------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (October 2008)

Robert F. Bruner and Sean D. Carr, _The Panic of 1907: Lessons Learned 
from the Market?s Perfect Storm_. Hoboken, NJ: Wiley, 2007.  xiii + 258 
pp. $30 (hardback), ISBN: 978-0-470-15263-8.

Reviewed for EH.NET by Jon R. Moen, Department of Economics, University 
of Mississippi.


Financial crises have become fashionable lately.  The Fed is providing 
lender of last resort services to investment banks and even insurance 
companies, hardly the intermediaries we would expect to be subjected to 
runs on deposits typical of crises past.  So are we in uncharted 
financial waters, with nothing to guide current policy makers?  Perhaps 
not, if we are to believe Robert Bruner and Sean Carr and the lessons 
contained in their recent book, _The Panic of 1907: Lessons Learned from 
the Market?s Perfect Storm_.

Bruner and Carr attempt to find guidance for dealing with modern 
financial crises by examining the events of the Panic of 1907, the panic 
that finally gave New York bankers the incentive to push for a central 
bank for the United States. They view the Panic as the outcome of a 
?perfect storm,? a convergence of financial events that together set the 
stage ideally for crisis.  Separately, the events would have been merely 
troublesome.  Out of this they draw lessons to be learned from the 
storm, several of which I will discuss later.

The book is aimed at a general audience, which is a strength and a 
weakness.  It is divided into twenty very short chapters, which adds a 
sense of urgency and speed to the story.  This helps to recreate the 
pace with which the Panic unfolded.  The narrative is filled with many 
quotations from and references to primary source material, which is 
truly the big contribution to the scholarly side of the story.  The most 
exciting is in the Prologue, which contains a detailed recounting of the 
suicide of Charles Barney.  He was the president of the famous and 
ill-fated Knickerbocker Trust Company, the flash point of the Panic. The 
narrative surrounding his death has almost a Hollywood screenplay air 
about it. Bruner and Carr also provide a detailed list of these primary 
sources, the feature I liked most about the book.

The carefully documented history is marred, unfortunately, by several 
factual errors.  On page 25 they discuss the Progressive movement in the 
early twentieth century, referring to various activists and muckraking 
writers like Sinclair Lewis who apparently wrote about the unsanitary 
conditions in the meatpacking industry.  If Wiley and Co. had employed a 
fact-checker, we would have been reminded about Upton Sinclair instead.
On page 110 they suggest that the first issuance of clearing-house 
certificates on October 28 increased the supply of currency by over $100 
million in one day!  If only that could have been so, the panic would 
never have ignited.  Actually, that amount is the total amount of 
certificates issued over the course of the panic, with just a ?few? 
million being issued on any one day.

After the fascinating and detailed recounting of the Panic and rescue 
efforts coordinated by J.P. Morgan and colleagues, Bruner and Carr 
present us with seven forces that collided in a perfect storm that 
resulted in the Panic.  They include: 1) system-like architecture, 2) 
buoyant growth, 3) inadequate safety buffers, 4) adverse leadership, 5) 
real economic shock, 6) undue fear, greed, and other behavioral 
aberrations, and 7) failure of collective action.  Some of these forces 
can be picked out in today?s financial crisis, some can?t.  Certainly 
there has been excessive residential construction recently as a source 
of buoyant growth, and the collapse of housing prices in some markets 
count as a real shock.  Whether or not investors have become unduly 
greedy recently is debatable, as people seem to be always greedy.  I 
doubt that there has been adverse leadership, at least leadership 
adverse to real estate lending, as both Republicans and Democrats 
encouraged increased lending.  J.P. Morgan and friends provided adequate 
safety buffers, although they realized that next time they might not be 
so adequate.  Today the Fed seems to be doing its job, although I am 
less sure about Congress.  In short, I am not sure how to use these 
seven points.  Are they to be used to predict crises or just describe 
them clearly after the fact?  These forces also are not linked 
particularly closely to more formal analyses of panics and financial 
crises as economists currently understand them.  For example, the use of 
Clearing House Loan certificates being a mechanism for lender of last 
resort services could have been explained in more detail without losing 
the non-specialist.  Likewise, the role of the call loan market could 
have been brought out in more detail, as it involved short term lending 
backed by long term collateral.  This structure of lending keeps 
reappearing in the current crisis.  Despite these analytical weaknesses, 
I still recommend the book for its marvelous and detailed recounting of 
the panic.


Jon R. Moen is Associate Professor of Economics and Chair of the 
Economics Department at the University of Mississippi.  He has published 
several articles on the Panic of 1907 and is currently working on a 
detailed study of the Panic with Ellis Tallman of Oberlin College.

Copyright (c) 2008 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to the 
author and the list. For other permission, please contact the EH.Net 
Administrator (administrator at eh.net; Telephone: 513-529-2229). Published 
by EH.Net (October 2008). All EH.Net reviews are archived at 
http://www.eh.net/BookReview.



-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
EH.Net-Review at eh.net
http://eh.net/mailman/listinfo/eh.net-review