The Panic of 1907 (14)

Talk about timely. In my piles, I found the intriguing title: The Panic of 1907: Lessons Learned from the Market’s Perfect Storm by Robert F. Bruner and Sean D. Carr. The book documents one particular moment of financial crisis from over 100 years ago, which then provides (hopefully) lessons for modern financial challenges. It’s a pretty easy and entertaining read, at least so far.

Interestingly, it was released in August 2007, preceding all the recent financial travails that have afflicted the American (and world) economy. As such, its conclusions are less likely to be tainted by current political posturing and can be tested by some of the experience we have had lately. The book argues that a host of factors combined to make the panic of 1907 a problem (starting with the San Francisco earthquate of 1906 [a particular trigger], systemic complexity which made it hard for anyone to fully understand, a preceding boom period which required natural correction, and policies that created uncertainty (they call this adverse leadership).  It certainly seems like some of these or at least similar elements have (and continue to) contribute to our current economic challenges.

To be sure, saying markets are complex by itself isn’t that helpful and the modern situation is different (e.g., the creation of the Federal Reserve in part was a result of 1907, which certainly changes the available tools and expectations in the present). Nevertheless, this book does remind us that some kind of crashes are more common than we often think; they mention a number of earlier crashes. We think of the depression and the crash of 1929 most frequently, but these were not entirely unique – how we exited them has been different. Perhaps the lessons come more from thinking how we exit these kind of situations most productively. Perhaps I’ll learn more as I wrap up the book.

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