The Barings Crisis

Argentina in the 1880s was the emerging market of its age: railways pushing into the pampas, immigrants arriving by the shipload, and British capital financing all of it. Baring Brothers — older than the Bank of England’s independence, banker to governments — was the principal channel, and increasingly the principal risk-taker, underwriting issues it then could not place.

The trouble was that Argentine provinces borrowed faster than their revenues grew, and the peso was slipping. When the Buenos Aires water supply and drainage issue failed to sell in 1890, Barings was left holding paper it had guaranteed. By November the firm — not a marginal house, but the establishment itself — could not meet its obligations.

What happened next was new. William Lidderdale at the Bank of England, judging that a Barings failure would take the City with it, assembled a guarantee fund of £17 million from the other banks: the Bank of England first, then Rothschilds, Glyn Mills, the joint-stock banks, everyone. Barings was quietly liquidated and reconstituted as a limited company over the following years, and no panic occurred at all.

That is why 1890 matters here. The crisis was contained, so almost nobody remembers it — which is precisely the book’s point about the lender of last resort. The bill was paid by the survivors rather than the state, and the pattern of a rescue syndicate assembled overnight for an institution too central to fail was set for the next century. Argentina, for its part, defaulted anyway and spent the decade in depression.

What it cost

Argentina paid what the City did not. Deposits at the Banco de la Provincia de Buenos Aires fell from 138.5 million paper pesos at the end of 1889 to 67.3 million two years later, and the paper peso went from 2.33 to the gold peso to 4.03 at its worst, in the third quarter of 1891. For the immigrants the boom had drawn, the arithmetic reversed: in 1891, for the first time in ten years, more people left Argentina than arrived.

• 220,000 → −30,000 net immigration into Argentina in 1889 and in 1891 — the first year in a decade in which departures exceeded arrivals Williams, Argentine International Trade under Inconvertible Paper Money, 1880–1900, Harvard, 1920, p.207, from the Extracto Estadístico of 1915
• 138.5 → 67.3 million paper pesos of deposits at the Banco de la Provincia de Buenos Aires, fourth quarter 1889 to fourth quarter 1891 della Paolera and Taylor, Straining at the Anchor, University of Chicago Press, 2001, Table 3.1
• 40% of the Argentine government’s 1890 revenues absorbed by a single year’s interest on the external debt della Paolera and Taylor, Straining at the Anchor, 2001, chapter 3

The wheat districts expected a labour shortage in 1891. Immigration had fallen off, and the migratory harvest hands who came each year, chiefly from Spain and Italy, were thought likely to be scarce. Vice-Consul Bridgett reported from Santa Fe that the opposite had happened: the supply of agricultural labour had risen and wages had fallen, because men were walking out of the towns into the country. Almost every business there had cut its staff, and the railway companies had dismissed large numbers of men, who were now looking for work in the fields.

What followed

The politics broke first. On 26 July 1890 the Unión Cívica seized the artillery park in Buenos Aires; three days of fighting across the city left an uncertain number of dead, put by the Casa Rosada museum at between 150 and 300, and more than a thousand wounded. The rising was beaten and capitulated on 29 July, but President Miguel Juárez Celman resigned on 6 August and Congress accepted at once, installing his vice-president, Carlos Pellegrini. The armistice promised no reprisals; the months that followed brought arrests, exiles and revenge killings.

Museo Casa Rosada, Secretaría General de la Presidencia de la Nación, Rendición del Parque; della Paolera and Taylor, Straining at the Anchor, 2001, chapter 3

Phases on show: displacementboomdistresspanic