Friday, October 10, 2008

Perspective in Crisis Mode

The panic in trading rooms around the world is leaving little time for thoughtful reflection - or at least that is what traders would snap back at you before turning back to their computer monitors. Yet that might just be the elixir that would calm their feverish brows. Talk around the watering holes on Wall Street is that there is plenty of money at banks for lending. It is just that no one wants to take any risk for fear of finding out later than the borrower’s portfolio of assets was not quite what they had represented. It is a crisis of confidence as much as a real crisis of asset failure.

The fact of the matter is that history is replete with all manner of calamities. During the 1800s, for example, there seems to be one panic after another. The U.S. is certainly not the first to suffer through a string of nasty defaults or a haircut on assets values. The Japanese got themselves into a bit of pinch with over-leveraged corporate assets back in the 1990s.

What is interesting about the financial scandals, recessions and stock market crashes listed below (by no means comprehensive), is that each is unique. Not one appears to repeat exactly the same mistakes of previous generations. Yet each new crop of financiers seems to get caught up in risky trends, like tightrope walkers unable to conceive their own mortality. Each situation also appears to be the result of a confluence of events and circumstances that individually would not have led to a crisis but strung together lead to disaster. That is certainly true of the current situation, which has yet to be fully defined as a recession, a stock market crash, a credit crisis or all three rolled into one.

1797 - Panic of 1797 - Deflation of Bank of England; disrupted real estate market

1807 - Depression of 1807 - Embargo Act of 1807 devastates shipping-related industries

1819 - Panic of 1819 - First financial crisis in U.S.; widespread foreclosures, bank

1837 - Panic of 1837 - Bank failures and lack of confidence in currency

1857 - Panic of 1857 - Failure of Ohio Life Insurance & Trust Co.; burst speculative
bubble in U.S. railroads; 5,000-plus business failures

1869 - Black Friday - Stock market crash in U.S. on September 24, 1869

1873 - Gr√ľnderkrach - Stock market crash; failure of Jay Cooke & Company, largest U.S.
bank; burst of Post-Civil War speculative bubble

1873-1896 - Long Depression - Collapse of Vienna Stock Exchange; worldwide depression

1882 - Paris Bourse Crash - January 19, 1882

1893 - Panic of 1893 F - ailure of U.S. Reading Railroad and withdrawal of European investment; stock
market and banking collapse; run on gold supply

1907 - Panic of 1907 - Run on Knickerbocker Trust Co.; severe monetary contraction

1918-1921 - Post WW I Recession - Hyperinflation in Europe; high unemployment

1929-1939 - Great Depression - Worldwide stock market crash and banking collapse in U.S.

1953 - Recession of 1953 - Post Korean War inflationary period

1957 - Recession of 1957 - Tightened monetary policy

1973 - Oil Crisis - Quadupling of oil prices by Mideast cartel; high government

1973-1974 - UK Market Crash - Miners’ strike and fall of Heath government leads to one-
year market failure

1980-1991 - Recession of the 1990s - Iranian Revolution triggered oil price increases and energy

1987 - Black Monday - October 19, 1987 U.S. market crash

1990-2003 - Japan Asset Bubble - Share and property price bubble burst and turned into

1992 - Black Wednesday - Stock market crash in United Kingdom

1997 - Asian Financial Crisis - Hong Kong, Thialand and South Korean exchanges

1998 - Russian Crisis - Triggered by sharp decline in commodity prices and non-

payment of taxes

2001-2003 - 2001 Recession - Collapse of dot-com bubble, terrorist attacks and
accounting scandals

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