The Panic of 1907: Lessons Learned from the Market's Perfect Storm Reviews

• An Insightful Look at a Financial Perfect Storm

  
  By A23SB6VGGB9E8U on 2007-11-27
  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.
  
  

• J. Pierpont Morgan Saves the World

  
  By A3QI1MTHWYQPE4 on 2007-09-06
  This is a very short book about a fairly complex event. While it is accessable to the general reader, the book comes alive only when describing the recovery efforts of a group of private financiers led by J. Pierpont Morgan. More focus is needed to show how the problem developed and to help explain the dynamics of investor panic contagion. Further, government officials are given short shrift as either creators of the problem (President Roosevelt) or as Morgan's lackeys (Secretary of the Treasury Cortelyou).
  
  The authors portray Morgan as a giant among dwarves. He almost singlehandedly ends the panic with visionary, unselfish, decisive and commanding presence. In regard to the latter attribute, Morgan is shown summoning the United States Treasury Secretary to New York, warning short sellers that they will be "properly attended to" after the crisis and ordering bank presidents to work. At one point, Morgan is almost godlike as he decides which savings institutions will be supported and which will be allowed to die.
  
  Thus, The Panic of 1907 becomes the story of J. Pierpont Morgan vs. panic and greed. Government is given little credit for helping solve the crisis (except when the president agrees to interrupt his breakfast to promise he won't interfere with Morgan's plans). As an example of "adverse leadership," Theodore Roosevelt is listed as a primary cause of problems due to "rising regulation of an activist President."
  
  While it may seem like a small error, the authors mistakingly credit novelist Sinclair Lewis with reporting about the meatpacking business rather than Upton Sinclair. This carelessness causes me some concern about other details presented in this work.
  
  The reader knows more about the events of 1907 when he finishes the book but I am not sure that knowledge is balanced. Further, I did not find the lessons for today very applicable or compelling. I think the book would have benefitted from a bit more discussion about causes, effects and implications for the present. I would also be interested in a more nuanced analysis of the motives of Morgan and the other financiers who acted to help turn the corner on the panic but who must bear some responsibility for the state of finances prior to the crisis.
  
  

• Morgan did deserve the credit

  
  By A25B1DF7H6KPRN on 2007-09-12
  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.
  
  

• Detailed and Nicely Paced - 'Reads' Like and A&E Documentary

  
  By A39NVY8RPC1YH4 on 2007-10-01
  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.
  
  
  
  

• a must read for anyone interested in American finance

  
  By A2KCBPYKU38J46 on 2007-09-05
  Bruner's book is a must read for anyone interested in the history of American finance, or in the intricacies & complexities of financial crises in the US & elsewhere. The 1907 Panic was at once a watershed event in US finance, since it was the immediate stimulus for the creation of our first real central bank, the Federal Reserve. But it also was (and is) typical of financial crises generally. Those of the 19th century that immediately preceded it (that is, in the post-Civil War "Gilded Age"), and those of our own time (that is, Enron, Long-Term Capital Management, Continental Illinois, etc.). Bruner has done an fine job digging up the details of what actually happened in the October/November 1907 crisis, the personalities & institutions, and in showing how these events overlaid on an already unstable economic situation that were lowering public confidence. The book is very well written, if not novel-like, certainly approaching the form. I read nearly all of it in one sitting.
  
  
• There are still lessons to be learned from this important but too often ignored event
  By AUHG8KSHI529U on 2008-04-12
  You should never take at face value the claims and declarations of politicians, public relations people, or journalists about the state of the economy. What you are being told is too often self-serving, manipulative, or ignorant. Remember that I said "at face value" because the truth is probably out there, but you will have to dig to find it. History is a good place to dig because in the hands of a careful historian or reporter, the distance of time provides some perspective, the facts are more fully known, and the events can be seen in the context of similar events. The danger is always to judge the past by what happened afterwards as if the people at the time had some knowledge about the path they were heading down with anything more than hope and guesswork.
  
  The banking industry in the United States has suffered from periodic panics throughout its history. Much of this had to do with the fragmented and local nature of the institutions and how a real or imagined crisis can start a small fire in one bank that spreads as depositors and investors rush to try and recover their savings before the bank fails. Much of this has to do with the fact that banks are highly leveraged institutions. That is, they loan out the same dollars multiple times for businesses, to buy homes, and other purchases. We all benefit from this. However, if all depositors want their deposits at the same time, there simply is not enough to go around and the bank will quickly collapse without access to other capital. This ready access to a supply of sufficient capital is called liquidity and in earlier times without a federal bank there was no standard mechanism ready to supply it.
  
  While some disagree, it seems clear to me that our present economic difficulties would be far worse without the Federal Reserve, some bank regulation (we have too much), and some level of deposit insurance. None of this existed in 1907. The San Francisco Earthquake and subsequent fire was so costly that it damaged the global economy. The following year there was a series of events that nearly wrecked the national economy. We don't talk about 1907 much nowadays, but it was this panic that led to the founding of the Federal Reserve and other banking reforms.
  
