The Panic of 1907: Lessons Learned from the Market's Perfect Storm
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"Before reading The Panic of 1907, the year 1907 seemed like a long time ago and a different world. The authors, however, bring this story alive in a fast-moving book, and the reader sees how events of that time are very relevant for today's financial world. In spite of all of our advances, including a stronger monetary system and modern tools for managing risk, Bruner and Carr help us understand that we are not immune to a future crisis." ¡ªDwight B. Crane, Baker Foundation Professor, Harvard Business School
"Bruner and Carr provide a thorough, masterly, and highly readable account of the 1907 crisis and its management by the great private banker J. P. Morgan. Congress heeded the lessons of 1907, launching the Federal Reserve System in 1913 to prevent banking panics and foster financial stability. We still have financial problems. But because of 1907 and Morgan, a century later we have a respected central bank as well as greater confidence in our money and our banks than our great-grandparents had in theirs." ¡ªRichard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, and Professor of Economics, Stern School of Business, New York University
"A fascinating portrayal of the events and personalities of the crisis and panic of 1907. Lessons learned and parallels to the present have great relevance. Crises and panics are as much a part of our future as our past." ¡ªJohn Strangfeld, Vice Chairman, Prudential Financial
"Who would have thought that a hundred years after the Panic of 1907 so much remained to be written about it? Bruner and Carr break significant new ground because they are willing to do the heavy lifting of combing through massive archival material to identify and weave together important facts. Their book will be of interest not only to banking theorists and financial historians, but also to business school and economics students, for its rare ability to teach so clearly why and how a panic unfolds." ¡ªCharles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University, Graduate School of Business
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.
Great Background on the Industry Leaders of the Time! This book might as well have been named: "How J.P. Morgan saved the world from crisis." It was very well written and very interesting. I thought it was great that the author gave us a background on the major industry leaders at this time as they were more powerful than the U.S. Government (financially anyways). This time was a whole different time and I was immersed into the story throughout the book and wanted more at the end. ...more info
A panic indeed. This books offers an insightful glimpse into what was, at the time, the largest bank run in U.S. history. (I do believe the crash of '29 eclipsed it, but don't quote me on that.) It is a wonderful recounting of how such a panic can occur:
1. Start with some insanely stupid speculating
2. Compound the problem by intertwining financial structures and interests so that any unwind is greatly exacerbated.
3. Mix in a significant economic event which changes the financial paradigm and creates an imbalance which cannot be calmly resolved under current economic and market conditions. Such an event will also change market psychology, introducing varying levels of uncertainty, uneasiness and fear.
4. Wait for the tipping point - a seemingly small event which sets in motion a chain of much larger and more damaging events.
5. Enjoy a full-fledged meltdown.
While I'm certainly adding a dash of sarcasm, the result is both serious and insightful, particularly given the events of the current day markets. One key difference between then and now is that no longer can one or few institutions save the market as they did in 1907. There is no J.P. Morgan today; the markets are too broad and far too complex.
My only criticism of this book was that I wish it had offered a more detailed explanation of the gold standard and how it affected currency flows and balances of payments. Given that this standard has long been dead, I would have found a broader explanation infinitely helpful.
All in all, this book is a must-read for anyone who is serious about the markets....more info
A detailed story of how enormous complexity mixed with fear and greed led to panic This book is well organized. First there is the history then there is the analysis.
If you don't have time to read this instructive blow by blow account of the 1907 Panic then start on page 151 and get the benefit of "Lessons" that are definitely applicable today. Here the authors explain why crashes, panics are inevitable and we will always have to live with booms, bubbles and manias. And proof that these lessons are valid is in the news this very day. The President announced a one percent of GNP Keynsian economic stimulus package that is, obviously, in light of this book a buffer against panic that is always out there lurking. Hope it works. At least we have missed a hundred year anniversary panic. We have made it "safely" into 2008.
