A Concise History of U.S. Banking
1. Prelude
2. Executive Summary 
3. History
4. 21st Century Banking Turbulence
A) The Great Recession
B) Expanding US Monetary Base: Question For The FED
C) Law Coding and the Financial Crisis

1. Prelude: Short History of Prices and
Inflation Since the Founding of the U.S.

2. Executive Summary

1791 First Bank of the United States was funded by taxes and supported by Northern merchants, but not Secretary of State
Thomas Jefferson and Representative James Madison both of whom believed the South would not benefit.

1816 Second Bank of the United States, charted due to difficulty financing the War of 1812 and inflation,
President Andrew Jackson opposed its financier president Nicholas Biddle, 20 year charter ran out. 

1819 Panic the first major financial crisis occurred when the Embargo Act and War of 1812 caused foreclosures,
bank failures, unemployment, and a slump in agriculture and manufacturing.

1825 Panic was not in the US. but is important to the current banking systems.
See The Most Fantastic Financial Swindle-of-All-Time from the St. Louis Federal Reserve Bank.

1837 Panic the first financial crisis caused by speculative fever started in NY City when banks would only accept
 specie (gold and silver coinage) because they questioned the value of state currencies.

1857 Panic was caused by people's over-consumption of Europe goods so that the Union's Specie was drained off,
overbuilding by competing railroads, and rampant land speculation in the west

1869 Americas First Black Friday from the FED

1873 Panic resulted  when the Coinage Act of 1873 took silver out of the coin money supply. 
Western mining interests and debtors like farmers were hurt, bank creditors helped.

Panic of 1893 Our First Great Recession was caused by railroad overbuilding,
shaky railroad financing  causing bank failures and a run on the gold supply, and
a policy of using both gold and silver metals as a peg for the U.S. Dollar value.

1901 Panic resulted when the first NY Stock Exchange crashed as financiers struggled
over control of the of the Northern Pacific Railroad

1907 Bankers' Panic occurred when the New York Stock Exchange fell close to 50%, J. P. Morgan
stopped runs on banks and trust companies,
and the Federal Reserve Act of 1913 was passed.

1920-21 Post War Recession Government agencies released their controls of businesses,
people raced to buy goods that had been
rationed, businesses rapidly raised prices resulted in rapid inflation (15% in 1919-1920), which
the FED solved with high interest rates.

1929 The Great Depression was a severe worldwide economic depression that began sudden and
 total collapse of US stock market prices on October 29. Economist still can't agree on a cause.

1981-82 Recession was severe and occurred when the Federal Reserve to began lowering inflation
by drastically decreasing the money supply just as bank deregulation allowed them to expand into risky ventures.

1980's and 1990's S&L Crisis saw 747 failures at a cost of $160 billion($125 billion was a government bailout).
It was caused by real estate losses from the Tax Reform Act of 1986 and S&L deregulation problems.

2000s  A 2007-2009 Great Recession began in the US and spread to much of the industrial world.
Some theorize the law has embedded  financial crisis into capitalism.
FED Powell's Annotated Press Conference 4/29/20

 History Of Bank Capital Requirements In The United States
 

Neither Secretary of State Thomas Jefferson nor Representative James Madison had any particular interest in the chartering of the Bank of the United States or a proposed mint. They believed the South would not benefit from either a central mint or bank as these were mostly to the benefit of business interests in the commercial north. They didn't like Hamilton's desire to increase the excise tax on imported and domestic spirits to pay for the bank. Southern congressmen feared the tax burden would fall disproportionately heavily on the South, where, declared Jackson, 'hard liquor was a necessity of life'. 

After Hamilton left office in 1795, the new Secretary of the Treasury Oliver Wolcott, Jr. informed Congress that more money was needed. Selling the government's shares of stock in the Bank, or raising taxes was the choice and  Congress quickly, above  Hamilton objection, agreed. The bank's charter expired in 1811. First Bank of the United States

Red is editor's opinion  Second Bank of the United States and ANDREW JACKSON fights the Bank of the U.S.   Andrew Jackson and the Bank war - from Tony D'Urso

See Panic of 1857

The Bank of the U.S. was in no sense a national bank but rather a privately held banking corporation. The bank's relationship with the federal government that gave it access to substantial profits. Its role as the depository of the federal government's revenues made it a political target of banks chartered by the individual states. partisan politics highlighted the  debate over the renewal of the charter.  