  This very interesting book by Robert Bruner and Sean Carr takes us through the events of the post earthquake economy that also suffered from the attacks on big corporations by Teddy Roosevelt's Progressive administration. The panic was set off by the disastrous attempt by Otto Heinze to corner the copper market and short squeeze the speculators he just knew were out there, and the tsunami that spread out from the failure of United Copper to banking and trading interests. The relationship of these events to the institutions involved is told in a clear and lively way.
  
  The story of this important period centers on the personal credibility and financial power of one man, J.P. Morgan. He knew what to do and had the personal clout to get others to follow him and do what he told them needed to be done. Another man was also important to this event, but is only touched on in this book. When the crisis was threatening to veer out of control, John D. Rockefeller put up $10 million cash and $40 million more in credit for Morgan to use as needed to stem the tide. Until Morgan and all involved were able to calm the financial seas it was unclear how far the contagion of fear would spread, but it was far from certain that Morgan could pull it off. He worked tirelessly and thank heavens the others had the wisdom to cooperate with him and each other.
  
  I think this is a very interesting and useful book that provides information that can instruct us even in today's very different world, where some underlying principles remain the same but are too often ignored.
  
  Reviewed by Craig Matteson, Ann Arbor, MI
  
  
  
• 2.5 stars-In 1907,as in 2007,the ancient wisdom of Adam Smith was completely ignored
  By A1UI9T8WKJPZN5 on 2007-11-05
  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.
  
  
• Enjoyable for a Lot of Reasons
  By A3E2OZ67KZEDGL on 2007-09-21
  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).
  
  
• An Easy Read on a Complex Subject
  By AZVIDF0IGB2F2 on 2007-10-10
  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.
  
  
• A panic indeed.
  By A21V0B10I3LNYD on 2008-01-05
  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.
  
  
• A nice lesson in economics
  By A1CVM427QH52BL on 2008-05-02
  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.
  
  
• A lot of small details regarding the panic.
  By A2N7MG68XIHH2B on 2007-11-19
  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.
  
  
• A detailed story of how enormous complexity mixed with fear and greed led to panic
  By ARYY84WIKKLXD on 2008-01-19
  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
  By AAOKCJ878GU9L on 2008-02-17
  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.
  
  
• Educational
  By A2LF1ICX4KVI78 on 2007-11-04
  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.
  
  
• Santyana was Right
  By ASEUA5NX07DWB on 2007-12-21
  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.
  
  
• An excellent account of an important economic event that caused international panic
  By ADVLRJS633OTD on 2008-02-04
  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.
  
  Highly recommended.
  
  
• Excellent history lesson!
  By A1IA79UUG65D7F on 2007-11-05
  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.
  
  
• The Panic of 1907
  By A37AIAK3NUPUX7 on 2007-12-23
  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!
  
  
• Great Read!
  By A3LDBRFEQIYWOH on 2008-02-18
  I thoroughly enjoyed this. Had lots of good details for the financial professional community, and also great human interest brought in to keep it interesting. It didn't go overboard with a bias one way or the other, since it refrained from drawing conclusions about the current financial problems. Instead it simply presented the history and let the reader come to his own conclusions. [...]
  
  
• Makes Financial History Exciting
  By A1PHVLYS6T4YW5 on 2008-03-05
  As dramatic narrative, well-written financial history competes with military history as a page turner and The Panic of 1907 is well written. The events of the Fall of 1907 have always been known - the failed stock market corner, the trust companies closing shop one by one by one, JP Morgan locking the city's bankers in his library until they come up with a plan - but this is the first modern, and best, recounting of the story. In the past, you had to cope either with Morgan-centric chapters in the recent biographies of JP, archaic hagiographies like Frederick Lewis Allen or even more primitive conspiracy theories by the likes of Matthew Josephson. It is high time that there is a history of the event itself.
  
  The book is designed for novices - there is a glossary which spells out many basic concepts with which anyone with any background in economics will be familiar - but there is enough detail that a student of the panic will learn something new. There are a few annoying errors - Herbert Hoover was hardly a conservative: much of the original New Deal was his legislative package which had been blocked by a Democratic Congress - but that doesn't detract from the achievement of the authors.
  
  
• Proof of Empirical Elements
  By A1R1AX4WF5MIP on 2008-04-16
  The authors developed a systematic way to look at business cycles or what causes a panic which they explain broadly in the beginning. A historical narrative of 1907 proves to be very entertaining while brilliantly highlighting the seven elements of a panic they preface with before they conclude with a more in depth look at those elements. Highly recommended for those who enjoy economic history and business cycles.
  
  
• Panic of 1907
  By A3AX7SMKLIE89W on 2008-04-19
  A fascinating book with many parallels to the current crisis. We have no J. P. Morgan today.
  
  
• Learn from the past
  By A18MYEL5RPLPOD on 2008-05-04
  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.
  
  
• Panic of 1907: History and Lessons
  By AI48RS9GEGGFC on 2008-07-07
  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.
  
  
  
  
  

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