The Panic of 1907 A great book, with a good bit of linkage to today's "credit crunch." Every investor needs to take advantage of this well-written book to learn what happened then -- and what could easily happen again!...more info
An Overpriced, Short, Shallow "Book" I read with interest the glowing reviews of this book so I bought it. Was I ever disappointed. I have not attended business school, but it appears that this "book" may be the basis of a "case study" in business school (I think the author's slipped at the end when they just about say as much on page 152, "Any single case study, such as the one we have presented here...") The "chapters" are so brief you can read two or three of them while waiting in line for a cup of coffee, and they basically amount to this: (1) a great financial calamity occurred; (2) JP Morgan said "I'll fix it", and (3) he did. The next chapter is (1) another great financial calamity occurred; (2) JP Morgan said "I'll fix it", and (3) he did. Repeat till you get to the end of this extremely short "book" (which is 178 pages, excluding notes.) I have nothing against JP Morgan, mind you, and have read some excellent books about him--as can you, if you buy something else. For what it's worth, I would have given the book two stars instead of only one but for the fact that the authors (academics with grand titles, no less--check out the book's back flap) are apparently accustomed to charging outrageous prices for what they force their B-School students to buy. The price of this book--even with Amazon's outstanding discount--leaves it vastly overpriced. There are no new lessons here, nothing you can't figure out yourself, and nothing worth the price....more info
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. ...more info
A lot of small details regarding the panic. The Panic of 1907 seems to focus a lot on the small details of the panic. The conclusion in my opinion, fails to take a look at the big historical picture. The Federal Reserve was later created in 1913, to help prevent another liquidity crisis. But was this a devil`s bargain? What would JP Morgan have to say about the Federal Reserve`s dilution of the US money supply? I wonder which is the lesser evil, an unregulated financial industry, or government control of the money supply? Thomas Jefferson warned against the use of a Central Bank. His warning has long since been forgotten . The book never discusses these type of larger issues.
The authors also talk a lot about the rational pricing of stocks. Stock prices reflect peoples emotions, not their rational thoughts.
The House of Morgan, by Ron Chernow is a much better review of the 1907 Panic....more info
A nice lesson in economics This small book does a good job of explaining the Panic that led to the creation of the Federal Reserve Bank. In 1907, JP Morgan was powerful enough, and the world of finance was small enough, that one man could stem the tide. He was 70 years old and had had enough experience to know what to do. His reputation was such that others would take his advice. The story is well told and I was willing to give the authors one more star for their observation that John Maynard Keynes' 1936 recommendation for government counter-cyclical spending during recessions was quickly distorted by politicians to mean government spending in both boom and recession. That led to our present problems with deficits and discredited Keynes. That observation alone convinced me that these authors should be taken seriously. I recommend the story although, as others have pointed out, more information on the role of the gold standard would have been helpful. Morgan was a fascinating figure worth more attention as a cultural icon. It is appropriate that Caleb Carr includes him as a hero in his novels about the same era. A fine little book on economic history....more info
Educational I read the review of this in Wall Street journal which caused me to buy this from Amazon. Quick read of approx 300 pages. Concise yet very informative presentation of facts leading up to the market storms of 1907. I also enjoyed reading the footnotes which were additionally informative....more info
The more things change, the more they remain the same Financial history is fascinating precisely because it documents simularities with the present, even while the products or organizational mechanisms of the time are different; this book is great for this moment of credit contraction and fear in the 21st century, a hundred years after the documented events.
Reading about JP Morgan (the person) meeting with the various bank and trust company heads, and bringing in Teddy Roosevelt as he felt relevant, reminded me both of the behind-doors funding conversations in 1998 that kept the Long Term Capital disaster from spreading (see When Genius Failed, by Roger Lowenstein), and made me think of Tim Geithner, head of the NY Fed, and Henry Paulson, Treasury Secretary, working with JP Morgan (the firm) in the spring of this year (2008) to contain the blow-up of Bear Stearns.
Timelines aren't always tight, and the historical material is a lot more limited that what Roger Lowenstein had to work with, but it is still a very compelling story and appropos comparison to the present. Interesting also is the international elements of gold movements to contain the unfolding crisis of credit/confidence....more info
Disappointed, but it is not terrible Gotta say I am surprised on this one. After reading the reviews I bought the book, and started off pretty saddened with the content.
