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The Panic of 1907

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The Panic of 1907

Lessons Learned from the Market's Perfect Storm

Wiley,

15 min read
10 take-aways
Audio & text

What's inside?

This vivid history and critique of the 1907 financial crisis evokes useful war stories and lessons from the past.

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Editorial Rating

9

Qualities

  • Innovative

Recommendation

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.

Summary

A Shock Wave from the West

The April 1906 San Francisco earthquake did not just destroy the U.S.’s western financial capital, it also sent enormous fiscal shock waves across America and around the world. Immediately, New York stock prices plummeted by $1 billion. U.S. and British insurance companies were suddenly on the ropes, unable to cover the immense new liabilities. To liquidate, many companies quickly converted their assets to gold, which they shipped from Britain to the U.S. To stem this flow, the Bank of England and other European banks increased interest rates. This made capital difficult to secure at a crucial time when the U.S. economy needed more – not fewer – major investments in railroads and heavy industry.

As this took place, prices fell for the loans and bonds in the debt market, placing further pressure on interest rates. “A strain on the whole world’s capital supply and credit facilities set in,” wrote financial author Alexander Dana Noyes. This tightening of credit and money had enormous implications on Wall Street. Equity prices fell. Rumors swarmed about the possible crash of financial institutions. Bankruptcies climbed. In this context, U.S. ...

About the Authors

Robert F. Bruner, a dean and professor of business at the University of Virginia, has written more than 400 business case studies, and other books. Former journalist Sean D. Carr directs corporate innovation programs at the University of Virginia’s Batten Institute.

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