The Worst Disaster in American History
On this day in economic and business history ...
The Great Chicago Fire began in the night on Oct 8, 1871. At first it was thought to be small and contained, but the dangerous blaze soon raged out of control. Wire reports from the The New York Times filed after midnight on the following day were grim: "God's mercy can only save the city from utter destruction."
It would be two days before the fire burned out. The Times later pronounced Chicago "the ruined city" after more than 18,000 buildings worth $200 million destroyed -- an amount equal to 2.5% of that year's national GDP. In today's terms, that's about $400 billion in damage, or roughly four times the losses caused by Hurricane Katrina.
Much of Chicago's financial infrastructure was gutted in the fire, but many bank vaults successfully defended their contents. One of Chicago's leading bankers told the Times dispatcher after the fire burned down to "tell New York to stand ready on the center, and Chicago will rally on the right." Despite the fact that hundreds had died and an estimated 100,000 residents had lost their homes, many Chicagoans refused to give in to despondency. A commentary in the Chicago Tribune, published the day after the fire burned out, told residents: "Cheer Up ... Chicago Shall Rise Again."
New York did rally: Relief funds flowed in from the Big Apple's financial institutions. The New York Stock Exchange donated $50,000. The Chamber of Commerce raised $55,000. The Produce and Cotton Exchanges offered $22,000. And Chicago did rise again. Within a year, $50 million worth of new buildings had been constructed in a frenzy of activity.
The Chicago Stock Exchange opened 11 years after the fire, and the Chicago Mercantile Exchange was founded in 1898, five years after the landmark Columbian Exposition (World's Fair) welcomed the world to a rebuilt and resurgent Chicago and ushered in the era of American consumerism.
The Chicago Mercantile Exchange is now part of the CME Group following its merger with the Chicago Board of Trade. CME Group became 90% owner of the Dow Jones Indexes, including the heavily followed Dow Jones Industrial Average , in 2010. The CME Group now controls the largest derivatives marketplace in the world, with more than 10 million contracts traded on most days. Chicago itself used its post-fire reconstruction period to position itself as one of the world's elite cities -- today, Chicago boasts the fourth-largest GDP of any city in the world.
Every beat of my heart
Arne Larsson had a history of heart problems. On Oct. 8, 1958, the 43-year-old's failing health forced him into a Stockholm hospital for surgery, where doctors Rune Elmqvist and Ake Senning implanted the world's first fully internal pacemaker. Elmqvist, also an engineer at Siemens , had to rig a temporary solution that only lasted three hours due to the haste of the surgery. But a better pacemaker quickly replaced the first, allowing Larsson to soldier on with an artificial ticker. Larsson wound up using 26 different pacemakers over the remainder of his life, which finally ended in 2001 after the Swede lived to the ripe old age of 86.
This pacemaker marked the unofficial beginning of the electronic medical-implant industry, which is now expected to reach $25 billion in annual worldwide revenue by 2016. The market for all medical implants, including devices such as artificial hips, stents, and many other augmentations and replacements, is estimated to be worth more than $200 billion today. Johnson & Johnson , a leader in the industry, generated approximately $18 billion in medical-device revenue in its 2011 fiscal year.
Not too big to fail
The Franklin National Bank failed on Oct. 8, 1974. At the time, it was the largest bank failure in American history by total assets. It had been kept afloat for a year by $1.7 billion in Federal Reserve loans, but a dividend suspension, following news of $83 million in losses through the first half of the year, resulted in an old-fashioned bank run. Depositors withdrew more than half of the bank's $3.72 billion in reported 1972 assets by the time of the failure. Finally, regulators had no choice but to declare Franklin National insolvent and sell its assets to a banking group co-owned by some of Europe's largest financial institutions.
Franklin National remained the largest failure in American history for 11 years, until it was eclipsed by Continental Illinois National Bank and Trust, which had boasted $40 billion in assets at its peak.
A short-lived rebound
The Dow surged 8% higher on Oct. 8, 1931, two days after recording one of the greatest single-day gains in its history. The rationale was the same on Oct. 8 as it had been on Oct. 6: Wall Street was in high spirits and good confidence about President Herbert Hoover's banking rescue plan. The day's closing value, 105.79, was the Dow's first return to triple-digit territory since Sept. 29, but it would not last long. By mid-November the Dow resumed its downward slide, and optimism again seemed a thing of the past.
The best expression of the day was not in temporarily ebullient market headlines, but in an opinion piece written by Thomas Woodlock in The Wall Street Journal and published alongside those headlines the day after the Dow's 8% rise:
We are paying today for the debauches of 1929, and it is hard to believe that there is much more to be paid. In 1929 we borrowed money at 9% to buy stocks at prices which capitalized earnings on a basis of from 4% downward. We thought we saw ahead of us an unlimited vista of growing business and profits. Today we will not borrow money to buy stocks at prices which capitalize earnings at 6%, 8%, 10% and upward, and bonds, still paying interest, at prices which virtually discount bankruptcies which are not likely to happen. We will not borrow -- we will not even spend ready cash for them; but will leave it idle in bank deposit or safe deposit box.
Woodlock closed his column with the old maxim, made famous by President Abraham Lincoln, about the sage and King Solomon: "This, too, shall pass away."
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