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The Panic of 1907: Lessons Learned from the Market's Perfect Storm
"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."
—Dwight 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."
—Richard 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."
—John 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."
—Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University, Graduate School of Business
—Dwight 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."
—Richard 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."
—John 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."
—Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University, Graduate School of Business
280 pages, Hardcover
First published January 1, 2007
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Displaying 1 - 30 of 73 reviews
January 27, 2009
This book begins with a great narrative account of the events of the panic, largely focussing on the elderly J.P. Morgan and his heroic efforts to stem the disaster. The last few chapters then step back to analyze the causes of financial panics and demonstrate some parallels between 1907 and the current economic crisis.
It reads as if, in light of current events, the publisher decided to glue an academic paper to the end of a finished pop-history book. A more skillful account might have woven this analysis seamlessly into the narrative, or better yet, dispensed with the economics-light lesson entirely. While parallels to our economy one hundred years later certainly exist (e.g. disaster after a period of great economic growth and an abundance of credit) they stand out only in the most coarse analysis of events & causes.
It reads as if, in light of current events, the publisher decided to glue an academic paper to the end of a finished pop-history book. A more skillful account might have woven this analysis seamlessly into the narrative, or better yet, dispensed with the economics-light lesson entirely. While parallels to our economy one hundred years later certainly exist (e.g. disaster after a period of great economic growth and an abundance of credit) they stand out only in the most coarse analysis of events & causes.
October 2, 2011
Written from the perspective of the "poor victim bankers". I nevertheless found this book hilarious. I smiled when I saw the level of complete panic stirred in the professional embezzlers and head-desked when the writer tried to suggest it was the depositors who were out of line for demanding their property back.
To it's credit, this book did quote the great Thomas Jefferson line "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
For a book written and released before the Ron Paul R3VOLution, you have to give it credit.
Overall a lot of good, if slanted, information. I found it frustrating because they would never address, or acknowledge the austrian economists argument to anything.
To it's credit, this book did quote the great Thomas Jefferson line "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
For a book written and released before the Ron Paul R3VOLution, you have to give it credit.
Overall a lot of good, if slanted, information. I found it frustrating because they would never address, or acknowledge the austrian economists argument to anything.
October 12, 2018
This is yet another book on the fragile US system of oversight and controls. “The Panic of 1907” highlights a situation in an economy that lacks both a Central Bank and sufficient regulatory oversight on the financial players.
The US has always been allergic to any regulatory control, maybe because they were a rebel state from day one. One of the Founding Fathers – Thomas Jefferson did not trust banks. His famous quote “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered” was the guiding beacon for Democrats. Andrew Jackson did away with the concept of a Central Bank as existed in many European countries.
And so when the crash of 1907 occurred, there was no Central or Federal Authority to prevent the runs on banks and trust companies. That local banks had a ‘clearing house’ wherein the members would be protected by other banks in times of steep demands on one of them. This prevented more banks from collapsing, a saving grace. However, trust companies had no such defence mechanism, and it was purely by the efforts of J.P Morgan that such a clearing house was established for trust companies. The efforts of Morgan and a few other big bankers prevented the collapse of Trust Company of America and Lincoln Trust Company.
In his book, ‘Fifty Years in Wall Street’, originally published in 1908, the Wall Street observer Henry Clews cited nine causes for the panic of 1907, all specific to that year (p. 799):
“The real causes of all the trouble can be summed up as follows:
(1) the high finance manipulation in advancing stocks to a 3.5 to 4 percent basis, while the money was loaning at 6 percent and above, on six and twelve months, time on the best of collaterals;
(2) capital all over the nation having gone largely into real estate and other fixed forms, thereby losing its liquid quality;
(3) the making of injudicious loans by the Knickerbocker Trust Co., hence suspension;
(4) the unloading by certain big operators of $800,000,000 of securities, following which were the immense sales of new securities by the railroads;
(5) the California earthquake, with losses amounting to $350,000,000;
(6) the investigation of the life insurance companies;
(7) the Metropolitan Street Railroad investigation;
(8) the absurd fine by Judge Landis of $29,400,000 against a corporation with a capital of $1,000,000;
(9) the Interstate Commerce Commission’s examination into the Chicago & Alton deal and the results thereof.”
Further, in 1907, the world economies traded on Gold Standard. International cross border payments had to be settled with physical transfer of gold between countries. The Gold Standard also had another disadvantage – a country’s government could only issue as much currency as there were gold reserves, hence expansion of currency sorely needed to overcome recession was shackled. Probably had USA been on SDR standards followed today – the recession could have been overcome by printing currency and having a larger fiscal deficit.
Even today in USA there is a steady opposition to regulations and controls on financial intermediaries. In spite of regular crashes in the latter half of nineteenth century and the crashes of early twentieth century, US has been wracked with further crashes or collapses – in the twenty first century – Enron, Lehman Brothers, Washington Mutual and the hedge funds to name a few – all in the last fifteen or so years.
Unless there is a strong Federal Reserve Bank and strict enforcement of regulations, financial fiascos will continue to occur and as the world is now more integrated shocks move across borders faster and more powerfully.
