THE PANIC OF 1907: Lessons Learned from the Market's Perfect Storm by Robert F Bruner
An inside look at the financial crisis of 1907 - what happened, why it mattered, and what we've learned. Intended as a warning, the Financial Times recently described the book as uncannily like reading a description of the market events of the last few weeks.
An Insightful Look at a Financial Perfect Storm, November 27, 2007
By Craig L. Howe "www.craighowe.com - Home of th... (Darien, CT United States) - See all my reviews
Shortly before 10:00 on the morning of November 14, 2007 Charles T. Barney walked into his second-story Park Avenue, took the pistol containing three bullets kept there for protection and fired one bullet into his head.
Up to that moment, he was a man of the Gilded Age. The son of a prosperous Cleveland merchant, he married into the Whitney family, was a director of 33 companies and had served as the top officer of the Knickerbocker Trust Company up until a few short weeks prior.
He had been asked to resign. The reason: early the previous month, he, along with several other New York City trust companies had funded an attempt to corner the market in the stock of a copper mining company. The attempt had failed. As word of his involvement spread, his investors and depositors panicked and started a run on his bank that would eventually lead to its closing.
The country had lost confidence in its financial system. It would take leadership, largely from one man, J. P. Morgan, to restore it.
Robert F. Bruner and Sean D. Carr take the reader day-to-day through this crisis. Beginning with the famed San Francisco earthquake and culminating with Barney's suicide, they draw seven lessons that are, perhaps more instructive today, than they would have been in 1907. They are:
1. Complexity makes it difficult to know what is happening and establish linkages that enable the crisis to spread.
2. Economic expansion creates rising demands for capital and liquidity. The mistakes that accompany those rising demands must eventually be corrected. 3. In the late stages of an economic expansion borrowers and creditors overreach in their application of debt. This lowers the financial system's safety margin.
4. Prominent public and private figures provided adverse leadership. Their policies raise uncertainty, lower confidence and elevate risk.
5. Random events shake the economy and financial system.
6. Greed becomes fear.
7. Well-intended responses prove inadequate to the crisis' challenge.
This book drips with insight. Well-written, easy-to-read, it should be read by banker, traders and students of business and economics. It is a rare dissection of how and why a panic unfolds.