The Panic of 1907 - Robert Bruner and Sean Carr

The Panic of 1907

The main point expressed by Robert Bruner and Sean Carr in the Panic of 1907 is that other financial crises can and will occur again and that there doesn’t even necessarily need to be anything majorly wrong for a widespread financial panic to occur. Basically, this book tells the story about what caused the financial panic that occurred in 1907 and what steps were taken to fix it and to try to prevent further crises. Now upon reading this book, I have done further research on my own that suggests other possible causes of this crisis; however, there has never been any evidence to prove these theories.

The panic of 1907 was caused when two men attempted to corner the market on United Copper Company stock. Their attempt to corner the market failed miserably though and led to a chain reaction of failures and bad feelings across the markets. This caused a run on the banks that had lent money to Heinze and Morse (and inadvertently Barney) and soon spread to the Knickerbocker Trust Company. Soon, this caused a widespread panic and a run on banks all over New York. Luckily for New York, they had J. P. Morgan, who pretty much saved the entire market from disaster. It seemed like the farther I got in the story, the more I felt bad for Morgan. Basically everyone was relying on him to save them; all the while he was dealing with multiple potential bankruptcies, a horrible cold, minimal sleep, and as little as daily or even hourly deadlines to save these banks and trust companies. But long story short, Morgan and company were able to prevent an entire market crash and saved the country from a potentially full blown depression.

The subtitle of this book is Lessons Learned from the Market's Perfect Storm, and accordingly the authors give a list of things that allow these panics to occur. The seven factors are: a system-like architecture (which allows problems to travel and spread), buoyant economic growth (which gives false market optimism), inadequate safety buffers (which are unable to stop a small problem before it becomes a landslide), adverse leadership (which creates an environment susceptible to these troubles), real economic shock (which occurs as a terrible event that everyone knows is going to cause trouble), undue fear (which is typically caused by greed and other irrational panicking), failure of collective action (which is necessary to avoid or stop a panic).

In my opinion, one of the most difficult of these factors to control is undue fear. This probably played the biggest role of all in the panic of 1907, as well as in almost every other financial panic that has/will occur. Unfortunately, this is the same factor that is the most difficult to control. Even J. P. Morgan had to resort to asking priests and pastors of churches to try and explain that there wasn’t a market crisis during their masses. The biggest problem with fear is how quickly