The Panic of 1907: Lessons Learned from the Market's Perfect Storm
by Robert F. Bruner, Sean D. Carr
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Book Summary Information
Author: Robert F. Bruner, Sean D. CarrEdition: Hardcover
Published: 2007-08-31
ISBN: 047015263X
Number of pages: 272
Publisher: Wiley
Book Reviews of The Panic of 1907: Lessons Learned from the Market's Perfect Storm
Book Review: Panic of 1907: History and Lessons
Summary: 5 Stars
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.
Summary of 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
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