It is impossible to know, although given the size of the BUS board and Duer’ s contacts at the Treasury, it would not have been difficult to gain that information. Regardless, the sheer size of Duer’ s wagers indicated confidence in his short position.
Over the coming weeks, Duer fueled his speculations by borrowing half a million dollars on his personal notes— much of it from wealthy New Yorkers who had succumbed to the fear of missing out— but also from butchers, shopkeepers, widows, merchants, mechanics and even“ a noted bawd, Mrs. McCarty.” Among them was Walter Livingston, who lent him $ 203,000 at a time when few New Yorkers were worth over $ 100,000. It was a staggering sum.
Duer seemed infallible and was the center of attention, with many clamoring to give him their money to invest. He began to buy other bank stocks for future delivery, with no requirement to put up any cash. This was an extraordinarily risky strategy that meant he was in effect using 100 % leverage; any downturn in the price could leave him in a position to have to buy them at the higher price— with money he did not have— and sell them at a loss.
Bank stocks and government bonds soared to a peak in January, exceeding any supportable valuation. It is both telling and startling to see that Americans were such eager and chronic speculators from the start. They gambled, won, lost, crashed and came right back for more.
Hamilton Steps In
Amid the speculative euphoria, Hamilton reportedly instructed the BUS to rein in its lending, though it is hard to imagine it took much to persuade the ever conservative Willing. It is reasonable to assume Willing and his entire board had quickly grown to share Hamilton’ s concern and view. Given the small number of banks, it is also likely that Hamilton’ s former colleagues at the Bank of New York and Willing’ s former colleagues at the Bank of North America were in a similar dialogue with Hamilton.
Thus, a sudden restriction of the credit that had previously been overextended by the BUS and other banks brought a panic. From December through March, the BUS’ s cash reserves declined, causing it not to renew nearly 25 % of its outstanding 30-day loans. This forced many of its borrowers to sell other securities they owned to make repayment. The
Former Assistant Treasury Secretary William Duer was derisively known as the“ King of the Alley,” due to his market speculation that precipitated the Panic of 1792.
contraction happened quickly. From late January to March 9, the amount of the BUS’ s outstanding discount loans had declined by over 20 %, from $ 2.7 million to $ 2.05 million. The act of reducing credit itself caused stock, bond and real estate prices to decline, since borrowers had to sell those assets to repay their loans, and the absence of new credit meant there were fewer new buyers of the assets.
The Bear Clique
Just before banks began to curtail credit, a number of short sellers joined forces in a“ clique” of stock market bears to push the share prices lower. They were Jefferson’ s Republican allies who were opposed to the BUS and Hamilton. Anything they could do to damage Duer, Hamilton or the BUS would help the Republican cause by discrediting the Federalists, so they sold short all the stock they could muster to push down its price.
In a market as small as the nascent US financial markets, this maneuver had a disproportionate impact. In addition, they began to withdraw their large holdings of gold and silver from their bank accounts, which contracted the local money supply. This forced banks to call in loans to preserve adequate specie, which drove prices down further. In other words, they engineered a credit squeeze.
This squeeze, compounded by Willing’ s newfound caution at the BUS, meant that Duer and other speculators were suddenly at the mercy of the few remaining lenders willing to extend credit, who began ruthlessly raising their lending rates to as
22 FINANCIAL HISTORY | Winter 2026 | www. MoAF. org