Against the Grain

Volume 23 | Issue 6 Article 40

December 2011 Collecting to the Core -- Financial Crises Peter Z. McKay Resources for College Libraries, [email protected]

Anne Doherty CHOICE/ACRL, [email protected]

Follow this and additional works at: https://docs.lib.purdue.edu/atg Part of the Library and Information Science Commons

Recommended Citation McKay, Peter Z. and Doherty, Anne (2011) "Collecting to the Core -- Financial Crises," Against the Grain: Vol. 23: Iss. 6, Article 40. DOI: https://doi.org/10.7771/2380-176X.6060

This document has been made available through Purdue e-Pubs, a service of the Purdue University Libraries. Please contact [email protected] for additional information. • How do we coordinate shared print archiving Curating Collective Collections nationally and internationally? Endnotes from page 77 • What existing models outside librarianship 1. Thanks to Bob Kieft of Oc- and higher education might inform the cidental College for this apt turn are published, for example public library development of the social and technical of phrase. materials such as self-help books, popular infrastructure? 2. OhioLINK Collection Build- fiction and biography, etiquette, and other • What voices outside librarianship need to be ing Task Force, Julia Gammon genres that later become invaluable sources and Edward T. O’Neill. 2011. heard and what ideas and concerns need to be OhioLINK–OCLC Collection and for cultural historians. grappled with as we systematically and stra- • What if we start down this road but find Circulation Analysis Project 2011. tegically (or not!) “drawdown” “redundant” Dublin, Ohio: OCLC Research. part-way there that the political will and/or library holdings? http://www.oclc.org/research/ financial resources necessary to do the job publications/library/2011/2011- well are not forthcoming? Invitation to Participate 06r.htm Other Big Questions While those already active in shared print ar- 3. Constance Malpas, Cloud- chiving will read and contribute to this column, a sourcing Research Collections: Another facet of Curating the Collective Col- primary purpose is to engage a broader spectrum Managing Print in the Mass- lection will be thoughtful essays wrestling in a pub- of librarians in thinking about and discussing digitized Library Environment lic forum with some of the larger questions attendant these issues. You are invited to help shape this (Dublin, Ohio: OCLC Research, to this remarkable conceptual and operational shift column by: 2011), p. 66 http://www.oclc. from managing individual institutional collections to org/research/publications/li- reliance on a cooperatively curated, shared national • Offering opinions, ask questions and sug- brary/2011/2011-01.pdf reported collection. Some of obvious questions include: gest topics for articles. Remember, please a rate of 31%, which has now send me a note now suggesting three top- • What is the political economy of a national increased to 45% as announced by ics you’d like to see covered in the year John Wilkin at the HathiTrust shared collection? Who will own and have ahead. Constitutional Convention on access to materials? What are the long range • Proposing to write or co-author articles on October 8, 2011. cost and power implications of the structures 4. Courant, Paul N. and Mat- we establish for sharing? Who might be left relevant issues about which you are passion- ate and knowledgeable. thew “Buzzy” Nielsen, “On the out? Will shared print archiving ameliorate Cost of Keeping A Book,” in or exacerbate inequitable access to scholarly • Commenting on and contributing to a pos- The Idea of Order: Transforming materials? sible Curating the Collective Collection Research Collections for the 21st • How can we build sustainable trust networks blog. Century Scholarship. CLIR Publi- that will endure for generations? Stay tuned and be in touch! cation no. 147, June 2010.

