Story time! It all started with Alexander Hamilton and the First Bank of the United States ....

Two Minute Replay of the Banking History of the United States

http://online.wsj.com/article/SB122360636585322023.html

As I said it all started with Alexander Hamilton, and there was his bête noire: Thomas Jefferson. Now Alexander Hamilton wanted a strong central government, complete with power and money. He was Washington's right hand man during the Revolutionary War and he was deeply concerned by how ineffective the new American government was at providing for the soldiers. He also knew his way around the magic land of math because he managed a counting house in his early teens. "Hamilton wanted to establish a central bank modeled on the Bank of England. The government would own 20% of the stock, have two seats on the board, and the right to inspect the books at any time. But, like the Bank of England then, it would otherwise be owned by its stockholders."

So Alexander Hamilton = central banking. However, the other guy, Thomas Jefferson, had a fervid hatred for banking. "He hated commerce, he hated speculators, he hated the grubby business of getting and spending (except his own spending, of course, which eventually bankrupted him). Most of all, he hated banks, the symbol for him of concentrated economic power." Jefferson's efforts to destroy central banking have made lasting impressions on the American economy today, i.e. the recession, i.e. thanks a lot.

"Really then what happened?!" Hamilton establishes Bank of the United States in 1792. ". It was a big success and its stockholders did very well. It also provided the country with a regular money supply with its own banknotes, and a coherent, disciplined banking system." President Madison establishes another in 1816, after the War of 1812. Then comes the big bad Andrew Jackson. (Remember him from the Trail of Tears? which killed thousands of Cherokee Native Americans. He said to the Supreme Court 'John Marshall has made his decision. Now let him enforce it!') He absolutely hated banks and killed central banking for another 73 years.

Then the Federal Reserve was created in 1913, but that wasn't much good because it was too weak. Then after the gargantuan Great Depression, the Federal Reserve was completely reorganized in 1934. At last, the Great States of America had the central bank it needed to prosper and economic peace covered the land for 60 years. There were some other bumps along the way- "wildcat banks", the National Banking Act, inflation in the 1960s, the panic of 1987, the creation of the FDIC, and interstate banking finally allowed in the 1990s. Then all the banks got over excited with their loans, which were encouraged by the government, and this whole recession mess began.

Good night and sweet dreams.

Terms

Bête noire- (n.) someone that someone especially dislikes, dreads, or avoids; nemesis

Fervid- (adj.) burning with enthusiasm or zeal; extremely heated

Gargantuan- (adj.) of immense size, volume, of capacity; enormous, prodigious