George Peabody: Panics and Financial Collapses

George Peabody

George Peabody born in South Danvers in what is now Peabody in 1795. He was born into a large poor family he struggled throughout his life to keep up with. His first business foray was with his brother David in a dry goods shop in Newburyport. Then he traveled to Georgetown in Washington D.C. with his Uncle John in 1812 to set up another dry goods company. In 1814 he partners with Elisha Riggs to form Riggs, Peabody, & Co. wholesale dry good dealers. In 1815 they move to Baltimore to get closer to the slave market. Riggs retired in 1829, and the firm became Peabody, Riggs & Co., with the names reversed as Peabody became the senior partner. There stock entailed prizes from American privateers.  They also ventured heavily in slaves, wool, and garment goods from Europe sailed in from the north. They remained in partnership till 1835.

In 1827 Peabody would start sailing to Liverpool in England to introduce American wool to new markets. Through his connection with his two friends from Baltimore, William and James, he finds many doors open for him. The Brown Brothers were managing their father’s Liverpool office at the time of Alex. Brown & Sons. The bank that would in time become Brown Brothers, Hairrman, & Co.  Another influential friend would be Lord Nathan Mayer Rothschild.

Peabody Essex Museum an Institute Filled with Tunnels and secrets.

In 1837 Peabody became a citizen living in London. In between that year and the next he ventured into merchant banking conducting business on his own account. Prior to then he also started selling state securities within Europe. George Peabody was in “High Finance” which consisted to catering to governments, wealthy individuals, and large companies. His entree into the field was to be the mouth piece for Rothschild who was despised by the other lords. It was no secret that Nathan ran the Bank of England along with Barings Brothers & Co., but his Jewish heritage limited him from doing more. So he established Peabody in high fashion as a lavish host whose entertainments would soon be the talk of London. Rothschild would, of course, pay all the bills. Peabody accepted the offer, and soon became known as the most popular host in London. His annual Fourth of July dinner, celebrating American Independence, became extremely popular with the English aristocracy, many of whom, while drinking Peabody’s wine, regaled each other with jokes about Rothschild’s crudities and bad manners, without realizing that every drop they drank had been paid for by Rothschild.

Kinsman Block secret train station tunnel entrance.
Tunnel leaving a building built by the superintendent of the Eastern Railroad to a secret train station. Peabody owned the railroad and some mills in Lowell in which good were smuggled to.

In 1836 Andrew Jackson let the charter of the Second Bank of the United States to lapse complaining that it was a private institution and foreign buyers purchased ownership shares of the bank until the 70 percent of the bank was owned outside our borders. This was worrisome to American politicians but this high share of foreign ownership was not unusual in the American financial system. Britain had been supplying capital to the U.S. economy for some time. Much of the financing was from Rothschild who helped charter the bank through his American agents the Phillip Brothers.  In fact oversight was real lax, especially in the Baltimore branch that came under the control of individuals who looted it of a million dollars before they were caught. The Baltimore branch went into receivership and the whole Bank was close to bankruptcy. This was the branch where Peabody and the Alex. Brown & Sons worked out of. Also the branch director was the future president James Buchanan. In Washington the branch director was Elisha Riggs son, Peabody’s old partner. In Boston the board was filled with Peabody’s Salem friends Daniel Webster and Benjamin Crowninshield. If it was not private institution before 1836 the Second Bank of the Untied States and its remaining 24 branches did indeed run as a private venture afterward until its failure in 1841.

The Bank of England responds to Jackson through Rothschild’s order. The Second Bank of the United States is now a private company. The bank instituted a 2 part plan. First they issued an order to extend almost unlimited credit for good security, placing plenty of money into circulation. Creating the fear of too much gold flowing to America in June 1836 by the Bank of England. Then when enough people took the bait, orders were issued to restrict credit, call in outstanding loans, and reduce the overall money supply. Then the Second Bank of the United States owned by foreigners bought up depreciated stocks for pennies on the dollar. One of which was George Peabody working for Nathan Mayer Rothschild.

Secretary of the Navy and board member of the Second Bank of the United States home in Salem. One of many connected to the tunnels in town.

