William Duer (March 18, 1743 – May 7, 1799) was a British-born American lawyer, developer, and speculator from New York City. A Federalist, Duer wrote in support of ratifying the United States Constitution as “Philo-Publius.” He had earlier served in the Continental Congress and the convention that framed the New York Constitution. In 1778, he signed the United States Articles of Confederation.

William Duer, a British-born speculator, was the first to use inside information to game the markets. Duer was appointed by Alexander Hamilton as the assistant secretary of the Treasury. He quit the job, but used his inside intel to speculate on bank stocks. Then, in 1792, an audit of his treasury books turned up $238,000 of missing money. The government sued him for the sum, taking down Duer’s financial empire, and much of the New York Stock Exchange, causing the country’s first market crash.

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]”

In December 1790, Hamilton called for the creation of the Bank of the United States, and in February 1791 President George Washington signed the charter allowing it to open. During the initial public offering for the Bank of the United States, investors paid $25 for a stock, called a scrip, and were required to make three additional payments in six-month intervals totaling $375. These payments were to be 25% in specie and 75% in US debt securities. Demand for stock in the newly formed Bank of the United States was significant, and prices for scrips increased dramatically for the first several weeks, reaching $280 in New York and reportedly over $300 in Philadelphia by mid-August.The market shifts were not sustainable, and within days prices began to fall rapidly. Hamilton stepped in by working with William Seton, the cashier of the Bank of New York, to authorize the purchase of $150,000 of public debt in New York to be covered by government revenues. By September 12, prices had recovered, and Hamilton’s intervention had not only stabilized the market but also laid the groundwork for his cooperation with the Bank of New York, which would later be crucial in ending the Panic of 1792.

In late December 1791, the price of securities began to increase once again, and the eventual crash in March 1792 caused many investors to panic and withdraw their money from the Bank of the United States.One of the primary causes of the sudden run on the bank was the failure of a scheme created by William Duer, Alexander Macomb and other bankers in the winter of 1791. Duer and Macomb’s plan was to use large loans to gain control of the US debt securities market because other investors needed those securities to make payments on stocks in the Bank of the United States. Additionally, Duer and Macomb were able to create their own credit by endorsing one another’s notes, and did so in hopes of creating a new bank in New York to overtake the existing Bank of New York.On March 9, 1792 Duer stopped making payments to his creditors and simultaneously faced a lawsuit for actions he had taken as Secretary of the Treasury Board in the 1780s. As Duer and Macomb defaulted on their contracts and found themselves in prison, the price of securities fell more than 20%, all in the matter of weeks.

The Panic of 1792 was further instigated by the sudden restriction of previously overextended credit by the Bank of the United States. When the Bank of the United States first began accepting deposits and making discounts in December 1791, it expanded credit extensively. By January 31, 1792 monetary liabilities exceeded $2.17 million, and discounts reached $2.68 million – a very large sum at the time. Speculators took advantage of this new credit source, using it to make withdrawals from the Bank of New York, which placed undue stress on the bank’s reserves. From December 29 to March 9, cash reserves for the Bank of the United States decreased by 34%, prompting the bank to not renew nearly 25% of its outstanding 30-day loans. In order to pay off these loans, many borrowers were forced to sell securities that they had purchased, which caused prices to fall sharply.

SOURCE

Advertisements