From Global Financial Data, October 22, 2013:
Although many people have hailed Ben Bernanke’s response to
the current financial crisis for going outside of the box and using
unorthodox policies to avoid a financial collapse, in reality, similar
policies were used by Tiberius during the Financial Crisis of 33 AD,
almost 2000 years ago.
Tiberius ruled the Roman Empire from 14 AD to 37 AD. He was frugal in
his expenditures, and consequently, he never raised taxes during his
reign. When Cappadocia became a province, Tiberius was even able to
lower Roman taxes. His frugality also allowed him to be liberal in
helping the provinces when, for example, a massive earthquake destroyed
many of the famous cities of Asia, or when a financial panic struck the
Roman Empire in 33 AD.
As with many financial panics, this one began when
unexpected events in one part of the Roman world spread to the rest of
the Empire. To quote Otto Lightner from his History of Business
Depressions, “The important firm of Seuthes and Son, of Alexandria, was
facing difficulties because of the loss of three richly laden ships in a
Red Sea storm, followed by a fall in the value of ostrich feather and
ivory. About the same time the great house of Malchus and Co. of Tyre
with branches at Antioch and Ephesus, suddenly became bankrupt as a
result of a strike among their Phoenician workmen and the embezzlements
of a freedman manager. These failures affected the Roman banking house,
Quintus Maximus and Lucious Vibo. A run commenced on their bank and
spread to other banking houses that were said to be involved,
particularly Brothers Pittius.
“The Via Sacra was the Wall Street of Rome and this thoroughfare was
teeming with excited merchants. These two firms looked to other bankers
for aid, as is done today. Unfortunately, rebellion had occurred among
the semi civilized people of North Gaul, where a great deal of Roman
capital had been invested, and a moratorium had been declared by the
governments on account of the distributed conditions. Other bankers,
fearing the suspended conditions, refused to aid the first two houses
and this augmented the crisis.”
At the same time, agriculture had been on the decline for several years,
and Tiberius required that one-third of every senator’s fortune be
invested in Italian land. The senators had 18 months to make this
adjustment, but by the time the period was up, many senators had failed
to make the proper adjustment. This deadline occurred at the same time
as the events above occurred, placing a further squeeze on the financial
sector.
When Publius Spencer, a wealthy noblemen, requested 30 million sesterces
from his banker Balbus Ollius, the firm was unable to fulfill his
request and closed its doors. Over the next few days, prominent banks
in Corinth, Carthage, Lyons and Byzantium announced they had to
“rearrange their accounts,” i.e. they had failed. This led to a bank
panic and the closure of several banks along the Via Sacra in Rome. The
confluence of these seemingly unrelated events led to a financial
panic.
To protect themselves, banks began calling in some of their loans. When
debtors could not meet the demands of their creditors, they were forced
to sell their homes and possessions, and with money unavailable even at
the legal limit of 12%, prices of real estate and other goods collapsed
since there were so few buyers. A full scale panic followed. The panic
occurred not only in Rome, but throughout the Empire. If anyone thinks
that it is only in recent times that financial markets have been so
fully integrated that the failure of the Creditanstalt in 1931 or Lehman
in 2008 could precipitate a panic, they clearly have not read their
history. By their nature, financial markets have always been
integrated, and failure in one part can create the domino effect which
created the Great Depression and was witnessed in 2008....
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