By October a run on the banks in Ireland occurs. Then in August The Bank of England refused to discount bills drawn on houses active in American trading In one day The Bank of England threw out all the paper connected with the United States. Rothschild divested itself of all its American holdings. The purpose of this action was to create an immediate financial panic in the United States, cause a complete contraction of credit, halt further issues of stocks and bonds, and ruin those seeking to turn United States securities into cash. Why? Not only did President Jackson promptly withdraw government funds from The Second Bank of the United States when he refused its charter, but he deposited these funds, $10 million, in state banks. The immediate result was that the country began to enjoy great prosperity. This sudden flow of cash caused an immediate expansion of the national economy, and the government paid off the entire national debt, leaving a surplus of $50 million in the Treasury.

The Panic of 1837 was to begin affecting America as well as Europe. In fact George Peabody through Rothschild finds guarantees so his friends Brown Brothers & Co. are ensured of $10 million pounds to keep them from defaulting on their loans. Others in England will feel the bite as well.  By 1842 eight states and one territory defaulted or repudiated their debts on state securities they had sold into the European Market. Many of these state securities are ones Peabody had sold. By 1861 Peabody will be the largest seller of state securities. To put pressure on the Lincoln government during the Civil War, he began unloading them and driving prices down. At the same time, his future business partner, Junius Morgan was depleting the American gold supply by shipping it to England. Morgan and Peabody were also brokering cotton sales to Europe to buy weapons and supplies for the South. The Panic of 1837 would last through to 1845 with several bubbles along the way.

Now what about future panics? In the 1848 Panic Corcoran & Riggs took a $16 million loan to by $14 million of the $18 million bond issued by America to pay for the Mexican War. The deficit was $30 Million. They received an advance on proceeds by sharing the debt with Barings, Peabody, Overend, Gurney & Co., and Rothschild; with Rothschild handling the majority. In 1844 Tyler had turned their firm into a federal depository and they handled a majority of influential politicians including James Polk, Henry Clay, Stephen Douglas, James Buchanan, Daniel Webster, and young Congressman Abraham Washington. Its safe to say that Peabody had a hand in the profit and control of the son of his old partner. Riggs told Peabody, “Our position and standing with the Executive heads of departments gives us advantages in transactions with the government not enjoyed by others. Also he told him,“Our position and standing here gives us many advantages, having the earliest information in relations to matters and things.” In the Panic of 1857 they pulled the same plan from the 1837 Panic from the old playbook.

Train Tunnel heading toward Station. Just long enough to hide one train.
Train tunnel heading toward secret station built by Peabody’s railroad. Just long enough to hide one train.

In the panic of 1857, when depreciated securities had been thrown on the market by distressed investors in America, Peabody and the elder Morgan, being in possession of cash, had purchased such bonds as possessed real value freely, and then resold them at a large advance when sanity was restored. After the panic had been engineered, one firm came into the market with one million pounds in cash, purchased securities from distressed investors at panic prices, and later resold them at an enormous profit. That firm was the Morgan firm, and behind it was the clever maneuvering of Baron Nathan Mayer Rothschild. George Peabody & Co. was founded in 1851. By 1854 it will become Peabody, Morgan, & Co. after recruiting Junius Spencer Morgan. 1864 J.S Morgan & Co. upon Peabody’s retirement.

The Great Depression? Sir Montagu Norman, Governor of the Bank of England for many years, was a partner of Brown, Shipley & Company. Sir Montagu Norman was organizer of “informal talks” between heads of central banks in 1927, which led directly to the Great Stockmarket Crash of 1929.  Brown, Shipley & Co. formed by Peabody’ friends the Browns of Baltimore.  2008 Financial Scandal? “JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the government of known problems with those loans and leaving the government to cover the losses when the loans defaulted,” as the New York Times quotes Preet Bharara, the United States Attorney in Manhattan. They have been fined the most for their engineering this current depression, $4 Billion. In their second quarter of 2015 JP Morgan and Chase made $6.3 Billion with an overall worth of $24.5 Billion. Its about time we slapped the hand that George Peabody fostered…