13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (41 page)

16.
Derivatives statistics are from Bank for International Settlements,
Semi-Annual OTC Derivatives Statistics, supra
note 11. On the growth and importance of credit default swaps, see Gillian Tett,
Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
(New York: Free Press, 2009).

17.
U.S. real GDP declined by 4 percent from Q2 2008 to Q2 2009; Bureau of Economic Analysis,
National Income and Product Accounts,
Table 1.1.6, available at
http://bea.gov/national/nipaweb/SelectTable.asp
. Actual and projected write-downs are from International Monetary Fund,
Global Financial Stability Report: Responding to the Financial Crisis and Measuring Systemic Risks, April 2009
(Washington: International Monetary Fund, 2009), 32–34, available at
http://www.imf.org/External/Pubs/FT/GFSR/2009/01/index.htm
.

18.
David Cho, “Banks ‘Too Big to Fail’ Have Grown Even Bigger: Behemoths Born of the Bailout Reduce Consumer Choice, Tempt Corporate Moral Hazard,”
The Washington Post,
August 28, 2009, available at
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html
; Elizabeth Hester and Elisa Martinuzzi, “JPMorgan Tightens Grip on Equity Sales by Selling Own Shares,” Bloomberg, June 28, 2009, available at
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYlWNEyLQzPk
.

19.
Press Release, Goldman Sachs, “Goldman Sachs Reports Third Quarter Earnings per Common Share of $5.25,” October 15, 2009, available at
http://www2.goldmansachs.com/our-firm/press/press-releases/current/pdfs/2009-q3-earnings.pdf
.

20.
John Gapper, “Master of Risk Who Did God’s Work for Goldman Sachs but Won It Little Love,”
Financial Times,
December 23, 2009, available at
http://www.ft.com/cms/s/0/479ac4ba-eb32–11de-bc99–00144feab49a.html
.

21.
In 2007, 3.2 percent of U.S. GDP was $450 billion. Bureau of Economic Analysis,
supra
note 17, at Table 1.1.5. Data for 1983 are from Gary H. Stern and Ron J. Feldman,
Too Big to Fail: The Hazards of Bank Bailouts
(Washington: Brookings Institution Press, 2009), 65. Data for 2007 are from
Federal Reserve Statistical Release, Large Commercial Banks,
December 31, 2007, available at
http://www.federalreserve.gov/releases/lbr/20071231/default.htm
, and from the annual reports of Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers.

22.
Annualized GDP in Q1 2009 was $14.178 trillion. Bureau of Economic Analysis,
supra
note 17, at Table 1.1.5. Asset data are from company quarterly reports.

CHAPTER 1: THOMAS JEFFERSON AND THE FINANCIAL ARISTOCRACY

1.
Theodore Roosevelt, “State of the Union Message,” December 3, 1901, in John T. Woolley and Gerhard Peters,
The American Presidency Project,
available at
http://www.presidency.ucsb.edu/ws/index.php?pid=29542
.

2.
Jefferson thought and wrote extensively about economic issues. See, e.g., Herbert E. Sloan,
Principle and Interest: Thomas Jefferson and the Problem of Debt
(Charlottesville: University Press of Virginia, 2001). For the broader context, see Drew McCoy,
The Elusive Republic: Political Economy in Jeffersonian America
(Chapel Hill: University of North Carolina Press, 1980).

3.
From a letter to John Taylor, in Albert Ellery Bergh, ed.,
The Writings of Thomas Jefferson,
Volume XV (Washington: Thomas Jefferson Memorial Association, 1907), 23.

4.
Ron Chernow,
Alexander Hamilton
(New York: Penguin, 2004), 352.

5.
Jerry W. Markham,
A Financial History of the United States, Volume I: From Christopher Columbus to the Robber Barons (1492–1900)
(Armonk, NY: M. E. Sharpe, 2002), 89–90.

6.
Thomas Jefferson, “Jefferson’s Opinion on the Constitutionality of a National Bank,” in Paul Leicester Ford, ed.,
The Federalist: A Commentary on the Constitution of the United States by Alexander Hamilton, James Madison and John Jay
(New York: Henry Holt, 1898), available at
http://avalon.law.yale.edu/18th_century/bank-tj.asp
; Alexander Hamilton, “Hamilton’s Opinion as to the Constitutionality of the Bank of the United States,” in Ford,
supra,
available at
http://avalon.law.yale.edu/18th_century/bank-ah.asp
.

7.
Chernow,
Alexander Hamilton, supra
note 4, at 353–54.

8.
Richard Scott Carnell, Jonathan R. Macey, and Geoffrey P. Miller,
The Law of Banking and Financial Institutions,
fourth edition (Austin: Wolters Kluwer Law & Business, 2009), 2–5.

9.
Richard Sylla, “Financial Systems and Economic Modernization,”
Journal of Economic History
62 (2002): 277–92; Peter L. Rousseau, “Historical Perspectives on Financial Development and Economic Growth,”
Federal Reserve Bank of St. Louis Review
(July–August 2003): 81–106; and Peter L. Rousseau and Richard Sylla, “Emerging Financial Markets and Early U.S. Growth,”
Explorations in Economic History
42 (2005): 1–26. As the need for large amounts of capital increased (e.g., for canals and railroads), new corporate forms evolved. Jonathan Barron Baskin and Paul J. Miranti, Jr.,
A History of Corporate Finance
(Cambridge: Cambridge University Press, 1997). This does not imply that all necessary institutions were in place and functioning smoothly in the United States by 1800; see Bruce Mann,
Republic of Debtors: Bankruptcy in the Age of American Independence
(Cambridge: Harvard University Press, 2002).