There is no history to the crisis, and by all accounts the authors seem to figure it was triggered by the SF earthquake, but without any context or data it is hard to trust their logic at all. Then, about 30 pages in, the good part begins, but it tells a story, not per se a case study. The story is well crafted and moves right along, taking you through 2 months in late 1907. This continues for 100 pages, and then the story ends and the authors go off drawing conclusions as to what happened and why, with no context whatsoever. And I have to say, one reason for the crash they list is that financial markets are complex. Really? If I had submitted this as a paper in college, my professors would have made me re-write it.
I guess to put it into today's terms, it would be like trying to determine why Merrill Lynch failed in the fall of 2008 by starting with the failure of Bear Sterns in the spring of 2008. There is a fair bit of history that should be communicated probably starting in 1996 onwards. This book looks only at a very short time frame.
If you want to read a nice story of this sort, "The Great Crash of 1929" or "Reminiscences of a Stock Operator" would be much better purchases. If you already read both of those, then go for this one, but it will not be as good.
If you are looking for a detailed study as to why the panic of 1907 happened, this is not the book. ...more info
Panic of 1907: History and Lessons The Panic of 1907 begins with the roaring economy at the time---the boom that always comes before the bust. Then comes the initial shock---the San Francisco Earthquake---which shook not only the ground and brought down the buildings but put new strains on an already stretched capital market with new demands for money.
The overstretched capital market exposed a short selling stock scam in the shares of United Copper Co., an "on the curb" or what we would call a "pink sheet" stock today. This had been brought about by a failed effort by United Copper to corner the copper commodities market. More shares had been borrowed and sold than in fact existed. One by one the banks that had accepted the stock as collateral began to fail, both in New York and in the west. Then there was a lull in which they thought the worst was over. Then, a run on the Knickerbocker bank which caused it to slowly suffocate and the panic began to spread like a virus.
Because the United States National Bank rechartering had been vetoed long beforehand by Andrew Jackson, the U.S. had no central bank to manage the money supply. Thus, it fell to the bankers themselves to clear up the mess. J.P. Morgan became their leader and forged the deal that ended the crisis. He also needed President Theodore Roosevelt to agree to the deal. Roosevelt's recent speech about the "malefactors of wealth" was thought to have been aimed at Morgan and it had contributed to the further erosion of the stock market.
This Panic exposed the need to reestablish a central banking function in the United States to gain control of the credit market. This led to the creation of the Federal Reserve System.
Bruner and Carr recount this story in the first twenty chapters and then discuss their model for a panic and the lessons learned in the last chapter. Their discussion of Keynes, Friedman, Schumpeter, and Minsky is a good introductory explanation of the theories of the business cycle for a general audience.
I did notice one small error in the book. The author Sinclair Lewis is described as: "Muckraking writers such as Sinclair Lewis famously focused attention on unsanitary conditions in meatpacking." It was Upton Sinclair(1878-1968) who wrote the novel The Jungle(1906) about the meatpacking industry. A common mistake annoying to both men.
I think this is a useful book to read not only in the current situation but in the future. Business cycles will never disappear; they are part of our nature.
An Insightful Look at a Financial Perfect Storm 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....more info
Good story, sloppy analysis The authors write an exciting story, and it is an important one in American financial history. With no Federal Reserve in existence, JP Morgan with his allies (ironically, those allies head what will become Citicorp) step in and mount a rescue that looks very similar to the one Bernanke and Paulson have been attempting. And the authors are to be congratulated on bringing out this book with perfect timing - publishing it in 2007 as the current crisis starts. The parallels are so obvious, it is safe to assume that most readers will be using this book to draw insights into the current crisis.
Unfortunately, the glaring analytical errors in the final chapter (titled "Lessons") call into question the accuracy, and certainly the interpretation, of everything that comes before. For example, compare the payoff matrix on page 170 with the wikipedia definition of Prisoner's Dilemma and you will see the authors apparently do not understand the most widely discussed puzzle in game theory. Likewise, on page 155 the authors mix together two subtly different market failures arising from asymmetric information - adverse selection (only customers with bad health sign up for insurance) and Akerlof's market for lemons (there is no market clearing price in the used car market, since buyers should interpret a below average price as a sign of worse than normal quality known by the seller but not the buyer). You would not expect these errors from professors at U Va"s business school.