The book has been well written, lucid and in brief chapters. The story of the panic and crash is covered within the first half of the book itself and the latter half is given over to analysis of the causes and effects of the Panic. But as the authors themselves state at the end of the narration in the first half – “Thus, we end our story about 1907 as we began — with a question: Why do markets crash and bank panics occur? Any single case study, such as the one we have presented here, is subject to a range of interpretations and we encourage the reader to draw one’s own conclusions from the foregoing narrative. Yet we think that the story of the panic and crash of 1907 inspires consideration that major financial crises can be the result of a convergence of certain unique forces — the forces of the market’s perfect storm — that cause investors and depositors to react with alarm”.
Therefore, the conclusion I draw, is like all business and economic storms, the panic occurred due to human greed and lack of strong regulatory control. Regulatory control is anathema for free market proponents and they strongly oppose it – but in its absence human avarice and greed will rule – a few rich will get richer while the masses of poor will definitely get poorer and this occurs because in a free market (not perfect market) the flow of information is assymetrical and highly skewed.
Recommended reading for students and those interested in economics and economic history.
The US has always been allergic to any regulatory control, maybe because they were a rebel state from day one. One of the Founding Fathers – Thomas Jefferson did not trust banks. His famous quote “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered” was the guiding beacon for Democrats. Andrew Jackson did away with the concept of a Central Bank as existed in many European countries.
And so when the crash of 1907 occurred, there was no Central or Federal Authority to prevent the runs on banks and trust companies. That local banks had a ‘clearing house’ wherein the members would be protected by other banks in times of steep demands on one of them. This prevented more banks from collapsing, a saving grace. However, trust companies had no such defence mechanism, and it was purely by the efforts of J.P Morgan that such a clearing house was established for trust companies. The efforts of Morgan and a few other big bankers prevented the collapse of Trust Company of America and Lincoln Trust Company.
In his book, ‘Fifty Years in Wall Street’, originally published in 1908, the Wall Street observer Henry Clews cited nine causes for the panic of 1907, all specific to that year (p. 799):
“The real causes of all the trouble can be summed up as follows:
(1) the high finance manipulation in advancing stocks to a 3.5 to 4 percent basis, while the money was loaning at 6 percent and above, on six and twelve months, time on the best of collaterals;
(2) capital all over the nation having gone largely into real estate and other fixed forms, thereby losing its liquid quality;
(3) the making of injudicious loans by the Knickerbocker Trust Co., hence suspension;
(4) the unloading by certain big operators of $800,000,000 of securities, following which were the immense sales of new securities by the railroads;
(5) the California earthquake, with losses amounting to $350,000,000;
(6) the investigation of the life insurance companies;
(7) the Metropolitan Street Railroad investigation;
(8) the absurd fine by Judge Landis of $29,400,000 against a corporation with a capital of $1,000,000;
(9) the Interstate Commerce Commission’s examination into the Chicago & Alton deal and the results thereof.”
Further, in 1907, the world economies traded on Gold Standard. International cross border payments had to be settled with physical transfer of gold between countries. The Gold Standard also had another disadvantage – a country’s government could only issue as much currency as there were gold reserves, hence expansion of currency sorely needed to overcome recession was shackled. Probably had USA been on SDR standards followed today – the recession could have been overcome by printing currency and having a larger fiscal deficit.
Even today in USA there is a steady opposition to regulations and controls on financial intermediaries. In spite of regular crashes in the latter half of nineteenth century and the crashes of early twentieth century, US has been wracked with further crashes or collapses – in the twenty first century – Enron, Lehman Brothers, Washington Mutual and the hedge funds to name a few – all in the last fifteen or so years.
Unless there is a strong Federal Reserve Bank and strict enforcement of regulations, financial fiascos will continue to occur and as the world is now more integrated shocks move across borders faster and more powerfully.
The book has been well written, lucid and in brief chapters. The story of the panic and crash is covered within the first half of the book itself and the latter half is given over to analysis of the causes and effects of the Panic. But as the authors themselves state at the end of the narration in the first half – “Thus, we end our story about 1907 as we began — with a question: Why do markets crash and bank panics occur? Any single case study, such as the one we have presented here, is subject to a range of interpretations and we encourage the reader to draw one’s own conclusions from the foregoing narrative. Yet we think that the story of the panic and crash of 1907 inspires consideration that major financial crises can be the result of a convergence of certain unique forces — the forces of the market’s perfect storm — that cause investors and depositors to react with alarm”.
Therefore, the conclusion I draw, is like all business and economic storms, the panic occurred due to human greed and lack of strong regulatory control. Regulatory control is anathema for free market proponents and they strongly oppose it – but in its absence human avarice and greed will rule – a few rich will get richer while the masses of poor will definitely get poorer and this occurs because in a free market (not perfect market) the flow of information is assymetrical and highly skewed.
Recommended reading for students and those interested in economics and economic history.
