Now vs 1907 Bank Panic?

joebonds · Mar 15, 2008

Quote from EMRGLOBAL:

This will continue and spread to other banks and brokers. I'm sure it's happening as we speak
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Do you have anything that remotely resembles proof?? BSC is bleeding in the shark tank...JPM and lesser sharks will eat all of it, grow on the good stuff, and crap out the rest

Quote from EMRGLOBAL:

... the Leverage used in the banking system under the radar with options has yet to surfice(sic).
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That might be the most original spew ever posted here--WTF is that supposed to mean?

I won't waste time on the rest of what you wrote

Covertibility · Mar 15, 2008

Good article from the OP. In 1907 JP Morgan got the banks, the private sector, together to figure out a solution. This is the good.

Today the NY Fed did a non-recourse, back-to-back financing to JPM. Basically JPM borrowed a ton from the Fed to give to Bear. If Bear goes belly up the Fed can't get JPM to repay back the money it borrowed. What a great system!! This is the bad and the ugly.

And this is called capitalism. For all those who object, where's your patriotism?!?!

zdreg · Mar 15, 2008

The Panic of 1907: Lessons Learned from the Market's Perfect Storm by Robert F. Bruner and Sean D. Carr (Hardcover - Aug 31, 2007)

how prescient.

newbunch · Mar 16, 2008

Quote from daddyeaux:

"Where will people put all this money they take out? Under their mattress?"

in gold of course, where have you been?
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And where will you put all your gold? Under the mattress?

fluttrader · Mar 16, 2008

Quote from newbunch:

And where will you put all your gold? Under the mattress?
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these days there are safes

plugger · Mar 16, 2008

Quote from newbunch:

And where will you put all your gold? Under the mattress?
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Hi newbunch. I just finished reading the Panic of 1907. A very interesting read.

With regard to your question, people did literally stuff it 'under the mattress'. In addition (and ironically), the rental of safety deposit boxes at the banks soared during this period of time. Weird. People didn't want to leave their money "on deposit" with the banks, but were willing to put it into safety deposit boxes within the same banks. Go figure.

I guess it goes to show how irrational things can get during events like this. In the book, the speed at which the financial institutions found themselves with liquidity problems was quite literally overnight. There may be some truth to Bear Stearns saying they were blindsided by the decline in their liquidity (although I'm sure anyone with some foresight could have seen this coming. Maybe Jimmy Cayne should spend a little less time playing bridge).

It seemed that once a "run" or even rumour of a run started, it was too late. As the book states, problems begin when the bank is questioned about its liquidity. That starts events rolling.

newbunch · Mar 16, 2008

Quote from plugger:

Hi newbunch. I just finished reading the Panic of 1907. A very interesting read.

With regard to your question, people did literally stuff it 'under the mattress'. In addition (and ironically), the rental of safety deposit boxes at the banks soared during this period of time. Weird. People didn't want to leave their money "on deposit" with the banks, but were willing to put it into safety deposit boxes within the same banks. Go figure.

I guess it goes to show how irrational things can get during events like this. In the book, the speed at which the financial institutions found themselves with liquidity problems was quite literally overnight. There may be some truth to Bear Stearns saying they were blindsided by the decline in their liquidity (although I'm sure anyone with some foresight could have seen this coming. Maybe Jimmy Cayne should spend a little less time playing bridge).

It seemed that once a "run" or even rumour of a run started, it was too late. As the book states, problems begin when the bank is questioned about its liquidity. That starts events rolling.
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My point exactly. If the financial system collapses, what guarantee is there that you'll have access to your safety deposit box?

Which means you'll have to store your gold in your house. Under your mattress. In a safe (hidden I hope). Under the floorboard. In a hole in the ground with a treasure map.

BTW, read Pit Bull by Martin Schwartz. In 1987, he runs to bank to get his gold from his safety deposit box. Interesting read.

newbunch · Mar 16, 2008

Quote from fluttrader:

these days there are safes
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How much does a good safe cost? How do you stop people from breaking into your safe or stealing the safe with everything inside?

fluttrader · Mar 16, 2008

Quote from newbunch:

How much does a good safe cost? How do you stop people from breaking into your safe or stealing the safe with everything inside?
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There are all kind of safes, some so heavy they can't even run away with your gold
just google it

eusdaiki · Mar 16, 2008

Regarding the 1907 panic, Chapters 8 & 9 of Reminiscences of a Stock Operator" provides a good picture of what was going on the months leading to the panic... and the day of the panic.

Starting on page 90:

"From the latter part of September on, the money market was megaphoning warnings to the entire world. But a belief in miracles kept people from selling what remained of their speculative holdings. Why, a broker told me a story the first week of October that made me feel almost ashamed of my moderation.
You remember that money loans used to be made on the floor of the Exchange around the Money Post. Those brokers who had received notice from their banks to pay call loans knew in a general way how much money they would have to borrow afresh. And of course the banks knew their position so far as loanable funds were concerned, and those which had money to loan would send it to the Exchange. This bank money was handled by a few brokers whose principal business was time loans. At about noon the renewal rate for the day was posted. Usually this represented a fair average of the loans made up to that time. Business was as a rule transacted openly by bids and offers, so that everyone knew what was going on. Between noon and about two o'clock there was ordinarily not much business done in money, but after delivery time namely, 2:15 p.m. brokers would know exactly what their cash position for the day would be, and they
were able either to go to the Money Post and lend the balances that they had over or to borrow what they required. This business also was done openly.

Well, sometime early in October the broker I was telling you about came to me and told me that brokers were getting so they didn't go to the Money Post when they had money to loan. The reason was that members of a couple of well-known commission houses were on watch there, ready to snap up any offerings of money. Of course no lender who offered money publicly could refuse to lend to these firms. They were solvent and the collateral was good enough. But the trouble was that once these firms borrowed money on call there was no prospect of the lender getting that money back. They simply said they couldn't pay it back and the lender would willy-nilly have to renew the loan. So any Stock Exchange house that had money to loan to its fellows used to send its men about the floor instead of to the Post, and they would whisper to good friends, "Want a hundred?" meaning, "Do you wish to borrow a hundred thousand dollars?" The money brokers who acted for the banks presently adopted the same plan, and it was a dismal sight to watch the Money Post. Think of it!
Why, he also told me that it was a matter of Stock Exchange etiquette in those October days for the borrower to make his own rate of interest. You see, it fluctuated between 100 and 150 per cent per annum. I suppose by letting the borrower fix the rate the lender
in some strange way didn't feel so much like a usurer. But you bet he got as much as the rest. The lender naturally did not dream of not paying a high rate. He played fair and paid whatever the others did. What he needed was the money and was glad to get it. Things got worse and worse.
Finally there came the awful day of reckoning for the bulls and the optimists and the wishful thinkers and those vast hordes that, dreading the pain of a small loss at the beginning, were now about to suffer total amputation without anaesthetics. A day I shall never forget, October 24, 1907."
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