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by fearness.
--------Allen Greenspan
The Panic Of 1907: Lessons Learned From The Market 's 'Perfect Storm'
Book Text
An inside look at the financial crisis of 1907–what happened, why it mattered, and what we’ve learned The Panic of 1907 tells the dramatic story of one of the worst financial panics in modern history, drawing fascinating parallels to market conditions today. Through a detailed and engaging narrative, the authors lead readers day by day through the most critical events of the panic. Beginning with the dramatic suicide of Charles T. Barney, the deposed president of the Knickerbocker Trust Company–the first major financial institution to collapse–and ending with the establishment of the Federal Reserve System, the story highlights the leadership role of the larger-than-life financier J. Pierpont Morgan.
With this book as their guide, readers will take away important insights from the panic of 1907, developing a deeper understanding of financial markets and the factors that affect them.
About auther
Robert F. Bruner (Charlottesville, VA) is the Dean of the Darden Graduate School of Business Administration and Charles C. Abbott Professor of Business Administration at the University of Virginia. He is also the author of several books, including Applied Mergers and Acquisitions (0-471-39506-4) and Deals from Hell (0-471-39595-1). Sean D. Carr (Charlottesville, VA) is the Director of Corporate Innovation Programs at the Batten Institute, University of Virginia.
Review
a must read for anyone interested in American finance,
Bruner's book is a must read for anyone interested in the history of American finance, or in the intricacies & complexities of financial crises in the US & elsewhere. The 1907 Panic was at once a watershed event in US finance, since it was the immediate stimulus for the creation of our first real central bank, the Federal Reserve. But it also was (and is) typical of financial crises generally. Those of the 19th century that immediately preceded it (that is, in the post-Civil War "Gilded Age"), and those of our own time (that is, Enron, Long-Term Capital Management, Continental Illinois, etc.). Bruner has done an fine job digging up the details of what actually happened in the October/November 1907 crisis, the personalities & institutions, and in showing how these events overlaid on an already unstable economic situation that were lowering public confidence. The book is very well written, if not novel-like, certainly approaching the form. I read nearly all of it in one sitting.
Detailed and Nicely Paced - 'Reads' Like and A&E Documentary,
Edwin Lefevre's anecdotal account of the cash crunch of October 1907 in his timelessly street smart REMINISCENCES OF A STOCK OPERATOR (1923) has always begged for further commentary. His colorful recollection of how J.P. Morgan "saved" the New York Stock Exchange - "A day I shall never forget, October 24, 1907" - is in this current history placed in the larger context of a more general U.S. monetary crisis. Contributing events included the sudden, unexpected demand for capital following the San Francisco earthquake (1906), a Bank of England decision to slow the flow of gold to the U.S., a recklessly leveraged stock scheme hatched on Wall Street, and the absence of a central banking authority. Plunging asset values, impaired loan collateral values, a general loss of confidence, bank runs, financial ruin, and personal tragedy were the consequences of a "panic" that gripped the markets in that year. Even as one private individual, J.P. Morgan, provided the leadership and liquidity to the banking system, the City of New York, and the New York Stock Exchange, the events of 1907 dramatically underscored the need for a central bank to watch over the monetary needs of the country. The U.S. Federal Reserve as a lender of last resort was created in 1913.
The authors summarize the lessons of 1907 in a final chapter. I'm not sure that new ground is broken here, and the "perfect storm" cliche' is overdone these days, but it can be forgiven in this highly readable account. The point is that multiple contributing causes are in evidence in a financial crisis. Among those causes that stand out are an economy growing strongly where potential risks are marginalized (e.g. the recent mortgage meltdown), financial structures so interlinked or complex that no adequate overview can anticipate the impact of a failure (e.g. the size and opacity of the hedge fund industry), an exogenous shock (e.g. terrorist attacks of 2001), and a financial accident (e.g. a major bank or hedge fund collapse) that crystallizes the risks for the public. Market transparency, coordinated leadership, and adequate regulation are seen as critical elements in slowing the spread of contagion.
The authors don't go out of their way to look for these contemporary parallels, but the links are unavoidable. The strength of this book is that it is a page-turning, 'great read' with the added benefit of providing some useful, cautionary measures to help spot the next financial crisis.
Morgan did deserve the credit,
I agree with the previous review on the poor editing of this book. Indeed the kinds of mistakes made are uncalled for. But the previous reviewer need not question the role that Morgan played in the rescue nor the government's weak involvement. One of the surest ways to determine the accuracy of events of long ago is to research what was the generally held opinion at the time of the events. Without exception all parties ( the bankers, Roosevelt, financial journalists, etc) credited Morgan with the victory. Even the normally hostile press and public recognized this. Their good tidings did not last long of course because they knew that Morgan would not live forever. What would they do after he died? Hence the adoption of fellow banker Paul Warburg's recommendations for a Federal Reserve system.
As to the governments lack of involvement. Well, that's logical given that there was no structure in place for the government to work through. It was a 'Wall Street problem'.
For a much better history and analysis of these events read Ron Chernow's 'The House of Morgan', Jean Strouse's 'Morgan', and Carosso's 'The Morgans'. And if you can find a copy, Herbert Satterlee's 'J Pierpont Morgan'. ThESE are the books on the subject.