August 20, 2018
When historic financial crashes are discussed the US Wall Street crisis of 1929 to 1932 often springs to mind. The less well-publicized crisis of 1907 might not have been just as brutal but it was still severe. The stock market declined by 37%, 42 banks and financial institutions went under and in 1908 the US and many other areas around the world saw an “intense” depression. It was a crisis with classic bank runs that had a long lasting effect on the organization of the American financial system. Robert Bruner and Sean Carr of the University of Virginia set out to explore what we can learn from the 1907 events.
In the introduction the authors propose a loosely held framework for how financial crises can be understood and explained. They offer a model with multiple factors that influence the development, instead of succumbing to the one-trick-pony rationalizations of many pundits – “it was the greedy bankers” or “it was the stupid politicians” etc. The major part of the book describes the historical events but in a concluding analytical chapter Bruner and Carr return to their model.
It is obviously a good thing to bring these perhaps too forgotten events into the spotlight. The historical account is despite its sometimes-complex content very readable. The main character of the book is undoubtedly John Pierpont Morgan. Even if the details, companies and persons of this crisis are specific to 1907 the chain of events are easily recognizable from other late day crashes. One thing is however different, the US had no central bank in today’s meaning. J.P. Morgan accompanied by George Baker at the First National Bank and James Stillman at the National City Bank instead shouldered the role as the lender-of-last-resort, in the end - and after many late night sessions - bringing calm to the markets.
The public reactions to the rescue endeavors were however mixed. Some hailed Morgan as a hero. In an increasingly radicalized US where the public opinion often was against Big Finance others accused the “money trust” to have exploited the crisis to their own gain. Morgan had to appear in a number of hostile congressional hearings. In 1913 the Federal Reserve System was formed to take on the role that Morgan and his partners had had previously. Ironically the FED was formed from a blueprint drawn up by much the same investment bankers the bank was set to replace.
So what are the components of the authors’ model of financial crises? They start with the statement that the financial market must be seen as a system where the actors interact with each other by decisions taken on imperfect information. This opens up for contagion where trouble will travel and the chain of events are more often than not non-linear and thus impossible to predict. Some pre-conditions for a bust is a preceding economic boom with increasingly voluminous and loosely controlled credit growth and add to this political decisions within financial and monetary policies that too often affect the market pro-cyclically. An economic shock that manages to reverse the psychological climate then triggers the crisis and greed turns into fear. When collateral values and trust disappear, liquidity quickly does the same. Collectively beneficial calmness is tossed aside as everyone runs for the exit simultaneously.
This book is published pretty much on the top of the 2002 - 2007 bull market. Yet, even if the authors in my opinion identify the components of a crisis correctly the forward looking part that rounds up the concluding section is completely devoid of the factors that only a few months later will create an even worse crisis than the one in 1907. This is no critique but only serves to show how hard it is to foresee financial calamities in advance. For anyone that wants to understand the coming financial crisis – whenever it arrives – it will be beneficial to read this well written account of the events that helped to shape the world we live in today.
In the introduction the authors propose a loosely held framework for how financial crises can be understood and explained. They offer a model with multiple factors that influence the development, instead of succumbing to the one-trick-pony rationalizations of many pundits – “it was the greedy bankers” or “it was the stupid politicians” etc. The major part of the book describes the historical events but in a concluding analytical chapter Bruner and Carr return to their model.
It is obviously a good thing to bring these perhaps too forgotten events into the spotlight. The historical account is despite its sometimes-complex content very readable. The main character of the book is undoubtedly John Pierpont Morgan. Even if the details, companies and persons of this crisis are specific to 1907 the chain of events are easily recognizable from other late day crashes. One thing is however different, the US had no central bank in today’s meaning. J.P. Morgan accompanied by George Baker at the First National Bank and James Stillman at the National City Bank instead shouldered the role as the lender-of-last-resort, in the end - and after many late night sessions - bringing calm to the markets.
The public reactions to the rescue endeavors were however mixed. Some hailed Morgan as a hero. In an increasingly radicalized US where the public opinion often was against Big Finance others accused the “money trust” to have exploited the crisis to their own gain. Morgan had to appear in a number of hostile congressional hearings. In 1913 the Federal Reserve System was formed to take on the role that Morgan and his partners had had previously. Ironically the FED was formed from a blueprint drawn up by much the same investment bankers the bank was set to replace.
So what are the components of the authors’ model of financial crises? They start with the statement that the financial market must be seen as a system where the actors interact with each other by decisions taken on imperfect information. This opens up for contagion where trouble will travel and the chain of events are more often than not non-linear and thus impossible to predict. Some pre-conditions for a bust is a preceding economic boom with increasingly voluminous and loosely controlled credit growth and add to this political decisions within financial and monetary policies that too often affect the market pro-cyclically. An economic shock that manages to reverse the psychological climate then triggers the crisis and greed turns into fear. When collateral values and trust disappear, liquidity quickly does the same. Collectively beneficial calmness is tossed aside as everyone runs for the exit simultaneously.