Collecting to the Core — Financial Crises by Peter Z. McKay (Business Librarian, University of Florida Libraries; Economics Subject Editor, Resources for College Libraries)

Column Editor: Anne Doherty (Resources for College Libraries Project Editor, CHOICE/ACRL)

Column Editor’s Note: The “Collecting to the Core” column highlights monographic has value based on government decree and is works that are essential to the academic library within a particular discipline, inspired by intrinsically useless, the Bank of ’s the Resources for College Libraries bibliography (online at http://www.rclweb.net). In each ability to create money was restricted since essay, subject specialists introduce and explain the classic titles and topics that continue to new note issues had to be backed by gold. For remain relevant to the undergraduate curriculum and library collection. Disciplinary trends a comprehensive history of gold and its role may shift, but some classics never go out of style. — AD as both an economic unit and a mythologized object of human desire, see financial historian Peter Bernstein’s The Power of Gold: A His- “Money will not manage itself, and Lombard Street has a great deal of tory of an Obsession.3 While the Bank of money to manage.” — Walter Bagehot, Lombard Street1 England performed many public functions, such as establishing the gold-backed legal tender and purchasing government bonds, it remained n 1873 the British journalist, political com- as the original crisis management manual for privately owned. There was an inherent conflict mentator, and economist Walter Bagehot, central banks. This essay discusses some of the between its role as a private institution whose Ithe long-time editor of , fundamental works covering modern financial primary constituency was its shareholders and published Lombard Street: A Description of crises, from nineteenth-century Lombard Street its public role to promote financial stability. the Money Market.2 At the time, London was to twenty-first century Wall Street. In a crisis, the key question was whether the the financial capital of the world and Lombard Founded in 1694 to finance the War of the would preserve the wealth of Street — home to the Bank of England, private League of Augsburg against France, the Bank its private shareholders or help rival banks in banking houses, joint stock banks, and bill bro- of England grew to become the de facto issuer order to preserve the public financial system. kers — was the epicenter of finance, much like of British currency and the country’s central The nineteenth century saw frequent, frighten- today’s Wall Street. Bagehot’s book was based bank. In addition to its role as the government’s ing financial crises that intensified this tension. on a series of essays published in The Economist bank, it became the bankers’ bank and the As Carmen Reinhart and Kenneth Rogoff beginning in the 1850s. In addition to a lively keeper of Great Britain’s currency and reserves, chronicle in This Time Is Different: Eight Cen- portrait of the contemporary money market colloquially coined “The Old Lady of Thread- turies of Financial Folly, the and leading personalities in mid-nineteenth needle Street.” When the British Parliament alone experienced banking crises in 1810, 1815, 4 century London, the book forcefully argued that officially established the in 1821, 1825, 1837, 1847, 1857, and 1866. the Bank of England must play the key role of the Bank of England was required to redeem These frequent financial crises highlight in stemming a banking pan- all of its notes in gold on demand. In contrast how the banking system functions as a con- ic. Today, Lombard Street is widely regarded to today’s “fiat money” system whereby money continued on page 79 78 Against the Grain / December 2011 - January 2012 soundness of other banks and trusts resulted Collecting to the Core in anxious depositors lining up to withdraw from page 78 funds, causing more failures. The money market froze, the stock market fell sharply, and McFarland fidence game, not in the traditional sense of a the City of New York almost went bankrupt. swindling operation, but in the sense that any This panic occurred in the National Banking bank’s soundness depends on the belief that a Era, when the United States did not have a bank’s depositors and creditors can get their that could lend freely and halt the money at a moment’s notice. Banks borrow panic. The legendary John Pierpont Morgan for short periods and lend for long periods, organized a group of leading private bankers profiting from the difference in the rate they and financiers to put up enough money to stop pay to depositors and the rate they charge bor- the panic, effectively serving as the lender of rowers. Because of this, a modern bank will last resort. Perhaps ironically, the financial typically maintain only about ten percent of its system in 1907 was saved by an ad hoc group assets in liquid securities such as United States of wealthy businessmen, and the crisis led to the Treasuries. For every one dollar in reserves, a establishment of a modern U.S. central bank in bank has nine dollars on loans to businesses 1913 — the Federal Reserve System. and individuals. Modern fractional reserve The Great Depression shows what can banking relies on public confidence that a happen when the lender of last resort fails to depositor can obtain funds on a moment’s no- act forcefully enough. Liaquat Ahamed’s