"The classic statement by Arthur Schlesinger was that the partisan politics during the Jacksonian period was grounded in class conflict. Viewed through the lens of party elite discourse, Schlesinger saw inter-party conflict as a clash between wealthy Whigs and working class Democrats  "(Grynaviski) President Andrew Jackson strongly opposed the renewal of its charter, and built his platform for the election of 1832 around doing away with the Second Bank of the United States. Jackson's political target was y the very  wealthy Nicholas Biddle, financier, politician, and president of the Bank of the United States. Apart from a general hostility to banking and the belief that specie (gold and/or silver) was the only true money, Jackson's reasons for opposing the renewal of the charter revolved around his belief that bestowing power and responsibility upon a single bank was the cause of inflation and other perceived evils.

The Second Bank of the United States thrived from the tax revenue that the federal government regularly deposited. Jackson struck at this vital source of funds in 1833 by instructing his Secretary of the Treasury to deposit federal tax revenues in state banks, soon nicknamed "pet banks" because of their loyalty to Jackson's party. The Second Bank of the United States was left with little money and, in 1836, its charter expired and turned into an ordinary bank. Five years later, the former Second Bank of the United States went bankrupt. Click

Panic of 1819 was the first major financial crisis in the United States. It occurred because  the Embargo Act and War of 1812 had  caused widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. Economists who adhere to Keynesian economic theory suggest that the Panic of 1819 was the early Republic's first experience with the boom-bust cycles common to all modern economies. Austrian school economists view the nationwide recession that resulted from the Panic of 1819 as the first failure of expansionary monetary policy. Proposed remedies included increase of tariffs (largely proposed by Northern manufacturing interests), reduction of tariffs (largely proposed by Southerners, who believed free trade would stimulate the economy and increase demand), monetary expansion; i.e., restriction or suspension of specie payment, rigid enforcement of specie payment, restriction of bank credit, direct relief of debtors, public works proposals, stricter enforcement of anti-usury laws. http://en.wikipedia.org/wiki/Panic_of_1819

Panic of 1837 was a financial crisis caused  speculative fever. The bubble burst in 1837 NY City when every bank began to accept payment only in specie (gold and silver coinage). Economic policy of both the previous administration of Andrew Jackson and recently elected current administration of Martin Van Buren, were blamed as well as bank excesses. Within two months the losses from bank failures in New York alone aggregated nearly $100 million. "Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered." The publishing industry was particularly hurt by the ensuing depression. According to most accounts, the economy did not recover until 1843^. Most economists also agree that there was a brief recovery from 1838 to 1839, which then ended as the Bank of England and Dutch creditors raised interest rates. However, economic historian Peter Temin has argued that, when corrected for deflation, the economy actually grew after 1838.
http://en.wikipedia.org/wiki/Panic_of_1837 

Panic of 1857 was brought on mostly by the people's over-consumption of goods from Europe to such an extent that the Union's Specie was drained off,  overbuilding by competing railroads, and rampant land speculation in the west.. The recession ended a period of prosperity and speculation that had followed the Mexican-American War (1846-1848) and the discovery of gold in California. Gold  poured  into the economy causing inflated.  After a large increase in state banks in the early 1850's, by July 1856, state banks began to lend far more money than they could back up in specie even as deposits began to fall. The panic began with a loss of confidence in an Ohio bank, spread as railroads failed, and fears that the US Federal Government would be unable to pay obligations in specie. More than 5,000 American businesses failed,  the stock market declined by 66% compared with inflation, and unemployment resulted in urban protests. An  October bank holiday was declared in England and New York to avert runs on those institutions. The Tariff Act of 1857 reduced the average tariff rate to about 20%. Written by Southerners and supported by most economic interests nationwide, except for sheep farmers and some Pennsylvania iron companies, it had the effect of removing the tariff issue as a major source of North-South contention. The South was much less hard-hit than other regions, because of the stability of the cotton market. No recovery was evident in the northern parts of the United States for a year and a half, and the full impact did not dissipate until the American Civil War.

The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market on September 20 for 10 days. Factories began to lay off workers and the effects of the panic were quickly felt in New York, more slowly in Chicago, Virginia City, Nevada and San Francisco. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876. Construction work halted, wages were cut, real estate values fell and corporate profits vanished. See  Panic of 1873

