From: The Business Panic of 33 AD in Rome
The Business Panic of 33 A.D.
Of the year 33 A.D. it may possibly have been recorded in the diaries of certain Roman business men, that there was a disturbance in the remote province of Judaea a tumult quickly quelled by the energy of his excellency Pontius Pilate, the governor, who seized and crucified one Christus, the chief malcontent, and two bandits, his accomplices. It is more probable, however, that they only remembered this year as marking one of the severest panics which ever shook the foundations of Roman credit.
As with most panics, the causes of this were not obvious. About a year before, the firm of Seuthes & Son of Alexandria, lost three richly laden spice ships on the Red Sea in a hurricane. Their ventures in the Ethiopian caravan trade also were unprofitable, ostrich feathers and ivory having lately fallen in value. It soon began to be rumored that they might be obliged to suspend.
A little later the well known purple house of Malchus & Company (centered at Tyre, but with factories at Antioch and Ephesus) suddenly became bankrupt ; a strike among their Phoenician workmen, and the embezzlements of a trusted freedman manager being the direct causes of the disaster. Presently it became evident that the great Roman banking house of Quintus Maximus & Lucius Vibo had loaned largely to both Seuthes and Malchus. The depositors, fearing for their money, commenced a run on the bank, and distrust spread because men, experienced on the Via Sacra (the first century Wall Street), said that the still larger house of the Brothers Pettius was also involved with Maximus & Vibo.
The two threatened establishments might still have escaped disaster had they been able to realize on their other securities. Unfortunately the Pettii had placed much of their depositors’ capital in loans among the noblemen of the Belgae in North Gaul. In quiet times such investments commanded very profitable interest; but an outbreak among that semi-civilized people caused the government to decree a temporary suspension of processes for debt. The Pettii were therefore left with inadequate resources. Maximus & Vibo closed their doors first; but that same afternoon the Pettii did likewise. Grave rumors obtained that, owing to the interlacing of credits, many other banks were affected. Still the crisis might have been localized, had not a new and more serious factor been introduced.
In a laudable desire to support the Italian agricultural interest then in a most declining way the Senate, with the assent of Tiberius, the emperor, had ordered one third of every senator’s fortune to be invested in lands within Italy. Failure to comply with the ordinance invited prosecution and heavy penalties. The time allowed for readjustment had almost expired, when many rich senators awoke to the fact that they had not made the required relocation of their fortunes.
To find capital to buy land, it was necessary for them to call in all their private loans and deposits at the bankers. Publius Spinther, a wealthy nobleman, particularly was obliged to notify Balbus & Ollius, his bankers, that they must find the 30,000,000 sesterces he had deposited with them two years before. Two days later Balbus & Ollius had closed their doors, and their bankruptcy was being entered before the praetor. The same day a notice in the Ada Diurna, the official gazette posted daily in the Forum, told how the great Corinthian bank of Leucippus’ Sons had gone into insolvency. A few days later it was heard that a strong banking house in Carthage had suspended.
After this all the surviving banks on the Via Sacra announced that they must have timely notice before paying their depositors. The safe arrival of the corn fleet from Alexandria caused the situation at the capital to brighten temporarily; but immediately afterward came news that two banks in Lyons were “rearranging their accounts,” as the euphemism ran; likewise another in Byzantium.
From the provincial towns of Italy and the farming districts, where creditors had long allowed their loans to run at profitable interest, but were now suddenly calling in their principals, came cries of keen distress and tidings of bankruptcy after bankruptcy. After this nothing seemed able to check the panic at Rome. One bank closed after another. The legal 12% rate of interest was set at nought by any man lucky enough to possess ready money. The praetor’s court was crowded with creditors demanding the auctioning of the debtor’s houses, slaves, warehouse stock, or furniture. The auctions themselves were thinly attended, for who could buy?
Valuable villas and racing studs were knocked down for trifles. Caught in the disaster, many men of excellent credit and seemingly ample fortune were reduced to beggary. The calamity seemed spreading over the Empire, and threatening a stoppage of all commerce and industry, when Gracchus, the praetor, before whom the majority of the cases in bankruptcy came, at his wits’ end to decide between the hosts of desperate debtors and equally desperate creditors, resorted to the Senate-house; whence, after a hurried debate, the Conscript Fathers dispatched a fast messenger with a full statement of the danger to their lord and master Tiberius, in his retreat at Capri.
While the Caesar’s reply was awaited, the business world of the capital held its breath. Four days after the dispatch from the Senate, an imperial courier came pricking back from Campania. The Senate assembled in the Curia with incredible celerity. A vast throng slaves and millionaires elbowing together filled the Forum outside, while the Emperor’s letter was read, first to the Senate, then from the open Rostrum to the waiting people.
Tiberius had solved the problem with his usual calm, good sense. The obnoxious decrees were for the time to be suspended; 100,000,000 ses. were to be taken from the imperial treasury and distributed among reliable bankers, to be loaned to the neediest debtors; no interest to be collected for three years; but security was to be offered of double value in real property.
The law being relaxed, and the most pressing cases cared for by the government loan, private lenders began to take courage and offer money at reasonable rates. Dispatches from Alexandria, Carthage and Corinth indicated that the panic had been stayed in those financial centers. The moneyed world of the Via Sacra began to resume its wonted aspect. A few banking houses and individuals never recovered from their losses, but the majority escaped permanent suspension and so the panic of the “Consulship of Galba and Sulla,” i.e. of 33 A.D., passed into half-forgotten history.