This book is published pretty much on the top of the 2002 - 2007 bull market. Yet, even if the authors in my opinion identify the components of a crisis correctly the forward looking part that rounds up the concluding section is completely devoid of the factors that only a few months later will create an even worse crisis than the one in 1907. This is no critique but only serves to show how hard it is to foresee financial calamities in advance. For anyone that wants to understand the coming financial crisis – whenever it arrives – it will be beneficial to read this well written account of the events that helped to shape the world we live in today.
November 1, 2019
I had the privilege of taking a class with Professor Bruner during my fourth year at the University of Virginia on the 2008 Financial Crisis, and I remember being enthralled by his gift for storytelling. To this day, I admire his ability to weave facts and figures into a compelling narrative, and this book was no exception. He begins this book with a concise overview of why the U.S. was vulnerable to an economic shock in the fall of 1907, placing particular emphasis on the destabilizing influence of the 1906 San Francisco Earthquake. He then dives into the specifics of the panic itself, guiding the readers through the stock manipulation scheme led by the Heinze brothers and the banking community's response to the systematic unrest it caused. The book concludes with overarching principles about financial crises, discussing the importance of collective action and strong leadership in the face of uncertainty. This book was incredibly helpful preparation for a class presentation I'm giving on J.P. Morgan's role in the resolution of the Panic of 1907; I'd highly recommend it for anyone interested in the cascades that result when financial panics hit.
February 17, 2023
The market crash of 1907 was obviously not the first one of its kind, and the concepts/circumstances that underpin them share some common foundations.
My reason for reading The Panic of 1907 was my historical interest in the USA's mega wealthy barrons; the industrial rise of the USA through the 1800's and early part of the 20th Century.
JP Morgan of course was one of those titans of immense wealth, power and influence during this period, and the 1907 crash (and this book) represented a vehicle for knowing a little more about this man.
Having worked on a financial trading floor on Black Tuesday (Australia) 1987 I witnessed some of the contributors and behaviours outlined in this book, and in the aftermath of that day I saw the financially ravaged faces of some who lost it all in the panic to sell.
For those with an interest in the history of financial markets, market crashes and/or human investment behaviours you will find this an interesting read.
My reason for reading The Panic of 1907 was my historical interest in the USA's mega wealthy barrons; the industrial rise of the USA through the 1800's and early part of the 20th Century.
JP Morgan of course was one of those titans of immense wealth, power and influence during this period, and the 1907 crash (and this book) represented a vehicle for knowing a little more about this man.
Having worked on a financial trading floor on Black Tuesday (Australia) 1987 I witnessed some of the contributors and behaviours outlined in this book, and in the aftermath of that day I saw the financially ravaged faces of some who lost it all in the panic to sell.
For those with an interest in the history of financial markets, market crashes and/or human investment behaviours you will find this an interesting read.
May 8, 2019
After reading this book I have two conflicting impressions of it. On one hand the book provides a lot of good information and details about a banking system collapse that I would think most people don't know happened (at least I didn't know). It is an important piece of our finaical and business history. The book also translates that occurance and circumstances to the modern day and speaks to the psychology behind market and banking panics. On the other hand the book is just difficult to read. I constantly found my mind wondering from the story and a number of times had to go back and reread sections after loosing track of what was going on. This did not make for an enjoyable read. So from a history and information point of view I would recommend it. However, if you are looking for a book that will pull you in and make you stay up all night reading I would look elsewhere.
June 10, 2023
A quick telling of the financial panic of 1907. It lead to a significant recession of 1908, and in turn, to the creation of the Federal Reserve System in 1913.
The primary issue is that there was only a very weak lender of last resort, primarily JP Morgan persuading his fellow bankers and the NY Clearing House to collect loans together to save the institutions being subjected to runs. The argument goes, why have an ad-hoc unsystematic, potentially underfunded, private procedure to handle a panic? A centralized, transparent, subject to public oversight Central Bank can do the job better. While the Fed failed in 1929-32, there have been far less major panics in the past one hundred years.
The primary issue is that there was only a very weak lender of last resort, primarily JP Morgan persuading his fellow bankers and the NY Clearing House to collect loans together to save the institutions being subjected to runs. The argument goes, why have an ad-hoc unsystematic, potentially underfunded, private procedure to handle a panic? A centralized, transparent, subject to public oversight Central Bank can do the job better. While the Fed failed in 1929-32, there have been far less major panics in the past one hundred years.
May 11, 2023
Pretty disappointing of most levels. Doesn't really provide much insight into why these panics were happening about every twenty years since really the founding of the country. Instead gives a blow by blow account of the various jackwads as they run around trying to scrape together money to save their collapsing banks and trusts.
Speaking of blows. The author does the first cross-time and history fallatio of a historical figure in the original JP Morgan who basically naps with a cold through the panic and occasionally gets people to move money around. But even as a biography of JP, doesn't really inspire.
Speaking of blows. The author does the first cross-time and history fallatio of a historical figure in the original JP Morgan who basically naps with a cold through the panic and occasionally gets people to move money around. But even as a biography of JP, doesn't really inspire.
March 21, 2024
A sterling piece of JP Morgan propaganda.
