Wall Street Bubbles


Robert J. Samuelson

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- Ja, det är ju märkligt att människor inte tänker på vad som hände 1907

Mer här Nils-Eric Sanberg talar med Sven Rydenfelt

History Lessons for the Euro - Not unlike 1873
In the early 1870s, property prices in Vienna, Berlin and Paris soared on the back of a state-promoted
building boom fuelled by easy credit extended against the collateral of unbuilt or unfinished houses.
CNBC, 19 September 2012

"Substituting Asia for America and the West for Europe, we get a description of what has happened in the current crisis. The West has been financed by the new producing economies of the East and that fueled a housing and consumption binge,"

"Not unlike 1873, the financial institutions and the new financial instruments made this easier, and the role of government to prod an expansion of affordable housing played a major role," Ross /Stephen Ross, a professor of financial economics at the Massachusetts Institute of Technology's Sloan School of Management./ added in a recent lecture at the Cass Business School in London.

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In the fall of 1907, it took J.P. Morgan just eight weeks to resolve a credit crisis similar to ours.
WSJ 29/9 2008

Several years of buoyant growth and too much risk-taking in poorly understood investments led to needs for capital that could not be met. Morgan, then 70, locked the nation's top bankers into the ornate library at his home for late-night confession sessions. He asked them to lay bare their balance sheets, keeping himself alert with endless Havana cigars.

The bankers reviewed one another's assets and liabilities. Morgan then decided which financial institutions had to go and which would live, getting commitments from the survivors and from the U.S. Treasury for infusions of capital. This Panic of 1907 had rattled the New York Stock Exchange and the markets for gold and municipal bonds, ruined several banks and trust companies, and nearly bankrupted New York City. Share prices fell by half. But once Morgan was done knocking banking heads together, markets swiftly recovered.

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Bear Stearns' bailout has echoes of 1907 panic
In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities.
Bill Gross, April 2008

J. Pierpont Morgan, stemmed the Panic of 1907, Acting, in effect, as lender of last resort from his Wall Street office, he was briefly feted before Americans realised the danger of having such power vested in one man.
After his death in 1913 the Federal Reserve was set up.

The Economist 17/5 2007

Sommaren 1991 hälsade jag på min gamle gode vän Sven Rydenfelt. Vi talade om fastighetskrisen som då startat på allvar, och den tanklösa överbelåningen.
- Ja, det är ju märkligt att människor inte tänker på vad som hände 1907, sa Rydenfelt.
Nils-Eric Sandberg, DN 18/10 1996

Remember the bank panic of 1907? Probably not.
But revisiting it is one way to clarify the differences between the old financial order and the new
Robert J. Samuelson, Washington Post 28/3 2007

Since the early 1800s, banks had dominated the system. People and businesses deposited their cash in banks; then the banks made loans. Now, much money bypasses banks. In 1975, banks and savings and loan associations -- close cousins -- issued 73 percent of all home mortgages. By 2006, their share of the $10 trillion mortgage market was 29 percent. Almost 60 percent had been "securitized": bundled into bonds and sold to investors (pensions, mutual funds, foreign investors).

The old system had defects. Periodic panics were one. In 1907, rumors of bad loans triggered a bank run. People wanted their money; no one knew which banks were safe. Although the legendary banker J.P. Morgan ultimately organized a rescue of many banks, it was too late. Some banks failed; savers lost funds. A recession worsened.

The panic of 1907 inspired Congress to create the Federal Reserve in 1913. The Fed was supposed to prevent panics by making loans to solvent but threatened banks. The Fed blundered in the Great Depression; two-fifths of U.S. banks failed. In 1933, Congress created deposit insurance; that ended traditional bank runs, because depositors knew they'd get their money back.

In the 1980s, banks suffered big losses on commercial real estate and Third World loans. Between 1989 and 1993, 1,418 banks and S&Ls closed. Lending slowed. A recession began in 1990.

Greed and fear are not always self-correcting. If foreign and domestic investors lose confidence, who knows what might happen? Credit might become scarcer as they retreat to safe securities. Interest rates might rise. A panic is conceivable. The biggest upsets "come out of left field," Greenspan noted.

"We never anticipate."

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