Such a little expanded from Tacitus and Suetonius is the tale of the great panic under the third Caesar. A narrative like this would have no verisimilitude unless placed in a society extending over seas and continents, with a great internal and foreign commerce, rapid means of communication, complex and vast credit transactions, an elaborate system of banking; in other words, with conditions not unlike many of those of the twentieth century.
Great was the Roman Empire in its military glory, its system of law and administration, its preservation of the artistic and intellectual heritage from Greece, its elimination of clan patriotism and local prejudices but it was also great, in that it fostered the development of an economic life such as has not come again to the world until very recent times. It is of this Roman commerce, communication, banking, credit, and of a society largely founded on such a “money basis,” that we propose to write.
Would that we had a Tiberius-like mind significantly involved in our financial crisis — sincerely trying to get us out of it. I like the idea of no interest for three years on loans to the “neediest debtors” and of double value in real property to be put up for security. I imagine everyone with property worked their tushies off, first, for freedom from debt, and second, for prosperity. I also wonder how the class of “neediest debtors” was defined. How well did this method work, other than for the banks?
“It is of this Roman commerce, communication, banking, credit, and of a society largely founded on such a “money basis,” that we propose to write.” I hope there is much more to come, Mr. Smith.
The panic of 33 AD ended with the actions of Tiberius. It essentially was over (to the benefit of everyone) and only those who had already gone under suffered from it. Flooding the system with liquidity generally restarts money flow (increases the velocity of money) that is the root of the problem of panics. It quenches the fear.
Changing the Ministry of Stupidity rule about buying Roman farms also took away the pressure to liquidate the “long term” loans elsewhere and that removed the pressure on prices of those assets (again removing the fear).
Strangely enough, I remembered having had this handed out in one of my Economics classes ( I think it was the first day of Macro…) as an example of how to handle a bank panic.
The modern “remedy” is very similar, though delivered in much poorer style (via bank bailouts rather than opening a public loan window…). The original TARP program was to buy “troubled” loans and establish liquidity (roughly the same as issuing new loans and letting the old lender collect his principle as done by Tiberius). Then they fumbled it into a “put money in the vault at the bank” program because of the pressures of the “Mark to Market” accounting rule. (It would have been far better and cheaper to repeal the rule… “The market can remain irrational longer than you can remain solvent” is something that the bank regulators and accounting boards are now learning… with your money…)
Markets are NOT always good judges of value and markets DO suffer from irrational panics. Mark to Market institutionalizes a positive feedback loop to greater panic… not a good thing.
The “neediest” was determined by the Praetor, I believe. They were assigned to judge the complaint proceedings and could act with great authority as they saw fit (within the laws and under the supervision of the rulers…). Basically, they were free to “fix things” as long as they didn’t get too many powerful people hacked off at them 8-)
Please note that this article was not written by me, it is simply copied from another site (their link ended with a period, and wordpress would steal the period thus resulting in a broken link in comments…). While I might put up more about panics (they are the most fun part of economics, IMHO) the “propose to write” quote is from the person who wrote this article as an introduction to their book:
The Influence of Wealth in Imperial Rome by William Stearns Davis published in 1910.
What I find most fascinating about the whole story of The Panic of 33 AD is just how much is says that banking is not significantly different than it was 2000 years ago. Banks still borrow money short term and lend it long term (that makes them subject to “runs” on the bank). Business cycles still happen. Governments still make stupid rulings with economic consequences they do not ken. And eventually the run starts, with the cascade failure of interlocking interests and asset sales driving asset prices down.
Now we have a “Central Reserve Bank” that halts most runs. But as we saw with Bear Stearns and Lehman Bros it did not stop runs on “investment banks” since they were not under the Fed (an “oversight” in the repeal of Glass-Steagall)… And we have “fiat money” so the Fed can always just print more (instead of asking the Sovereign for a pile of gold coins from his vault) to reestablish liquidity and money velocity.
I also find it hilarious to read what sounds like a modern business story but with historic Roman names in them. It reads like a spoof of a panic, yet it is accurate history…
Bernanke knows this history. His actions have shown he knows how to fix things. (The early proposed solution was to buy up the loans and make new loans, as done by Tiberius). The broken part is the Congress and the Accounting board (that won’t dump Mark to Market). Congress mandated making the bad loans and removed Glass-Steagall. Congress ought to put back the Glass-Steagall act, stop mandating bad loans; and we need a new version of the “uptick rule” put back in place.
The “uptick rule” said you could only “short” a stock if the price moved up one “tick” – i.e. somebody was willing to buy at a higher price – back when stocks were traded in 1/4 and 1/8 dollar increments. It was removed based on the silly idea that with decimalization and trading in penny increments it was no longer possible to define a “tick” that was worthy of the name… I guess they couldn’t grasp the idea of a 25 cent or 10 cent “tick”… And while they are at it, banning AND ENFORCING THE BAN, on naked short selling would also help a great deal. The SEC is to blame for the breathtaking plunge in stock prices in this collapse due to not enforcing the rules that prevented such “bear raids” since they were put in place post 1929 / 1932 market crash…
They say that short selling makes the market “more efficient”; but this ignores the fact that sometimes you don’t want the market efficiently plunging by 1/2 in a few days… it’s better for everyone but the shorts if if drops more slowly over a year or two. That gives time for the “mom and pop” investors to exit gracefully ( where the present system lets the “shorts” capture all that value in a few days of shorting like crazy and creating a panic…)
At any rate, I do find it comforting somehow that, even if it is a panic, the more things change the more they stay the same…