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Authors Cite 'The Panic Of 1907' As Model For Dangers Looming In Current Climate

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By CECIL JOHNSON McClatchy Newspapers

Published: October 21, 2007

'The Panic of 1907' by Robert F. Bruner and Sean D. Carr; John Wiley & Sons Inc.; 258 pages ($29.95)

Put part of the blame for the financial crisis of 1907 on a woman known as Mame.

According to the lyrics of a song lip-synced by actress Rita Hayworth in the 1946 movie 'Gilda,' one night, Mame 'started to shim and shake. And that brought on the Frisco quake.'

Mame, of course, was a figment of the combined imaginations of the songwriters. But the earthquake that devastated San Francisco was a grim reality that sent economic shockwaves across the nation and around the world.

In their new book, 'The Panic of 1907,' University of Virginia corporate finance experts Robert F. Bruner and Sean D. Carr assert that the 1906 San Francisco earthquake triggered a 'global liquidity' crisis that reached its climax the following year.

'The strains from the catastrophe in California rippled instantly through the global financial system. At the time, San Francisco was the financial center of the West and home to the Western branch of the U.S. Mint, so anything that disrupted business in San Francisco threatened the entire Western region economically,' write Bruner and Carr.

But the San Francisco earthquake was only one ingredient of the 'perfect storm' that battered the U.S. economy from September 1906 to November 1907.

In fact, it was only one of two 'real shocks' to the financial system that occurred at the time. The other real shock, say Bruner and Carr, was the Bank of England's decision in summer 1907 to curtail acceptance of American finance bills.

In addition to real shocks, Bruner and Carr identify six other ingredients of the perfect financial storm that fed the 1907 panic.

The authors have not put forth their analysis of the 1907 panic just out of academic curiosity. They offer it as a model addressing future crises of that kind, and they cite contemporary clouds on the horizon.

They allude to a pithy remark attributed to Mark Twain: 'History may not repeat itself, but it rhymes.'

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