The authors suggest that the 1907 crash (and by extension, all other crashes?) was a random event brought about by a confluence of unique historical circumstances. Perhaps they are right and the best explanation for a panic is, "Stuff happens!," but a slipshod use of buzzwords from economic theory and calling the crisis "a perfect storm" is not convincing. As an alternative view, Karl Marx argued that financial crises were the heartbeat of capitalism, and economists have been searching for the underlying mechanisms ever since. So, enjoy the book for the story, but be careful in accepting the analysis.
Excellent history lesson! The authors of this book have done an excellent job in not just collecting facts, but "telling the story" of what it would have been like to experience this severe credit crunch. If you believe that history often repeats itself, just with diffeent participants, then this book offers a tremendous amount of insight for both traders and investors alike. It demonstrates how a credit crunch can create panic and spread like a cancer, and how the repercussions can change politics for years to come (such as the Mexican Revolution and the decline of power of Roosevelt).
The part of the story that strikes me most is how JP Morgan literally saved this country from disaster. He became a true leader and used his influence on the Secretary of the Treasury, the President, and the bankers of New York City to work together to bail out a very sickly financial system. I hope that the wealthy people of today read such a book to learn of their social responsibility if we were to ever have a market meltdown again.
Excellent read, most interesting story (not just a compilation of facts). Highly recommended....more info
Not quite sure what it wants to be The book is enjoyable enough - short and easily red. But one gets the sense that the authors aren't quite sure what their purpose is.
In the opening and closing chapters, the authors purport to provide a theory of financial crises - that they represent a "perfect storm" of several factors converging at once.
In between, they offer a rudimentary account of the events of the crises. It's enjoyable.
And there's the split in purpose. As an analysis of the origin of financial crises, the book fails - you aren't going to provide a convincing analysis by just looking at a single incident. The history backs up their analysis, but that only demonstrates that their analysis is applicable to this particualar crisis.
As a history, it's rather shallow - enjoyable sure, but not particularly insightful.
It's still a good book, especially in light of the events of the past year. Just make sure you have your expectations set appropriately....more info
A vivid history and critique of the 1907 financial crisis If you compare the 1907 crisis that struck U.S. and European financial institutions with 2008's economic emergencies, you will discover striking similarities. (In fact, the uncanny parallels have made this fascinating book a bestseller.) Strong interconnectivity between financial firms meant that trouble at one migrated to others. Both crises involved serious credit and liquidity concerns. Both provoked populist attacks against Wall Street. In part, the trusts hit trouble in 1907 because of insufficient regulation. The 1907 crisis started on Wall Street, and quickly jumped to European institutions. In 2008, the trajectory was even more global. Of course, marked differences also separate these episodes. In 1907, fabled financier J.P. Morgan exercised remarkable leadership to end the crisis, and to reassure depositors and investors that their savings and equity holdings were secure. Morgan calmed the waters so the panic would not spread. "This is the place to stop this trouble," he said of the Trust Company of America. Robert F. Bruner and Sean D. Carr explain why the 1907 panic occurred and use it as a valuable case study for understanding other monetary crises. getAbstract is confident that history lovers, businesspeople, financial executives and anyone who enjoys a well-told, real-life drama will love this book....more info
Learn from the past This book gave me huge insight into our nation's current situation as the names may have changed the general issues have not and maybe we can learn from that....more info
A Very Easy Read Most people reading books on finance, particularly historical books, aren't really expecting something highly readable by a layman. That is where this book is quite surprising. It flows very nicely and quickly. It visualizes events of the day very well. To be clear, this book focuses quite closely on the events immediately preceeding, leading up to and mostly during the crisis in October-November 1907. Some discussion is done of the aftermath and results but it really focuses and puts you in the meeting rooms with the people making the decisions at the time they were happening. Some space is given to the aftermath and addressing the causes but it really does a spectacular job of actually walking through the events that occurred as they were perceived. What is thought provoking is how eerily similar some attributes of this moment in history are to today. Particularly as Bruner and Carr walk you through the cascade of one institution disintegrating after another and as the events unfold to cascade wider and wider in scope. What exacerbated the events of the day, liquidity evaporating, is very much what is driving and exacerbating more recent events. The authors do seem a touch fond of J.P. Morgan and how he handled the crisis and do focus quite a bit on this. However, the facts are what they are. Had there been no J.P. Morgan to step in, one wonders how differently things may have unfolded. This book is highly readable and flows quite smoothly and quickly and is very enlightening....more info
