William Duer

William Duer was an audacious 18th-century American speculator and politician whose downfall triggered the very first financial crisis in the United States, the Panic of 1792. As the first Assistant Secretary of the Treasury under Alexander Hamilton, Duer had a front-row seat to the creation of the American financial system. He shamelessly used this insider knowledge to fuel a wildly ambitious, debt-fueled scheme to corner the market on newly issued government securities and bank stocks, most notably the Bank of New York. He built a complex web of loans and partnerships, betting that prices would only ever rise. When the credit markets tightened, his highly leveraged house of cards came crashing down, landing him in debtors' prison and setting off a wave of panic that threatened to derail the young nation's economy. Duer’s story serves as a timeless, and rather spectacular, cautionary tale about the perils of speculation, the destructive power of leverage, and the folly of believing “this time is different.”

In the late 1780s and early 1790s, the United States was a financial frontier. Alexander Hamilton's plan to have the federal government assume state debts and establish a national bank (the First Bank of the United States) created a feeding frenzy for government securities. William Duer, armed with privileged information from his Treasury post, was the ultimate predator. He knew which bonds the government would honor and when, giving him a massive, unfair advantage over the public. He formed syndicates to buy up vast quantities of this debt and bank shares on credit. His strategy was pure speculation: he wasn't interested in the long-term value of these assets, but only in their short-term price appreciation, which he intended to fuel himself. He was the poster child for borrowing to the hilt to chase a trend, a dangerous game that rarely ends well.

In March 1792, the music stopped. To cool the speculative fever, the newly formed First Bank of the United States began to tighten credit, restricting loans. This was the pin that pricked Duer’s bubble. Unable to secure new loans to pay off his old ones, he defaulted. The failure of such a prominent figure sent a shockwave through the markets. His creditors, who had lent him fortunes, failed in turn. Panic ensued as investors rushed to sell, and the prices of bank stocks and government bonds plummeted. The chaos was so severe that it prompted an unprecedented response from Alexander Hamilton. In a move that foreshadowed modern central bank interventions, Hamilton authorized the Treasury to purchase government securities on the open market to inject liquidity and restore confidence. This was, in essence, the first open market operation in U.S. history, a direct response to the mess Duer had created.

William Duer’s spectacular flameout, while over two centuries old, offers enduring wisdom for the modern investor, especially one grounded in a value investing philosophy.

Duer was not an investor; he was a pure speculator. He bet on price movements, not on the underlying productive capacity or intrinsic value of the assets he was buying. A value investor, as championed by Benjamin Graham, buys a business, not a flickering quote. The goal is to own a piece of a durable, profitable enterprise, not to guess which way the herd will stampede next.

Duer’s story is a textbook example of how leverage (debt) is a double-edged sword that almost always cuts the user. It magnified his potential gains, but it also guaranteed his total ruin when the market turned against him. A value investor prizes survival above all else. Using significant debt to buy securities violates the core principle of maintaining a margin of safety—a buffer against bad luck, misjudgment, and the inevitable downturns of the market.

The mania surrounding bank stocks and government debt in 1792 has all the hallmarks of a classic financial bubble: easy credit, widespread euphoria, and a disconnect from fundamental value. For the value investor, the lesson is to cultivate a healthy skepticism and resist the urge to chase “hot” assets. When it seems like you can't lose, that is often the moment of greatest risk. Duer’s tale reminds us to be fearful when others are greedy.