For a book published midway through 2007, “The Panic of 1907” by Robert F. Bruner and Sean D. Carr of UVa’s Darden Graduate School remains not just informative, but very timely. We found the detail of financial practices of the era difficult to retain, and the interrelatedness of the crisis is daunting: San Francisco earthquake, Butte copper financing, London banks recalling gold, J.P. Morgan, on and on, The Corner, etc.
But the observations about the factors that contributed to the 1907 as common to all panics certainly apply to the 2008 financial crisis. The section “Coda: Can it Happen Again?” — again, written and published well before the Fannie/Lehmann/financial collapse and bailout — is insightful and prescient. One of the categories of contributing factors, “Real economic shock” especially stood out:
A shock can be identified only in hindsight. It takes but a little imagination to derive some possibilities: a pandemic of avian flu, an oil price spike to $100 a barrel, a major terrorist strike on the order of 9/11, the outbreak of major (read: nuclear) war (India/Pakisan, Iran/Israel), and an implosion of a major financial institution, such as a hedge fund.
Good call, unfortunately. Oil spiked past $145 a gallon this year, and financial institutions collapsing? Start with the Bear Stearns hedge fund in 2007 and go on from there.
We’ve uploaded the relevant pages, 173-176, here.
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