Santyana was Right Remember what George Satyana said ("Those who do not know history are condemned to repeat it")? Well, he was right as this very timely book demonstrates. The book is a case study of the financial panic of 1907 when liquidity and asset value issues rocked U.S. banks, trusts and financial markets. Much of what occurred in 1907 bears an eerie resemblance to the current "credit crunch". A reader may wonder whether he or she is reading a book or the most recent edition of The Wall Street Journal. Aside from its timeliness, the book offers a workmanlike account of some very interesting occurrences and does a very good job in painting a portrait of the larger than life characters involved in the 1907 panic--- particularly the legendary J.P. Morgan (the authors had access to and quote from the private papers of several Morgan partners). If you like stories of the Guilded Age (be it real life accounts or Edith Wharton), you will like this book. Finally, the book pulls off the hat trick by providing a nice scholarly summing up of factors leading to the financial panic of 2007. This book should be required reading for everyone working on Wall Street today....more info
The Panic of 1907 The book is timely and certainly a study in human behavior. Mob mentality and lack of sound leadership can surely be a downfall to a community or on a larger scale; an entire country. This lesson in history gives a valuable insight into the global economy that existed 100 years ago. I was intrigued by the daily progress in the turn of events that the authors were able to bring together. I have recommended this book to everyone who talks about their finances and stocks and 401-k. I will be rereading it shortly and start to underline and footnote for my own future references....more info
An Easy Read on a Complex Subject The authors are professors of economics but they write like novelists. Any one who has been affected by the current subprime crisis should read this book. It will increase your understanding of what is now happening to us, and what is all too likely to happen to us again in the future....more info
Helped Me Understand Today This is a clear, concise book that gives an overview of the Banking Panic of 1907. The most useful part of the book for me was the glossary as the authors define such words as "bank panic", "stock market crash", and so on. We hear these words every day, but never have a clear definition of them. The Panic of 1907 seems very similar to what is happening in the credit crisis and money market/hedge fund panics of today, except they are on a more global scale. My one complaint is the book was too short and, therefore, skipped some of the detail I was looking for. Overall, this is a great book and will help people without a financial background understand what happens during a panic and what steps need to be taken to stop the panic....more info
Very timely book The financial industry has always been inter-linked, and this book clearly shows that systemic risk is nothing new. While the book is interesting, it often seems to dwell on minutia, and at other times fails to connect the dots to give the reader the "big picture". For instance, the international flow of gold during the crisis is discussed in numerous segments of the book, yet there is no discussion of the gold standard and what if any impact it had.
You can see what happens in a crisis of this nature with no Federal Reserve. Men like Morgan, sensing the danger, lead the financial industry through the crisis, while the President does little more than follow his lead. Sound familiar?...more info
Interesting perspective While the book certainly has some weaknesses, it is still a remarkable and readable one, providing very interesting perspectives on credit crises....more info
An excellent account of an important economic event that caused international panic The book is about the monetary panic in the U.S. in 1907. There was a lack of monetary liquidity and trusts and bank runs happened on top of each other. People were scared. Rich people became poor.
Because of little liquidity, the stock market crashed. The liquidity shortage was so bad that the brokerages had to borrow from famous banker, J.P. Morgan. Morgan led some of New York's leading bankers and also some Washington bigwigs in a valiant effort to recovery, which was eventually a success.
The drama is riveting. And the story is not unlike what's happening today. Of course, we have the FDIC and some safety valves. But, as the story shows, one unexpected event can cause wealth to be lost and markets and systems to fail.
Good overview of the panic of 1907 This book provides a good event-by-event chronology of the important facts that contributed to and constituted the bank panic of 1907. The way in which the New York banks worked together to contain the panic to only a couple of institutions is well narrated. The book concludes with a few general lessons to be drawn from the occurrence of the crisis itself and the effectiveness of the steps taken to contain it. In the light of recent economic events, this is a very interesting read that has been well researched and recounted in accessible prose to the average reader....more info
Enjoyable for a Lot of Reasons I would have given the book three or four stars; however, the authors warrant, at least, an extra star or two simply for defining progressives as "some Americans, calling themselves `progressives'..." There is so much in that phrase. It is beautiful writing.