tice. During a banking crisis, credit contracts : The Bankers Who Broke the and players seek safety in cash or its nearest World won the “Best Business substitute. Historically, this has led to bank runs Book of the Year” award in 2009.9 Ahamed — a rush to withdraw cash that depletes banks’ recounts how mistakes made by the world’s cash reserves, causing banks to fail and credit leading central bankers — Montagu Norman markets to freeze. Individuals and institutions of the Bank of England, Émile Moreau of acting rationally in their self-interest can cause the Banque de France, Hjalmar Schact of the entire financial system to collapse, and the the Reichsbank, and Benjamin Strong of the crisis becomes catastrophic. Federal Reserve Bank of New York — led the Given the historical frequency of financial world’s central banks to inadequately respond T.D. Webb crises, there is much practical, as well as to the Great Depression. Belief in and adher- $65 softcover (7 × 10) 2011 theoretical evidence to draw from. In Lombard ence to the gold standard effectively handcuffed Street, Bagehot argued that in a financial cri- the central banks. Ahamed notes: “They failed Bibliography, index sis the Bank of England must “... lend freely, to fulfill even the most basic central banker’s ISBN 978-0-7864-6478-4 boldly, and so that the public may feel you responsibility: to act as lender of last resort and Ebook 978-0-7864-8886-5 mean to go on lending,” even though “...the support the banking system at a time of panic.”10 first instinct of everyone is to the contrary.”5 In their of the Depression, The His dictum flies in the face of the most basic Great Contraction 1929-1933, Nobel Laure- economic survival instinct: preserve capital. ate Milton Friedman and Anna Schwartz The wisdom of Bagehot’s primary principle wrote that Bagehot’s Lombard Street was “the has been repeatedly proven in financial crises locus classicus of central bank policy.”11 They ever since. In the classic work Manias, Panics conclude that the Federal Reserve could have and Crashes, first published in 1978 and now in greatly lessened the severity of the crisis had it its sixth edition, economic historian Charles P. fully embraced Bagehot’s principle. Kindleberger reviews the anatomy of financial However, the lender of last resort doctrine crises and thoroughly explores the concept presents a paradox: if market participants are of the lender of last resort, determining that confident that the central bank will always “practice preceded theory.”6 The necessity for introduce funds into the market during an a lender of last resort in a crisis was born from economic crisis, then they are more likely to repeated crises in the nineteenth century: “The take on greater risks to generate higher returns, lender of last resort stands ready to halt a run out simultaneously producing the next financial of real and illiquid financial assets into money crisis. Economists call this condition, clearly by making more money available.”7 illustrated during the recent financial crisis, The Panic of 1907: Lessons Learned from “moral hazard.” The Financial Crisis Inquiry the Market’s Perfect Storm further illustrates Report explains how the large commercial the necessity of a lender of last resort.8 Au- and investment banks — Goldman Sachs, thors Bruner and Carr trace the origin of the JP Morgan, Merrill Lynch, Bear Stearns, 1907 crisis to the San Francisco earthquake of , Citi, et al. — engineered April 18, 1906. The earthquake damage and the highly profitable mortgage-backed securi- subsequent fires created a monumental re- ties and their derivatives that fueled the housing Edited by Carol Smallwood building effort that drew gold from the world’s boom, only to become toxic and poison the and Rebecca Tolley-Stokes financial centers and created a liquidity crisis. international financial system when the hous- The authors argue that this shortage of cash for ing market collapsed in 2007 and many of the $55 softcover (7 × 10) 2011 transactions and business loans caused a reces- securities became worthless.12 Yet today, banks Index sion that started in June 1907. At the time, the “too big to fail” are even bigger and the top ISBN 978-0-7864-6378-7 United States, like other major countries, was executives are earning record bonuses while on the gold standard, which limited money the global economy continues struggling to Ebook ISBN 978-0-7864-8870-4 creation. Confidence was further eroded by emerge from the worst recession since the Wall Street speculation and fraud. The im- Great Depression. MCFARLAND IS PUBLISHING mediate trigger for the crisis was the failure Bagehot’s principle that the central bank of the Knickerbocker Trust Company, one must lend freely in a financial crisis is the key MORE THAN 200 NEW BOOKS AND of the largest banks in the United States. Its to understanding how the Federal Reserve EBOOKS THIS FALL. VISIT OUR president, Charles T. Barney, had been using responded to the current economic conditions. bank funds in an attempt to corner the market As Federal Reserve Chairman Ben Bernanke WEBSITE FOR MORE INFORMATION. in copper. When the scheme failed, the bank noted in a 2008 speech given at the height suffered large losses that caused a bank run and of the crisis, “Walter Bagehot’s Lombard forced it into bankruptcy. Doubts about the continued on page 80 www.mcfarlandpub.com Collecting to the Core from page 79 Issues in Vendor/Library

