Many commentators have noted uncanny similarities between the Wall Street panics of 1907 and 2008.
Buoyant growth preceded them both; the bankruptcies of brokerage firms triggered both; and both were caused by real underlying shocks—the San Francisco earthquake of 1906 and the subprime mortgage debacle of 2007.
There are differences, too, including complexity, speed and scale.
One big difference stands out: In 1907, there was no Federal Reserve System or U.S. government presence.
Into this vacuum stepped J.P. Morgan, chief financier of the Gilded Age. In the late 1800s, Morgan had orchestrated mergers that created U.S. Steel, General Electric and AT&T.
Seventy years old when the panic struck, Morgan hitched his rail car to a locomotive and raced to New York City overnight. He gathered the top bankers at his home and held them there until they agreed to a rescue plan.
Next, he organized working groups to ferret out the facts. After poring over the books of one shaky trust company, Morgan stopped the panic with these words: “This is the place to stop the trouble then.”
Over a few weeks, he used stronger banks to bail out weaker ones in a series of rescues.
Morgan let some insolvent companies fail. Of the institutions he bailed out, all survived.
No evidence exists that the financier was trying to save the banking system on behalf of capitalism, but he’d already lived through a number of panics and, knowing the havoc they caused, he probably wanted to preserve the industries he’d built.
Morgan was remarkable, says Robert Bruner, dean of the Darden business school at the University of Virginia. “He had deep and extensive relations through the financial and business communities, and this is one of the keys to the he exercised in the panic. He was a man of action; he galvanized people.”
— Adapted from “Running from History,” Abigail Tucker, Smithsonian.
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