.P. Morgan once remarked that "a man always has two reasons for the things he does." The two reasons? "A good one and the real one." ... By the mid-1890s, Morgan's reputation was such that crowds would separate to let him pass when he walked down the street.]

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