Street, published in 1873, remains one of the Relations — FOTB Tallahassee classic treatments of the role of the central bank in the management of financial crises.”13 As a Column Editor: Bob Nardini (Group Director, Client Integration and Head scholar of the Great Depression, Bernanke was Bibliographer, Coutts Information Services) determined to maintain the flow of credit in the United States and also internationally. Perry hen a call went out earlier this year the poem above, which can instead be found Mehrling points out in The New Lombard Street inviting registrations, sponsor- in Yellowjackets, by Patti White). There’s just how far the Fed has pushed the lender of last resort principle to save the international Wships, and papers for a conference an interdisciplinary program at FSU called financial system by extending credit to money called “Future of the Book,” in no time most History of Text Technologies (HoTT), market funds, the commercial paper market, of the back-and-forth email messages settling whose range is “cave paintings to personal asset-backed securities, and even by purchasing the details had shorthanded that down to computers,” with courses for graduate and mortgage-backed securities to prevent a total “FOTB.” Some acronyms are just naturals. undergraduate students to study anything collapse of the housing market.14 The crisis has FOTB sounded like a few others already in from “ a twelfth-century lyric poet and ro- forced the Fed to become a market maker or, as circulation, and it stuck. mancer within the context of the troubadour Mehrling argues, “The Dealer of Last Resort.” FOTB took place in Tallahassee, Florida, and romance traditions,” to the “biopolitics The lasting influence of Bagehot’s Lombard which might not seem like a place where of postcolonial mobile phone networks,” with Street is clear. It continues to inform economic you could work out the book’s future. It’s quite a lot of other ground covered in between policy and theory and is a classic, yet ever-current the state capital, but who thinks about “Tal- this pair of historical moments, as platforms work for a library collection covering econom- lahassee,” unblessed as it is by beaches or by for reading, writing, and communicating ics. This and the other works discussed here Disney attractions, when Florida comes up have succeeded and superseded, collided offer finance and business students important in conversation? Who considers Tallahassee and co-existed with one another across the scholarly perspectives on past, present, and the millennia. almost-certain future financial crises. the jewel even of the Florida Panhandle, the long, narrow strip of northwest Florida that The point is that Tallahassee is more than runs west into Mobile, Alabama, and the a place where famous football players like site of sunny destinations like Pensacola and Deion Sanders learn their trade. It is also Endnotes Panama City? Tallahassee, instead, is the in- home to the people who make up a vibrant 1. Bagehot, Walter. Lombard Street: A Descrip- land anchor of the Panhandle’s less-traveled local book community. Since our best clues tion of the Money Market. New York: J. Wiley, eastern stem. A friend who years ago went to the future of the book will have to come 1999, p. 20.* to grad school there used to describe the city from the present of the book, why not Tal- 2. Ibid. as “one-third bureaucrats, one-third students, lahassee? 3. Bernstein, Peter L. The Power of Gold: The and one-third rednecks.” History of an Obsession. Illustrated ed. New York: For two days the present-day book was Wiley, 2004.* Funny, but unfair. Tallahassee might well represented across the thirty presenta- 4. Reinhart, Carmen M., and Kenneth S. Rog- surprise you. I had a good time at FOTB. tions comprising the FOTB program about off. This Time Is Different: Eight Centuries of One night we had a nice dinner downtown the book’s future. Academic librarians had Financial Folly. Princeton: Princeton University at the Mockingbird Café, whose waitress their say. So did deans, scholars, and stu- Press, 2009.