Don’t Know Much About History

Are there lessons for today from the Panic of 1907?

In April of 1906 the San Francisco earthquake triggered a banking crisis, a stock market crash, and one of the worst recessions the country had ever seen. It prompted a profound reexamination of our banking policies that resulted in the Federal Reserve Act of 1913.

The recent downturn exhibited similar dynamics. A banking crisis triggered a stock market crash and a severe recession. Now Congress is looking at reforms. What lessons can we learn?

First, take the time to get it right. Congress took years to gather information, deliberate, and legislate, and the results were pretty good. Don’t rush. Second, rescues matter. In 1907 many banks were rescued and the same thing happened recently. Tellingly, the rescues seemed to mark the start of the recovery. Finally, panics happen. There is no silver bullet that will prevent them. Rather than trying to find ways to prevent the next crisis, we should seek out means that will help the economy bounce back more easily when it comes.

Douglas R. Tengdin, CFA
Chief Investment Officer
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