International Business Machines Corp. (IBM): A Look Back

Peter Coy writes in Businessweek:

Founded by the famous Rothschild banking family in 1855, Credit-Anstalt was one of the most important financial institutions of the Austro-Hungarian Empire, and its failure came as a shock because it was considered impregnable. The bank not only made loans; it acquired ownership stakes in all kinds of companies throughout the sprawling empire, from sugar producers to the new automobile makers. Its headquarters city, Vienna, was a place of wealth and splendor, famous for its opera, balls, chocolate, psychoanalysis, and the extravagant architecture of the Ringstrasse. The fall of Credit-Anstalt — and the dominoes it helped topple across Continental Europe and the confidence it shredded as far away as the U.S. — wasn’t just the failure of a bank: It was a failure of civilization.

The Economist‘s Buttonwood column has more detail on the collapse:

Acting as lender of last resort, the Austrian central bank increased the money supply by 20% virtually overnight. However, far from restoring confidence, this caused a run on other Austrian banks and on the currency; the national bank lost more than a third of its gold reserves. An international rescue effort was able to lend Austria just $15 million, less than half the gold lost.

A grinding bear market in the United States had already shaved 60% off the value of the Dow Jones Industrial Average (Dow Jones Indices:.DJI) by the time CA collapsed. From then on, incredibly, the Dow would plunge another 72%, bottoming out in 1932 at a depth that had not been plumbed in three decades. The period after CA’s collapse roiled financial markets both in Europe and in the United States. An enormous amount of deleveraging followed — by the end of 1931, American and European banks held 36% less gross debt than they’d carried at the end of 1930. Total bank deposits shriveled for years, after a brutal international bank run en masse that saw double-digit percentage declines in the reserves of banks in the U.S., Germany, Hungary, Italy, and Spain (among others). Germany and the U.S. did not reverse the outflow of deposits until 1934, a year after earth-shaking elections in both nations.

The article The Rise of the Machines and the Collapse of European Banking originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool owns shares of IBM.

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