* took loving care of us as we enjoyed a dents. Publishers stood up, also booksellers 5. Ibid. 1, p. 65. good live band and a menu where entrees and novelists. Consultants spoke. Futurists 6. Kindleberger, Charles Poor, and Robert Z. started at Sauteed Grouper and ended at and technologists looked ahead from their Aliber. Manias, Panics and Crashes. 5th ed. New Tandoori Cornish Game Hen. The next day seats for the benefit of the one hundred or so York: John Wiley & Sons, 2005.* I wandered into an independent bookstore conference attendees. Current library techni- 7. Ibid., p. 146. — the city has several — and came out with cal services issues were one window into the 8. Bruner, Robert F., and Sean D. Carr. The two books, both published by Tallahassee’s future. Today’s eBooks were of course more Panic of 1907: Lessons Learned from the Market’s Anhinga Press. Anhinga, starting in the frequently called upon as a way to divine Perfect Storm. Hoboken, N.J.: John Wiley & 1970s with local chapbooks, has made a go what’s ahead. E-readers, artist books, text- Sons, 2007.* of poetry ever since. Among its laurels is the books, children’s books, and books of other 9. Ahamed, Liaquat. Lords of Finance: The annual publication since 2001 of the Levine kinds all were examined too. Bankers Who Broke the World. New York: Pen- guin Press, 2009.* Poetry Prize book — Philip Levine named However FOTB was bookended, so to a short time ago as the United States Poet 10. Ibid., p. 503. speak, by two talks which mapped the poles Laureate. A memorable line in one of my representing what probably amount to the 11. Friedman, Milton, and Anna Jacobson Anhinga books is the opening stanza from a Schwartz. The Great Contraction, 1929-1933. most and least embracing attitudes you could Princeton: Princeton University Press, 2008, poem about the convergence of tabloid and possibly express at an academic conference p.166.* mainstream culture, “Denver Man Shot by today, on the notion that the book as we have 12. United States. The Financial Crisis Inquiry Golden Retriever.” known it is going away soon if not in some Report: Final Report of the National Commission America runs fictional these days, ways already gone. The coordinates of ev- on the Causes of the Financial and Economic my mama says. eryone else were somewhere between those Crisis in the United States. Washington, DC: Fi- of two “featured speakers” at FOTB, Elaine nancial Crisis Inquiry Commission, 2010.* FOTB was held at Tallahassee’s best known university, Florida State (the city is Treharne and Bob Stein. 13. Bernanke, Ben S. “Liquidity Provision by the Federal Reserve.” Board of Governors of the also home to Florida A&M and Tallahassee A professor in the English department Federal Reserve System. May 13, 2008. http:// Community College), an institution best and also active in FSU’s HoTT program, www.federalreserve.gov/newsevents/speech/ber- known for its football team, the Seminoles. Treharne spoke early on day one. She spe- nanke20080513.htm (accessed 7/29/11) FSU might surprise you too, though. At the cializes in medieval manuscripts and book 14. Mehrling, Perry. The New Lombard Street: library school, emeritus professor Wayne history and has the kind of scholarly record How the Fed Became the Dealer of Last Resort. Wiegand is the principal biographer of Mel- that gets one invited to become a Fellow of Princeton: Princeton University Press, 2010.* vil Dewey. The English Department houses the Royal Historical Society, which had *Editor’s note: An asterisk (*) denotes a title se- a number of luminaries, most prominently happened to her not long before FOTB. At lected for Resources for College Libraries. Robert Olen Butler, winner of a Pulitzer the podium she switched between the learned Prize for fiction, and also one of my favorite manner one would expect from a distin- poets, Barbara Hamby (who did not write continued on page 81 80 Against the Grain / December 2011 - January 2012