Panic of 1907, known as the 1907 Bankers' Panic, was a financial crisis that occurred when the New York Stock Exchange fell close to 50% from its peak the previous year. There were runs on banks and trust companies. Many state and local banks and businesses entered into bankruptcy. New York City bank liquidity problems, loss of confidence among depositor, exacerbated by unregulated side bets at bucket shops caused the panic. The crisis was Triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company,  lending banks suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbockers Trust Company—New York City's third-largest trust. The collapse of the Knickerbockers spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks. Industrial production dropped further than after any bank run before then, while 1907 saw the second-highest volume of bankruptcies to that date. Production fell by 11%, imports by 26%, while unemployment rose to 8% from under 3%. Immigration dropped to 750,000 people in 1909, from 1.2 million two years earlier. The panic may have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money, and convinced other New York bankers to do the same, to shore up the banking system. At the time, the United States did not have a central bank to inject liquidity back into the market. By November the financial contagion had largely ended, yet a further crisis emerged when a large brokerage firm borrowed heavily using the stock of Tennessee Coal, Iron and Railroad Company (TC&I) as collateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan's U.S. Steel Corporation—a move approved by anti-monopolist president Theodore Roosevelt. A  commission investigation lead to the Federal Reserve System    See Panic_of_1907

Panic of 1893 was a serious economic depression in the United States because of railroad overbuilding and shaky railroad financing which set off a series of bank failures. Compounding market overbuilding and a railroad bubble was a run on the gold supply and a policy of using both gold and silver metals as a peg for the US Dollar value.

1920-21 Post War Recession

Consider by some as a mistakes in Federal Reserve policy as a key factor in the crisis. In response to post–World War I inflation the Federal Reserve Bank of New York began raising interest rates sharply. In December 1919 the rate was raised from 4.75% to 5%. A month later it was raised to 6%, and in June 1920 it was raised to 7% (the highest interest rates of any period except the 1970s and early 1980s). Depression of 1920-21

1980s and 1990s S&L crisis was the failure of 747 S&Ls aka thrifts that cost about $160 billion, of which about $125 billion was paid for by a US government bailout. Causes included  the Tax Reform Act of 1986 which removed many real estate tax shelters thus decreasing real estate values tied to said shelters, the deregulation of S&Ls which gave them many of the capabilities of banks, without the same regulations as banks, the "moral hazard" of insuring already troubled institutions who in order to improve liquidity, made unsound real estate loans on riskier assets, particularly land and a  "asset-liability mismatch" at S & L's, who having made long-term loans at a fixed rate, found themselves borrowing at an ever increasing rate and needing riskier loans to cover these higher rates.

Stocks Up Wages Down- What Does It Mean

Expanding Monetary Base: Question for FEDS
The Decade Prior to the ‘Great Inflation’ Saw Lower Inflation Than the Past Decade
Submitted by Taps Coogan on the 9th of February 2020 to The Sounding Line.  Source

Central bankers belief we have ‘historically and persistently low inflation,’ ignore that Inflation was actually lower during the decade that proceeded the ‘Great Inflation ’ of the 70's and 80's. From 1955 through 1965 CPI inflation averaged just 1.5%. From 2009 through 2019 CPI inflation has averaged 1.8%. Today’s ‘low’ inflationary environment has not been historically low or long. Technological advancements do not automatically mean low inflation growth.

FED chair Jerome Powell feel that inflation is historically and persistently low, that the return of interest rates and inflation to 0% is inevitable, and this is the  “greatest monetary policy challenge of our time.” He is wrong! Inflation remained lower for longer in the past and the last increase was a 20 years of disruptively high inflation.

Low inflation has not been an impediment to growth. Nearly the entire 19th century saw rapid technological advancement, industrialization, and general economic growth despite outright mostly deflation. The high growth 1950s and 1960s witnessed lower inflation than today.

Growth is not dependent on a PCE of 1.6% to 2.0%. Reaching these goals at any cost is not appropriate PCE inflation target, especially those that do not have control of the currency.

Central Bankers believe today’s roughly 2% real GDP growth rate to be inline with long term potential and still they expand the monetary base to close a 0.4% shortfall in PCE inflation. This process may end the way it did last time when we had the "Great Inflation." Or maybe our inaccurate inflation measures is understating today’s true inflation rate and maybe the low inflation has not been an impediment to growth. Nearly the entire 19th century saw rapid technological advancement, industrialization, and economic growth despite mostly outright deflation. The high growth 1950s and 1960s also witnessed lower inflation than today

The Code of Capital:
How the Law Creates Wealth and Inequality
Columbia Law School Professor Katharina Pistor

Author's Video

Law Coding Summary and the Financial Crisis
  by Walter Antoniotti
 

The Code of Capital:

Preface

Legal System Design foster bubbles

Analyis

Application 1 Land

Application 2: Debt and the Financial Crisis

Preface: Legal Coding of financial assets
is the process by which private attorneys,
 using legal tools, create a new capital asset.
Assets exist because of the Laws of Society,
not the Laws of Nature.  

