Scot's Plaid

Brad Thor 

A Thriller

Hidden Order

Excerpt

page 122

Scot Harvath noted Wise's derogatory tone when he used the term bank run. "This is the phony crisis you mentioned?" He nodded. "Are you familiar with something called the Hegelian dialectic?"

"I am. It's where a group or an individual creates a problem, knowing full well in advance how people are going to react to it. They then begin agitating for something to be done about the problem, for things to change. Once the masses are then worked up enough and desperate enough for something to be done, the party behind the problem unveils their solution. The people are thrilled to have a plan, any plan, and so demand that it be implemented. They never seem to realize that they've been manipulated and that they haven't really ushered in change, but actually a much worse version of what they had previously, only now in brand-new packaging."

"That's exactly what happened with the Fed. A problem was manufactured by a powerful group of people who sat on the sidelines waiting for a panicked citizenry to beg for a solution. Once people started begging loud enough, all this group had to do was set the wheels in motion and make it look like everything was unfolding naturally.

"In this case, it was a group of New York bankers colluding to set up a third central bank that would give them a monopoly over the banking system. Shortly after the New Year in 1907, an article appeared in the New York Times by investment banker Paul Warburg, who cautioned that Americans needed to reinstate a central bank if they wanted to avoid any more terrible bank runs.

"One of Warburg's banking partners then gave a speech to the New York Chamber of Commerce warning that if the United States didn't set up a central bank, the country was going to undergo the most severe and far-reaching crash in its history. The sky is falling. The sky is falling. All they needed then was to be proven right. Enter their pal, banker J. P. Morgan. "Once a slew of side bets were placed that the stock market was going to fall, a run was launched on the stock of a company called United Copper--one of J. P. Morgan's biggest competitors. Panic took over the market. It was like all of the water being sucked out to sea before a giant tsunami comes ashore. Suddenly, everyone wanted out.

"New York banks friendly to Morgan and Warburg yanked their money, the stock market dropped nearly fifty percent, and New York's third-largest trust collapsed. From there, the panic spread across the country as citizens rushed to their own banks to pull out all of their money.

"It was an all-out panic and people were screaming for something to be done. Enter once again J. P. Morgan, who pledged his own funds to help stabilize the banking system. 

"Rallying other New York bankers to join him, several of whom had helped to exacerbate the panic, Morgan magically stemmed the bleeding and the panic began to subside. But as it did, panic was replaced by a nationwide outcry that something be done so that this kind of thing never happened again."

"Never let a good crisis go to waste, right?" said Harvath. Wise smiled. "Precisely. The people blamed the bankers, but the bankers masterfully blamed 'the system,' which led to everyone clamoring for the system to be reformed.

ISBN 978-1-4767-1710-4

May 24