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View Full Version : What caused the "Panic of 1907"?




Knightskye
03-31-2009, 11:55 PM
According to the Wikipedia article (http://en.wikipedia.org/wiki/Panic_of_1907), "Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised."

Also, it seems to blame the lack of a central bank for the crisis, and implies that we needed deposit insurance.


Primary causes of the run include a retraction of market liquidity by a number of New York City banks, loss of confidence among depositors, and the absence of a statutory lender of last resort.

This Mises video has a minute or so about it:
http://www.youtube.com/watch?v=iYZM58dulPE#t=16m20s

They claim that it was fractional reserve banking - which leads to another question: why were we on the gold standard if banks could create money out of thin air anyway?

nate895
04-01-2009, 12:57 AM
The Panic of 1907 was caused by the same thing that causes all other panics (recessions today): Lack of confidence in banks due to fraudulent fractional reserve banking. The only way to have a stable economy is to forbid fraudulent creation of currency by requiring banks to advertise their reserve ratio. My bet in such a situation would be that fractional reserve banks would slowly die off.

Truth Warrior
04-01-2009, 06:47 AM
The Conspiracy of 1906! :D

The Panic of 1907 was an inside job! ;)


Problem --> Reaction --> Solution. ( lather, rinse, repeat )

Joe3113
04-01-2009, 07:07 AM
Fractional Reserve Banking.

acptulsa
04-01-2009, 08:45 AM
The Conspiracy of 1906! :D

The Panic of 1907 was an inside job! ;)

J.P. Morgan called the call loans. Everyone who was leveraged had to sell to pay off the loans immediately. And I do mean everyone--Morgan called on the banks to call the call loans and his wasn't the only bank to do so.

In other words, it was a manufactured credit crisis that led to stock prices dropping like stones. And, miraculously enough, Morgan and a bunch of his competitors had just sold a bunch of stock, so they had plenty of cash with which to snap up bargains. Amazing coincidence, wasn't it?

Sound familiar?

raystone
04-01-2009, 08:47 AM
J.P. Morgan called the call loans. Everyone who was leveraged had to sell to pay off the loans immediately. And I do mean everyone--Morgan called on the banks to call the call loans and his wasn't the only bank to do so.

In other words, it was a manufactured credit crisis that led to stock prices dropping like stones. And, miraculously enough, Morgan and a bunch of his competitors had just sold a bunch of stock, so they had plenty of cash with which to snap up bargains.

This is my understanding, as well.

Truth Warrior
04-01-2009, 08:50 AM
J.P. Morgan called the call loans. Everyone who was leveraged had to sell to pay off the loans immediately. And I do mean everyone--Morgan called on the banks to call the call loans and his wasn't the only bank to do so.

In other words, it was a manufactured credit crisis that led to stock prices dropping like stones. And, miraculously enough, Morgan and a bunch of his competitors had just sold a bunch of stock, so they had plenty of cash with which to snap up bargains. Amazing coincidence, wasn't it?

Sound familiar? Yep! Inside job! ;) :D How about Morgan's long time Rothschild "associations"? :p

newbitech
04-01-2009, 09:12 AM
damn the greedy bankers. why do we need banks? Can we get along with out hording our wealth at the city square?

Truth Warrior
04-01-2009, 09:21 AM
damn the greedy bankers. why do we need banks? Can we get along with out hording our wealth at the city square?

SIR JOSIAH STAMP, (President of the Bank of England in the 1920's, the second richest man in Britain)

"Banking was conceived in iniquity, and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen, they will create enough deposits, to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers, and pay the cost of your own slavery, let them continue to create deposits."


"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton

AbolishTheGovt
04-01-2009, 02:20 PM
They claim that it was fractional reserve banking - which leads to another question: why were we on the gold standard if banks could create money out of thin air anyway?

A gold standard doesn't guarantee a 100% reserve banking system. Gold standards merely limit the ability to create money out of thin air because of the threat of gold drain to other countries. Under a gold standard, if depositors become uncomfortable with money creation in one country, they withdraw their gold to another country's banks, and thus the inflationary country has less gold reserves to pyramid on top of.

But Mises.org's video is right. It's fractional reserve banking that's ultimately to blame. It's normal for some sectors of the economy to experience depressed demand, but in that case, demand merely shifts to another sector of the economy. How does it come about that the entire economy can become depressed? Entrepreneurs make mistakes all the time--business fluctuations are normal. But entrepreneurs are trained to correctly forecast economic conditions. Why do massive numbers of entrepreneurs all make the same type of unprofitable investments at the same time, and why are the malinvestments all exposed at the same time? Only bank credit expansion can cause that kind of malinvestment.

Knightskye
04-01-2009, 10:42 PM
A gold standard doesn't guarantee a 100% reserve banking system.

So you have to trust the banks to have a 100% reserve policy?

acptulsa
04-02-2009, 07:52 AM
I'm beginning to think the difference between people and 'sheeple' is knowledge of history. We look at history and we aren't fleeced. And who gets fleeced? Sheep?

Humans are an interesting dichotomy. We both are and aren't herd animals. No wonder we're so fascinated by wolves...

Truth Warrior
04-02-2009, 08:08 AM
I'm beginning to think the difference between people and 'sheeple' is knowledge of history. We look at history and we aren't fleeced. And who gets fleeced? Sheep?

Humans are an interesting dichotomy. We both are and aren't herd animals. No wonder we're so fascinated by wolves... Each generation has to learn it ALL over again from scratch. Many have been missed. TPTB counts on and thrives from this fact. :p

Knightskye
04-04-2009, 08:07 PM
So you have to trust the banks to have a 100% reserve policy?

Bump.