Legal System Design foster bubbles

1. Legal Privilege Attributes Conferred on Financial Assets

Priority: rank order, asset A is stronger than asset B
Think Secured Creditors get repaid first

Durability: a hierarchical ranking limiting counterclaims
Think Trusts and Corporations

Convertibility: securing past gains by assigning or flipping to a safer asset
Think Flip Risky Asset to Cash, for financial assets it creates durability

Universality: extending attributes to space:
Think Protect Against the World

2. Legal Tools
Allow Securitization using Complex Financial Instruments:
Credit Default Swaps
Collateral Debt Obligations
Asset Backed Securities

3. Modern Legal Institutions
began in 15th century Feudal Authoritarian England
to protect royalty and landowners from commoners.
Contracts, Property Rights, Corporate Law, Trust
Common Law Trusts, Common Law, Bankruptcy law
The process began with flipping land into capital assets and has been
applied to debt, firms, knowledge and maybe even data!

Page 2

Analyis

After the 2008-9 financial crisis Katharina Pistor formed a group to analyzed what happened.
They soon found lawyers had missed "the" basic construction block, the required condition necessary to globalize
 our modern financial system, to make contracts enforceable. "

Backing of state power was the essential building block of the endless supply of legally created complex financial commitment.
To makes agreement enforceable required the institutionalization of a centralized means of coercion. 

The states is deeply involved in the creation of legal privilege at every level of all markets. How  private parties use the coercive
power to organize their private affairs and bank on enforceability is instrumental to understanding the financial crisis.
State power allows the creation of assets with priority rights that are universally enforceable against my contracting parties
against anybody whether or not they knew about the arrangement or were party to the contract. Land and debt are presently
of interest though Katharina's book also covers farms, and know-how assets. All four can be coded as capital using the
legal institutions of:
1) Contracts
2) Property Rights
3) Corporate Law
4) Collateral Trust
5) Common Law Trusts Think medieval farmer F does not want to follow primogenital rights which gave property to the oldest son.
Formal property rights could be transfer to trust controlled by T and upon F's death, economic rights go the daughter D. Farmer F
still runs the show, but and creditors have no clam against  F, T or D,  Upon F's death daughter D is accused if killing son O.
But all is saved when Perry Mason discover the trust in only 55 minutes.
6) Common Law
7) Bankruptcy law

Private individuals can easily avail themselves of State Power to enhance mostly their own private wealth with little concern for the public good.
The easier we make it to opt-out of domestic legal system, the more tension we create, Think East Asia, with china wanting more imports
to make control vertical from the top rather than horizontal, from the participants.

Lawyers of these firms are masters of the financial code which is designed not for economic efficiency but to control, about power.

Foreign courts provide vindication to protect property interests. This interferes with the ability of a society to seek and govern
because some actors choose to opt-out of their home legal/tax system. This vindication sometime can apply to our domestic courts.
This process first affected financial assets, then intellectual property, Ownership of data could be next.

A balanced approached related to all assets is required. We need a balance between private autonomy with the prerogative of legislature-
lawmakers-and more generally. We have to question our bias toward private autonomy and for those who opt-out of our legal system,
we should consider limiting the scope of enforceability.

Law Flexibility
The seniority argument did not work for new world English settlers because the natives had seniority. Property rights would not be 
based on the seniority because it belonged to  indigenous Indian residents. Instead, because settlers who had discovered and
improved the land, they were granted the common law property right.  The English court flipped by applying the 1881 English common law
in  American with the 1732 with the debt recover act. It treated the life tenant as owner and responsible for the debt to English landlords.

The plantation with slaves could now be sold at auction to satisfy creditors. Not until 1925 did England complete property rights.

Property rights development was a political process and not always the same in countries A and B. But this flipping could cause problems.
To sustain the authority, legitimacy, and trust law requires application continuity and consistence.

In medieval England, the legal power structure consisted of lawyers who were mostly noblemen and relegiouse leaders.
Eventually the business class would join and eventually dominated.

This power structure "frames" the law. Over time, property rights associated with land could be transposed. Think moved like in sold.

Being politically desirable, this right was backed by the state, think king. It was declared legal and defended by state coercion.

Think Obama declaring that the priority rights of secured creditors would be ignored and the Union pensions would be first to receive bailout funds.

Think auto bailout. Think Trump blackballing those who do not cooperate with the United States policy

Economists believed that markets existed outside a legal framework. The law helps and supports market structure but is not essential.
Rational actors make contract with no explanation required and markets insure efficient outcome. When this failed, the cause was behavior,
psychology, animal spirits.

In-depth analysis of credit default swap, collateralized debt obligation, asset backed securities... revealed that everyone trying to enforce
these contracts were not irrational when they all try to sell at the same time and brought down the financial system. Many answered "well
that is how the law" works."

