Commentator John Steele Gordon
Commentator John Steele Gordon - 
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KAI RYSSDAL: Obviously, there's no way for us to know now what the net effect of the events of this weekend are going to be. Surely they'll be fodder for authors and analysts for decades. Commentator and business historian John Steele Gordon says it was bound to happen.

JOHN STEELE GORDON: What Wall Street and the financial authorities do now will determine whether this day is long remembered.

After a crash, liquidity is the key to reversing the situation and the Federal Reserve, the bank of last resort, is the key to liquidity. In 1987 it flooded the Street with money and the market soon recovered. In 1929, the Fed did nothing. In 1930, the federal government raised taxes, a disastrous mistake in a slowing economy.

And that year, as well, Wall Street refused to help a bank it could have saved. That touched off a wildfire of failure throughout the American banking system. The Bank of United States wasn't well-run. Some of its managers later went to jail. But it was a very large bank, the fourth-largest depository bank in New York, with 450,000 depositors, most of them middle- and working-class Jews from the Garment District. That's why it was known, snearingly, as the "pants pressers' bank."

The New York State authorities needed a temporary $30 million loan from the Wall Street titans to save the state-chartered bank. That way the authorities could have engineered a merger with three other solid institutions. The Wall Street banks, led by J.P. Morgan, flatly refused. The head New York banking regulator pleaded for help, warning that they "were making the most colossal mistake in the banking history of New York."

When the Bank of United States failed, on December 11th, 1930, the public panicked and the American banking system shuddered. People flocked to withdraw their money from other banks. In turn, the banks called in loans and sold assets in order to stay liquid. In that month alone, over 300 banks around the country failed.

Will the failure to rescue Lehman Brothers cause a similar reaction? Well, I'm a historian and that's above my pay grade.

RYSSDAL: John Steele Gordon's most recent book is called "An Empire of Wealth."