It's less that it shouldn't put a spotlight on Morgan (clearly, he was an important figure and critical to mitigating the Panic), and more that he is the central character of it all - the lens through which almost all events are viewed in this book.
To make a more recent comparison, it's as if someone made a book called "The Great Recession" and then focused almost exclusively on then-Federal Reserve Chair Ben Bernanke. It would be a worthy topic (and already exists in the form of Bernanke's own memoir), but trying to sell it as a book whose sole purpose is to teach about and analyze the event itself is fairly misleading.
It's less that it shouldn't put a spotlight on Morgan (clearly, he was an important figure and critical to mitigating the Panic), and more that he is the central character of it all - the lens through which almost all events are viewed in this book.
To make a more recent comparison, it's as if someone made a book called "The Great Recession" and then focused almost exclusively on then-Federal Reserve Chair Ben Bernanke. It would be a worthy topic (and already exists in the form of Bernanke's own memoir), but trying to sell it as a book whose sole purpose is to teach about and analyze the event itself is fairly misleading.
May 6, 2024
Thus book posits a theory of Financial Crises and then proceeds to test it with a detailed (if dry) account of the Panic of 1907, and the efforts of leaders of the New York financial industry, directed by J. Pierpont Morgan, to address it. The authors admit they focus on New York, though the Panic was nationwide. This is probably both because of the importance of New York as America's financial center and also because of the wealth of research materials readily available, This book was published in June 2007, just before the Great Recession, so the authors published a 2nd, updated edition in 2023.
August 6, 2018
A great historical case study of crowd reactions to negative market outlooks caused via enabling conditions and a random shock to the system. Similar to "The Great Crash" this granular examination of a crash in real time is a sound foundation upon which to understand how rare events often play out. Even though bank runs may be a thing of the past, the perspective on enabling conditions and the nature of how sentiment changes rapidly is valuable in the context today of any crises. In particular viewing currency crises through the lens provided here of a bank panic has proven most useful.
February 23, 2016
Posted in my blog on 12-9-2008. I'm not sure this is a book I should have read this fall. As the markets were tanking, reading about the market's perfect storm, which caused me to draw too many parallels to our current situation. In one instance, the book invaded my sleep and entered my dreams. That said, it is also enlightening to read such a book while the newscasters are talking about our troubled economy. I just don't know what to make of the fact that this book was an early Christmas present from a financial adviser! Reading a book that begins with the suicide of a president of a bankrupt trust company, while listening to the financial news in the background, isn't the sanest thing I've ever done. Bruner and Carr, two professors at the University of Virginia, have written about an event that happened a century ago. Although often overlooked by historians who go for the more dramatic economic events (the Depression of 1893, the Crash of 1929), the 1907 crash and panic in the financial sectors led to the creation of the Federal Reserve Bank and fundamental changes in the American economy. These changes were needed as the nation shifted from an agrarian to an industrial society. The 1907 panic followed an aggressive period of growth for the American economy. Tied to this growth was also a period of consolation as smaller companies and factories joined together to form corporations which were financed by a handful of firms in New York City. In this setting a series of events took place that lead to the panic in the fall of 1907. Starting in 1906, stock prices began to decline. This created problems as much of cooperate financing had been backed by the value of corporate equity. Also challenging corporations at this time was an activist President (Teddy Roosevelt) who sought to regulate and even break up corporations that had monopolistic control on particular sectors of the economy. Another compounding problem was a devastating earthquake in San Francisco which impacted the insurance industry and creating a demand for capital for rebuilding. And then there were a few greedy players in New York, such as the Otto Heinze and Charles Morse. These are some of the ingredients for a perfect storm in the financial markets.
In addition to the greedy, there were also those who tried to save the day. The book almost deifies J. P. Morgan, who not only committed large sums of capital to help keep banks liquid, but also raised capital for troubled institutions. Enchanted with Morgan's work ethic and desire for large orderly corporations that reduce the cost of production, they credit Morgan for helping to calm the crisis. One of the fascinating stories is how Morgan talked the newly formed U. S. Steel into buying Tennessee Coal and Iron (this is also how US Steel moved into Alabama and took over the Birmingham mills). According to the authors, USS was leery of buying TC&I as they already controlled 60% of the steel production and was fearful of an anti-trust lawsuit. Morgan wanting a buyer for TC&I as a way to raise cash and avoid a run on the trust company that held its securities. US Steel was rich in cash, so Morgan agreed to intercede with Roosevelt if USS brought the company at an inflated value.
A squeeze play is not just something in baseball or a move executed by an opportunist old man. One of the interesting stories in the book involved Otto Heinze's squeeze play, an attempt to corner the copper market. Copper had been in high demand early in the century as electrical wiring was connecting the nation. Thinking there were lots of short-selling involved with United Copper stock and believing he had a significant enough position in the company to control the market, he sought to drive up the price, forcing those who had shorted the stock to settle up. If Heinze was correct in his interpretation, he would have benefited at the expense of the short-sellers. But Heinze had misread the market and after a brief advance, the stock price collapsed, exposing Otto and his brother who had purchased additional stock on margin in their attempt to drive up the price. They both lost a fortune and brought about the demise of Otto's brokerage house, Gross and Kleeberg and also the Otto Heinze & Company. This was followed by a collapse of the State Saving Bank in Butte, Montana, which was a correspondent bank for the Mercantile National Bank in New York. Augustus owned the Montana bank and was of Mercantile. This event set off a run on banks, and forced New York financiers to move around money an attempt to increase liquidity.
