further out of hand, precipitating an even greater crash.
There is no good choice at this juncture, but calling the loans sooner is perceived by many lenders as the more prudent course. In the nascent US financial markets, some sort of correction was inevitable and necessary. The only two questions were how quickly, and who would be left holding the bag. Willing quickly corrected his overlending mistake and in the process gained wisdom about running a bank of this unprecedented scale.
Portrait of Treasury Secretary Alexander Hamilton by John Trumbull, 1792. Hamilton intervened in the Panic of 1792 by instructing the BUS to rein in its lending.
much as 1 % per day. It was yet another new chapter in the ongoing, pitched battle between the Federalists and Republicans, the conservative merchant elites and the radicals, since Hamilton, Duer and other Federalists had been the ones to back the legislation authorizing the BUS and Federalists had been the most engaged in speculation— while Jefferson and the Republicans had opposed it.
The Banker’ s Dilemma
Willing and the other bankers who had facilitated the speculative boom were now killing it. This is always the banker’ s dilemma in a speculative boom: Speculation fueled by excessive lending causes prices to rise above sustainable levels. At the point when enough participants in a market recognize that prices are too high, the loans that were extended to buy assets at or near the top are at risk.
The paradox is that the sooner the bank calls such a loan, the more likely it is to avoid a loss, since the borrower will sell the stock purchased to repay the loan before the price of that stock has declined too far. But the very act of calling the loan— thereby making the borrower sell— forces prices further down. Of course, the bank can elect not to call those loans, and therefore not force prices down, but in so doing, the bank takes the risk that prices will go down anyway, as other lenders call loans or as savvy speculators sell. By not calling the loan, the banker may very well see higher losses than if they had called it quickly. And not calling the loan may even be letting the debt-based speculation get
The Scheme Unravels
On March 9, Duer failed to meet payments on some of his loans, and his scheme came unraveled. With Duer no longer able to buy shares in the BUS, its price plummeted, ruining him and others who had borrowed to speculate. He desperately tried to borrow more to cover his obligations, but even lenders charging 1 % per day were unavailable to him. There were no loans to be had.
The next day, Duer was in prison and was soon joined by Walter Livingston, who had cosigned over $ 200,000 of his notes, and Alexander Macomb, who defaulted on debt on $ 500,000 in stock he had purchased.
Panic reigned; prices plunged. The next day, a reported 25 financiers failed in New York. Dozens of other speculators followed, finding themselves deep in debt with no way to pay it off. Mobs numbering in the hundreds surrounded the jail calling for the heads of Duer and his confederates.
Duer spent the rest of his life in debtors’ prison, where he died on May 7, 1799. Much of the paper wealth that had been created was now destroyed, and public confidence in business was shattered. The entire financial community all across the new nation was affected.
Richard Vague is a former bank CEO who also served as Secretary of Banking for Pennsylvania, and has authored a number of books on business and economics. He is the author of The Banker Who Made America: Thomas Willing and the Rise of the American Financial Aristocracy, 1731 – 1821( Polity, February 2026), from which this article has been adapted.
www. MoAF. org | Winter 2026 | FINANCIAL HISTORY 23