Plus ça change, the French say — the more things change, the more they stay the same. Or, as Yogi Berra put it, it’s that old déjà vu all over again.

The global financial crisis of 2007-9 has reminded us again of the vulnerability of world capital markets and of the persistent recurrence of financial crises throughout history. Moreover these crises are incredibly similar, in their broad outlines.

In 1907, in the so-called Bankers’ Panic, the following events occurred:

* The New York Stock Exchange fell by 50 percent, compared to its peak in the previous year, 1906. (World stock prices fell by exactly the same percentage from their peak, in 10 months, in 2008-9).

* The panic occurred after a ‘greed is good’ market manipulation – a failed attempt to corner the market in the shares of United Copper, not dissimilar to the shady sub-prime mortgage and credit default swap manipulations that led to the 2007-9 collapse.

* The 1907 panic created a liquidity crisis as banks stopped lending and borrowers lost faith in banks — just as in 2007-9.

* There were numerous bank failures in 1907, just as in 2007-9.

* The 1907 collapse was preceded by an inflationary bubble, just as in 1995-2007.

* The 1907 financial crisis was accompanied by a real crisis — a deep recession.

* There were emergency bailouts, involving brokerages as key players (similar to the collapse of Lehman Brothers on Sept. 16, 2008). A big brokerage firm borrowed heavily using its stock in Tennessee Coal & Iron as collateral; when those shares collapsed, a bailout was organized, with J.P. Morgan’s U.S. Steel Company taking over the failing TC&I — shades of 2008-9 and the bailout of AIG. Bear Stearns and GM. J.P. Morgan was the reigning hero. Were it not for his pledging huge sums of his own money in bailouts, and forcing his wealthy banker friends to do the same, the collapse would have been much worse. Ironically, in 2008, J.P. Morgan bailed out Bear Stearns!

* Here is a key difference between 1907 and 2007: while key CEO’s, chairmen and senior managers continued their ‘greed is good’, ‘you owe me obscene salaries’, policies, in 2007-9, tycoons like J.P. Morgan bet their wealth on helping markets recover their trust and sanity, in 1907.

* The crisis led to soul-searching and a total revamping of government regulation of credit markets, including the creation of the Federal Reserve System, America’s central bank.

Here, the jury is still out. Will the 2007-9 crisis lead to major reforms in how America regulates its banks and financial services sector, as it did in 1907? Or will the thinking be like the Silicon Valley bumper sticker: “Lord — please, give me another bubble”.

_________________
*This blog is based in part on Robert F. Bruner and Sean D. Carr, The Panic of 1907: Lessons Learned from the Market’s Perfect Storm (Wiley, New York, 2007). With perfect timing, the authors published their book about the perfect storm right at the onset of the 2007 financial crisis. The term “perfect storm” (meaning, a series of improbable events all occurred at the same time) has been used widely to describe 2007-9.