The Panic of 1907 is very readable and provides an understanding of the macro-events that led to the panic. He also compares what went wrong in 1907 and how it might happen again. The understatement of the book, when speaking of "system-like architecture" of the financial markets, is: "New credit derivatives and other exotic contracts might help to reduce risk, but they have never sustained a live test: No one knows whether they will dampen or amplify a crisis." (174) I think we now know!!! The book also includes a helpful appendix that defines various terms that get thrown around a lot by the media and economists. If you're interested in economics, I recommend this book, but to avoid spoiling the holidays, you might wait till the New Year! Follow my lead, I'm giving up serious books for the rest of the month.
In addition to the greedy, there were also those who tried to save the day. The book almost deifies J. P. Morgan, who not only committed large sums of capital to help keep banks liquid, but also raised capital for troubled institutions. Enchanted with Morgan's work ethic and desire for large orderly corporations that reduce the cost of production, they credit Morgan for helping to calm the crisis. One of the fascinating stories is how Morgan talked the newly formed U. S. Steel into buying Tennessee Coal and Iron (this is also how US Steel moved into Alabama and took over the Birmingham mills). According to the authors, USS was leery of buying TC&I as they already controlled 60% of the steel production and was fearful of an anti-trust lawsuit. Morgan wanting a buyer for TC&I as a way to raise cash and avoid a run on the trust company that held its securities. US Steel was rich in cash, so Morgan agreed to intercede with Roosevelt if USS brought the company at an inflated value.
A squeeze play is not just something in baseball or a move executed by an opportunist old man. One of the interesting stories in the book involved Otto Heinze's squeeze play, an attempt to corner the copper market. Copper had been in high demand early in the century as electrical wiring was connecting the nation. Thinking there were lots of short-selling involved with United Copper stock and believing he had a significant enough position in the company to control the market, he sought to drive up the price, forcing those who had shorted the stock to settle up. If Heinze was correct in his interpretation, he would have benefited at the expense of the short-sellers. But Heinze had misread the market and after a brief advance, the stock price collapsed, exposing Otto and his brother who had purchased additional stock on margin in their attempt to drive up the price. They both lost a fortune and brought about the demise of Otto's brokerage house, Gross and Kleeberg and also the Otto Heinze & Company. This was followed by a collapse of the State Saving Bank in Butte, Montana, which was a correspondent bank for the Mercantile National Bank in New York. Augustus owned the Montana bank and was of Mercantile. This event set off a run on banks, and forced New York financiers to move around money an attempt to increase liquidity.
The Panic of 1907 is very readable and provides an understanding of the macro-events that led to the panic. He also compares what went wrong in 1907 and how it might happen again. The understatement of the book, when speaking of "system-like architecture" of the financial markets, is: "New credit derivatives and other exotic contracts might help to reduce risk, but they have never sustained a live test: No one knows whether they will dampen or amplify a crisis." (174) I think we now know!!! The book also includes a helpful appendix that defines various terms that get thrown around a lot by the media and economists. If you're interested in economics, I recommend this book, but to avoid spoiling the holidays, you might wait till the New Year! Follow my lead, I'm giving up serious books for the rest of the month.
September 30, 2017
An excellent history of the Panic of 1907, which was a pivotal event in the monetary policy history of the United States. Bruner explains the economic and policy events that leading up to the panic, the events of the panic and the leaders that navigated the way out of the panic, and the subsequent changes in policy that result from the hardships of the panic, including the establishment of the Federal Reserve and the insurance of bank deposits by the Federal government.
April 24, 2019
A pretty succinct exploration of one of the 20th Century's more severe economic downturns but if you're looking for a new "smoking gun" revelation about the cause of or a "magic pill" solution to such crises you will be sorely disappointed. As is ALWAYS the case in such situations the blame rests primarily with irresponsible speculation and a lack of institutional safety nets (or, in other words: unchecked greed. )
March 19, 2020
this book give you a good summary about how the market was crashed, furthermore it help you to understand the cause, which i think it's hard to verify, but it still help you to learn from the past and only if we learn from the past, we can make it better (hopefully) in the future.
this book should be read in the current time, where we are facing the biggest disaster caused by corona, at least from the market point of views.
this book should be read in the current time, where we are facing the biggest disaster caused by corona, at least from the market point of views.
February 19, 2022
The 1907 banking panic and stock market crash had an enormous impact on the future shape of the financial industry and US economy. It was a key inspiration for setting up the Federal Reserve system. This book is well written. Excellent content, with all information put together with references for further reading. Simple to read. Small chapters. Highly recommended.