Beyond that, the book is a good general overview of the event, and the authors make a good case for an undeniable thesis - not, despite superficial reviews, that J.P. Morgan saved the world, but that financial crisis are the result of a multitude of factors. With the possible exception noted below, it is hard to argue with the factors that they have identified.
I would offer a few critiques:
First, a nit: I was disappointed that the authors did not circle back and explain how Otto Heinze bungled the squeeze. Did he miscount the number of shares outstanding? Were there fraudulent shares being traded?
Second, an important point: It is impossible to accept the idea that demand for capital can, in real terms, exceed supply and that "excess demand" emanating from real "economic growth" can result in a financial crisis.
The point of the capital markets is to equilibrate the supply and demand of capital by adjusting the price, or cost, of capital. Like any other market, there can never be a sustained excess of supply or demand, so long as prices are freely allowed to adjust. And like any other market, to the extent that there appears to be "excess" demand or supply on a sustained basis, we can rest assured that something is interfering with the pricing mechanism. The authors fail to explore that interference.
In my opinion, it was (as it almost always is) excess "money-creation" by the banking system, which, in turn, artificially reduced the price of capital (kept interest rates too low and stock/asset prices too high), which, in turn, caused intermediaries and entrepreneurs to over-estimate the available supply of capital, creating a false sense of "buoyant growth", which, in turn, caused them to make what appears, after the fact, to have been bad (or speculative or even stupid) investments, given the real state of the economy at the time.
As for the whole J.P. Morgan (that villain!!), Teddy Roosevelt, Upton Sinclair/Sinclair Lewis (those heroes!!!) saga, you can guess on which side I come down. Suffice it to say, it is nice to read a history book published in 2007 that is not knee-jerk in villifying investors and entrepreneurs and knee-jerk in glorifying Government bureaucrats and the we-know-better-than-you class (i.e., progressives)....more info
2.5 stars-In 1907,as in 2007,the ancient wisdom of Adam Smith was completely ignored The two economists who wrote this book are half right about the Oct.-Nov.,1907 panic.Morgan did bail the system out.They are also half wrong.Unfortunately,the authors generally ignore the events preceeding this Panic.I am not talking about the immediate events necessarily,such as actions taken by the Bank of England,but a record of many,many years that demonstrated that Morgan was a main contributor to the creation of bank panics by means of his highly speculative loan policy.The facts are that Morgan was a well known speculator-financier-banker whose record ,since the Civil War, was one of creating ,and benefiting from,speculation.
Adam Smith provided the solution to the problem of bank panics in 1776 in the Wealth of Nations(WN)[See pp.292-340,especially his summary on pp.339-340,of the Modern Library(Cannan)edition of the WN.]
The first requirement is to have an independent central bank and a uniform currency.The second requirement is that no loans be made to projectors,(J M Keynes's speculators-rentiers),prodigals(like J P Morgan),and imprudent risk takers(like J P Morgan).ANY such loans made to such categories will WASTE AND DESTROY the aggregate savings of the nation.The savings must be lent,at a relatively low rate of interest ,only to the sober people ,who will use the loans productively to create jobs ,businesses,and real goods and services that add to the Wealth of Nations.The third requirement is that the rate of interest be fixed a little bit above the equilibrium rate of interest charged to prime customers.This low rate of interest must be maintained permanently in the long run.
It is not surprising that these policies are identical to those put forth by J M Keynes in his General Theory in Part V on pp.321-327,338-353,and 374-377.The fact of the matter is that this book demonstates that the economics profession still has not mastered the wisdom of Adam Smith after two centuries .Economists get things half right and half wrong.The bizarre logic in this book is equivalent to awarding someone, who starts a forest fire great recognition if is able to put it out later with only moderate damages.Perhaps some policy maker,say Ben Bernanke,will decide to take a look at what Adam Smith concluded over 230 years ago.It's only a fifty-fifty proposition....more info