The First Bad Bank

Elsewhere in these ramblings (link provided when I'm less lazy)I've reflected on Alexander Hamilton. For those who dozed through American history ('fess up! Most of you) he was our first Secretary of the Treasury. He was also the founder of a wide swath of American conservative thought. Ironically, he was also the father of our first nationalised financial institution, the Bank of the United States.

However, the same era provides us with a useful precedent for the idea of a bad bank. Timothy Dexter, a Newburyport tanner, developed an eccentric reputation in the final years of the American Revolution by accepting Continental paper dollars in payment for his goods. Since they were considered nearly worthless, Dexter's neighbours were delighted to shove the money into his hands in exchange for leather goods.

Enter the United States Government, and its Treasury, run by Hamilton, which redeemed Continental dollars at par. Dexter became a rich man overnight, and began a legend that thrives to this day.

Bad banks are not such a bad idea, if you're crazy enough--and farsighted enough--to start one.