April 16, 2023
It's kind of amazing how so many of the patterns and traits of crises of the past repeat themselves in our time. The banking tremors of March 2023 (the failures of Silicon Valley Bank & Signature Bank, and the concerns around other regional banks) put me on to this book, and many of the characteristics of 1907 were present this year.
June 14, 2020
This is a good historical non fiction book on the events and analysis of the economic panic of 1907. It is like a history book with a good amount of technical discussion as well. This book is not for all but still interesting and relevant.
May 4, 2018
Fine read of this economic panic of 1907....lessons here for us in our time!
October 8, 2019
This book is concise, informative, and very readable.
October 31, 2019
Nice retelling of the chain of events, especially all the meetings that took place in the library of one man called Pierpont.
April 3, 2021
Borrowed from a friend. Great book.
July 18, 2022
Need to be a banker to get value
Intricate and blow by blow review of the 1907 financial drama in NY
Very well written and engaging reading that got me in.
Intricate and blow by blow review of the 1907 financial drama in NY
Very well written and engaging reading that got me in.
December 22, 2022
I loved the fact that the author goes in depth with what was going on in the lives of J.P. Morgan and other high profile bankers and leaders during this period. Despite how long ago the events took place, I felt like I could for the most part live the events with the characters. Some of the charts on the changes economically in that period seemed a bit much but overall Bruner kept me engaged throughout.
November 27, 2020
The core challenge for a non-fiction writer is good editing. The two errors are endless detail because of the work that has gone into the research or missing the "so-what's". This book hits the mark very well.
It sets the stage, explains the percepitating events, and resolution. The importance of this panic, in contrast to all the previous ones, is explained in term of subsequent reform. It also draws the human drivers and draws a rounded picture of people who many of us view as cartoon robber-barons. Things can be more complicated that our prejudices think.
It sets the stage, explains the percepitating events, and resolution. The importance of this panic, in contrast to all the previous ones, is explained in term of subsequent reform. It also draws the human drivers and draws a rounded picture of people who many of us view as cartoon robber-barons. Things can be more complicated that our prejudices think.
January 21, 2015
An interesting, readable, and informative narrative of the Panic of 1907, written right before our most recent financial panic.
The author here does not go in for grand theories or deep analysis, but appropriately presents the story as one in which a few key actors played out-sized roles. There is the exuberant F. Augustus Heinze and his brothers, who made their fortune in Montana copper and then tried to drive up the price of one of their companies up on the stock exchange, bankrupting themselves in the process. Charles W. Morse and Charles T. Barney both led banks that were tied up in this scheme, but, due to a personal grudge about getting a position at Barney's bank, Morse implicated his once friend and both went down. The former shared a cell with the soon-to-be infamous Charles Ponzi, while the latter shot himself. Both their banks were subject to devastating runs that reverberated across the nation.
In the center is J.P. Morgan: gruff, confident, almost financially omnipotent at this moment. He organized other banks to bail out Morse's, and then tries to wrangle a bunch of the "shadow banks" of the era, known as trust companies, to save Barney's similar institution. He steps in to save the stock exchange with massive loans, and finally works to save a big steel company, TC&I, by pushing it on U.S. Steel, which action itself was intended to save a stock broker's company that had invested heavily in TC&I. Throughout the panic Morgan said little but his library reading room became the site of much of the negotiations that successfully halted the panic. As he moved across the city corralling banks together to negotiate, hushed crowds could do nothing but gawk at him in awe. Morgan's public spiritedness at this moment was a shock to those who saw him as nothing but a robber baron.
The book could do without the final parts on comparisons to the most recent crisis, but perhaps only because the parallels are so obvious already. Shadow banks, quiet runs, stock market crashes, bank holidays, collective bank bailouts (though here from the private sector), this panic was both a typical 19th century banking run and a harbinger of things to come.
The author here does not go in for grand theories or deep analysis, but appropriately presents the story as one in which a few key actors played out-sized roles. There is the exuberant F. Augustus Heinze and his brothers, who made their fortune in Montana copper and then tried to drive up the price of one of their companies up on the stock exchange, bankrupting themselves in the process. Charles W. Morse and Charles T. Barney both led banks that were tied up in this scheme, but, due to a personal grudge about getting a position at Barney's bank, Morse implicated his once friend and both went down. The former shared a cell with the soon-to-be infamous Charles Ponzi, while the latter shot himself. Both their banks were subject to devastating runs that reverberated across the nation.
In the center is J.P. Morgan: gruff, confident, almost financially omnipotent at this moment. He organized other banks to bail out Morse's, and then tries to wrangle a bunch of the "shadow banks" of the era, known as trust companies, to save Barney's similar institution. He steps in to save the stock exchange with massive loans, and finally works to save a big steel company, TC&I, by pushing it on U.S. Steel, which action itself was intended to save a stock broker's company that had invested heavily in TC&I. Throughout the panic Morgan said little but his library reading room became the site of much of the negotiations that successfully halted the panic. As he moved across the city corralling banks together to negotiate, hushed crowds could do nothing but gawk at him in awe. Morgan's public spiritedness at this moment was a shock to those who saw him as nothing but a robber baron.