The framework of law/economics needs to be scrutinized by the academy.

Application 1 Land

Land, a piece of dirt, a field, ... began having a property right during in the 16th century Feudal England. Land use was such that when noble landlords
were not using the land, commoners had use to hunt, fish, farm...  . Then the landlord built hedges and fences to keep commoners out. The two parties
battled in the fields and courts for centuries. Eventually, land owners won with better lawyers who had better arguments and more resources plus more clout.
Reasons given they had been there first (seniority)  and they were nobleman who always had more rights. Commoners were not allowed to act collectively
because they were not an organization. Eventually the law awarded exclusive priority to the landlords.

The law had created a priority right which allowing landlords to get the mortgages needed to commercialize the land. Sheep herding expanded
to produce wool for the developing garment industry. Cash crops became a possibility. This need for growth capital created creditors with security mortgages.

During difficult times and to prevent client loss of their to creditor, Feudal lawyers created the 12th century entail. It was a kind of trust which made
the land legally owned by children, grand children ...  The owner, with only temporary control could not lose the land. As expected, legal battles
became the norm. Eventually, an existing  precedent was applied which limiting secured creditor rights to half the property and never to the family mansion.

Protection of a property rights had been socialized. Think late 20th century bank bailouts. The law had created a durability right.
This protection, with all its confusion, lasted until a major 1870 financially caused agricultural depression forced 1881 legal changes.
The life tenant, usually the eldest son, became the true owner. Land lost its legally created durability. This limited the accumulation of wealth.

Sale and commercialization of the land had created convertibility.

In protecting land owners from trespass, the law created universality.

Specifically, we have to limit the flexibility of coding that occurs outside the legislature and increasing outside the courts.
A better public regulatory framework is not enough. Over many years we have learned that controlling the code modules
make it easy to bypass regulation.

The concept of numerus clausus is the concept of property law which limits the number of types of right that the courts
will acknowledge as having the character of "property." It should be used to limit co-opting out of local law by those who
completely ignore the public good. Think avoiding taxes for private gain.

We should not blindly guarantee the "enforceability of private rights," the punch bowl. We might and we might not.
We could disregard your corporate identity. Think we will tax you regardless of your Cayman Island location.

Example: When banks do not check the income  and  sustainability  of mortgage payments, these mortgages may not be enforceable.
Credibility requires enfacement by the state. Do not give the lawyers the legal certainty they so desire. Originally, land was given the
property right because owners would internalize cost. This has not happen. Think self enforcement limiting pollution.

When judges created feudal English common law, they made political decisions which was not neutral allocation of rights
when vindicating the claims of A or B. In doing so  they refashioned the rights of capital again and again. This continues
today after the financial crisis where a herd mentality was anything but rational, many economists became behaviorist..
But today we have a Legislature to make laws  that consider the common public good

Application 2: Debt and the Financial Crisis

In California the crisis began with a loan mortgage originated by New Century. They  collected a bunch of mortgages and sold them wholesale to a New York located City Group subprime mortgage subsidiary. They put the mortgages into a trust which got the cash flow from mortgage payments irrespective of the   City Group's and her subsidiaries finances. JP Morgan with be the trustee for this City Group trust and vice versa.

This securitization began in the 1970's after the 1968 Federal Housing Act allowed government sponsored entities, Fannie Mai in particular, to securitize (group and sell) securitized mortgages.

She had guaranteed mortgages and now while she could not to originate mortgages, she could buy them on the secondary market, package them, and sell the package.

This securitization diversifies the risk, lowering interest rates, and increases mortgage availability. Freddie and Ginnie just put the  mortgages into a pile and sold  equal portions.

Private companies soon followed  but they created trenches (slices) with different  priority rights. Seniors got cash in first and were  last to incur a loss. Juniors tranches were second, third ...in the middle. People knew this and bought based on risk aversion.

Guaranteed pensions might always buy senior trenches. Fannie also bought only senior securitized debt. In the book example,
City often bought the junior trenches because hoping to make a high profit with a private placement. But, this was a mass market
 operation with little demand for the real junior stuff which was too risky for A and not risky enough for B.

To produce buyers City set up a shell corporation located in the Carmen Island tax haven sell mortgages tranches.
They went so far as to create a co issuer in Delaware to allow buyers with foreign purchase limitations to join the fun

This shell solicited funds to invest in low level trenches from different sellers to diversify risk They could then rate some
as senior even though they consisted of all junior CDO to begin with. If you still get stuck with some trenches you just bundled
them into another CDO, consisted of all defaulted trenches, a CDO squared. If some of these default, bundle them into a CDO cubed.