10.
Rousseau and Sylla, “Emerging Financial Markets,”
supra
note 9, at 3. Rousseau and Sylla stress that the United States developed the first truly competitive banking system. Stephen Haber explores how this system emerged from the political logic of competition between states. Stephen Haber, “Political Institutions and Financial Development: Evidence from the Political Economy of Bank Regulation in the United States and Mexico,” in Stephen Haber, Douglass C. North, and Barry R. Weingast, eds.,
Political Institutions and Financial Development
(Palo Alto: Stanford University Press, 2008): 10–59. For more on the political origins of the American corporate legal environment, see Lawrence E. Mitchell,
The Speculation Economy: How Finance Triumphed over Industry
(San Francisco: Berrett-Koehler, 2007).

11.
Markham,
Financial History,
Volume I,
supra
note 5, at 83, 90. His reports to Congress included one on the subject of manufactures and two on public credit. See Chernow,
Alexander Hamilton, supra
note 4.

12.
The national debt argument and its outcome are covered in Robert E. Wright,
One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe
(New York: McGraw-Hill, 2008). See also Albert Jay Nock,
Mr. Jefferson
(New York: Harcourt, Brace, 1926), chapter 5; and Willard Sterne Randall,
Thomas Jefferson: A Life
(New York: Harper Perennial, 1994), chapter 19.

13.
Chernow,
Alexander Hamilton, supra
note 4, at 345. More generally, Chernow argues that Hamilton interpreted and applied the Constitution in ways that were intended to help commerce develop.

14.
Rousseau and Sylla, “Emerging Financial Markets,”
supra
note 9, at 5.

15.
“The state-chartered banks, like the federally chartered [Bank of the United States], were corporations with limited liability, which is a major reason why they were able to attract so much capital.” Ibid.

16.
Richard Sylla, “U.S. Securities Markets and the Banking System, 1790–1840,”
Federal Reserve Bank of St. Louis Review
(May–June 1998): 83–98, at 93. His comparison is based on converting U.K. bank capital into dollars at the then prevailing market exchange rate.

17.
Richard Sylla, Jack W. Wilson, and Robert E. Wright, “America’s First Securities Markets: Emergence, Development, and Integration” (working paper presented at the Cliometric Society Meetings, Toronto, and the NBER Summer Institute, 1997).

18.
Rousseau and Sylla, “Emerging Financial Markets,”
supra
note 9, at 8–9.

19.
On the importance of personal relationships in early U.S. banking, see Naomi Lamoreaux,
Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England
(Cambridge: Cambridge University Press, 1996).

20.
Richard Hofstadter,
The American Political Tradition and the Men Who Made It
(New York: Alfred A. Knopf, 1948).

21.
Calvin Coolidge, “The Press Under a Free Government” (lecture, American Society of Newspaper Editors, Washington, D.C., January 17, 1925), in Calvin Coolidge,
Foundations of the Republic: Speeches and Addresses
(Freeport, NY: Books for Libraries Press, 1968), 183–90, at 187.

22.
Bray Hammond argues that some of Jackson’s strongest supporters were actually New York bankers who opposed the Second Bank because it was based in Philadelphia; they wanted some of its more lucrative functions for themselves. Bray Hammond,
Banks and Politics in America from the Revolution to the Civil War
(Princeton: Princeton University Press, 1957).

23.
Carnell et al.,
Law of Banking, supra
note 8, at 5.

24.
The Second Bank was not a central bank in the modern sense. Peter Temin,
The Jacksonian Economy
(New York: W. W. Norton, 1969), 53.

25.
Richard H. Timberlake,
Monetary Policy in the United States: An Intellectual and Institutional History
(Chicago: University of Chicago Press, 1993), chapter 3. See also Temin,
Jacksonian Economy, supra
note 24.

26.
Arthur Schlesinger,
The Age of Jackson
(New York: Book Find Club, 1945), chapter 7.

27.
Quoted in ibid. at 102. Emphasis in original.

28.
On the Bank War in general, see Markham,
Financial History,
Volume I,
supra
note 5, at 141–46.

29.
Ibid. at 145.

30.
Andrew Jackson, “Veto Message,” July 10, 1832, in James D. Richardson, ed.,
Messages and Papers of the Presidents (Volume II, Part 3: Andrew Jackson, March 4, 1829, to March 4, 1833),
available at
http://onlinebooks.library.upenn.edu/webbin/gutbook/lookup?num=10858
.

31.
Quoted in Jon Meacham,
American Lion: Andrew Jackson in the White House
(New York: Random House, 2008), 201. Emphasis in original.

32.
Markham,
Financial History,
Volume I,
supra
note 5, at 145. The actual economic power of Biddle should not be exaggerated; the ensuing recession was small despite the strong rhetoric on all sides. Temin,
Jacksonian Economy, supra
note 24.

33.
The Bank of England began as a powerful commercial bank and, during the nineteenth century, became in part a central bank.
Report of the Committee on Finance and Industry, British Parliamentary Reports on International Finance, The Cunliffe Committee and the Macmillan Committee Reports
(New York: Arno, 1978), chapter 4. On the origins of the Bank of England, see Steve Pincus,
1688: The First Modern Revolution
(New Haven: Yale University Press, 2009).

34.
Robert V. Remini,
The Life of Andrew Jackson
(New York: Harper Perennial, 2001); Meacham,
American Lion, supra
note 31.