The book could do without the final parts on comparisons to the most recent crisis, but perhaps only because the parallels are so obvious already. Shadow banks, quiet runs, stock market crashes, bank holidays, collective bank bailouts (though here from the private sector), this panic was both a typical 19th century banking run and a harbinger of things to come.
August 4, 2012
This was a nice, but imperfect discussion of financial panics and, surprise, surprise, the panic of 1907 in particular. The book is divided into two parts - the first is a dramatic retelling of the events of the panic itself, and the second is a broad analysis of the features of financial crises.
The second part is most definitely worth reading and fascinating in context of the recent global financial crisis. The authors make it clear there are a number of dependable characteristics of financial crises and we would do well to always keep them in mind, particularly when politicians and business leaders with the wrong incentives in place argue against them. For example, large scale deregulation and high leverage are very accurate predictors of expensive financial crises. Broadly speaking, the second part of the book is something I would classify as "required reading" for all voting citizens.
The first part is not as strong and that is why I am assigning a relatively low score to the book. Generally, the story of the panic is told with insufficient attention to context. The authors assume the reader is already fairly knowledgeable about the cast of characters and the economic system of the early twentieth century and the book would be much, much better if they had gone into significantly more detail on the historical and economic context for the titular panic itself.
Overall an interesting read and one I feel a bit bad about giving only three stars to - I would recommend the book to anyone interested in financial history. However, I would recommend reading the second half first as it would provide a bit more context to the first half.
The second part is most definitely worth reading and fascinating in context of the recent global financial crisis. The authors make it clear there are a number of dependable characteristics of financial crises and we would do well to always keep them in mind, particularly when politicians and business leaders with the wrong incentives in place argue against them. For example, large scale deregulation and high leverage are very accurate predictors of expensive financial crises. Broadly speaking, the second part of the book is something I would classify as "required reading" for all voting citizens.
The first part is not as strong and that is why I am assigning a relatively low score to the book. Generally, the story of the panic is told with insufficient attention to context. The authors assume the reader is already fairly knowledgeable about the cast of characters and the economic system of the early twentieth century and the book would be much, much better if they had gone into significantly more detail on the historical and economic context for the titular panic itself.
Overall an interesting read and one I feel a bit bad about giving only three stars to - I would recommend the book to anyone interested in financial history. However, I would recommend reading the second half first as it would provide a bit more context to the first half.
February 24, 2011
The Panic of 1907 was one of the first books I identified for this reading list. Taken alone it is a good story, albeit a little academic, on the events leading up to a bank panic and the special circumstances and maybe even heroic efforts of a few powerful men in attempt to quell the storm. The author may be a little enamored with Morgan and I believe there are histories with alternative emphases on events or business cycle theories, but the basic simple lessons of how a panic can be generated are a good perspective to consider current events. As part of this reading project the book is even better in context after reading about the years of expansion and growth in industry, population, and local infrastructure. Transitioning to the next decade I am going to look at the upcoming political history, including the changing political priorities of Taft from Roosevelt coming out of this economic climate.
The book is an average read, 3/5 stars although it probably reads a little smoother than it should for the subject matter. On a side note, this was my first ebook, read on the Kindle app on an iPad, which was a surprisingly enjoyable experience. (Although it showed I still had 50% to read when it ended because of all of the appendices that I hadn't noticed.)
The book is an average read, 3/5 stars although it probably reads a little smoother than it should for the subject matter. On a side note, this was my first ebook, read on the Kindle app on an iPad, which was a surprisingly enjoyable experience. (Although it showed I still had 50% to read when it ended because of all of the appendices that I hadn't noticed.)
December 6, 2012
Bruner tells the tale of events surrounding a banking crisis in 1907. And, like others have reviewed, it seems to be the story of how JP Morgan "saved the day"--again (just as he had in the 1870s). I find this an excellent work on how markets were pretty much self-regulated and self-salvaged by the US economic oligarchy. The Panic of 1907 brought about the Federal Reserve System, much like the stock market crash of 1929 brought about the Securities Exchange Commission. To that end, the Panic of 1907 should be studied to learn how things were done before government oversight and bail-outs. It should be studied to see why the Federal Reserve System was created and why it is very much necessary. It also provides great lessons on how attempts to corner the market on a commodity and/or short-selling can have repercussions throughout the financial markets.
There are a few places that Bruner goes wrong in the book. While Bruner champions JP Morgan's actions, he glosses over that JP Morgan looked out for JP Morgan. JP Morgan was allowed to expand his monopoly in order to save the New York banks. JP Morgan's firm was the transfer agent for that same monopolistic deal. The book would have been better had Bruner given more scrutiny to Morgan's actions and motives.
There are a few places that Bruner goes wrong in the book. While Bruner champions JP Morgan's actions, he glosses over that JP Morgan looked out for JP Morgan. JP Morgan was allowed to expand his monopoly in order to save the New York banks. JP Morgan's firm was the transfer agent for that same monopolistic deal. The book would have been better had Bruner given more scrutiny to Morgan's actions and motives.
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