Über die Autorin bzw. den Autor

Robert F. Bruner is the Dean of the Darden Graduate School of Business Administration and Charles C. Abbott Professor of Business Administration at the University of Virginia. He is the author or coauthor of more than 400 case studies and notes as well as the author of two other Wiley titles, Applied Mergers and Acquisitions and Deals from Hell . Bruner specializes in the areas of corporate finance, mergers and acquisitions, and investing in emerging markets. Bruner holds a BA from Yale University and an MBA and DBA from Harvard University. Sean D. Carr is the Director of Corporate Innovation Programs at the Darden School's Batten Institute, University of Virginia. His applied research in new ventures and corporate finance has been published in numerous award-winning case studies, books, and digital media. Previously, Carr spent a decade as a journalist, having served as a producer for both CNN and ABC News's World News Tonight with Peter Jennings. He holds a BA from Northwestern University, an MS from Columbia University, and an MBA from the University of Virginia.

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Why do markets crash and bank panics happen? Conventional wisdom has gathered, like iron filings, at two intellectual poles: at one extreme is a hodge-podge of idiosyncratic, period-specific causes and at the other is a host of all-encompassing "single bullet" theories. In The Panic of 1907, authors Robert Bruner and Sean Carr offer an alternate perspective through a detailed narrative of one of the worst crises in modern financial historyone which ultimately transformed the American financial system and resulted in the establishment of the modern Federal Reserve.

Drawing from rare source materials, Bruner and Carr take you day by day through the crisis in 1907, revealing what happened, why it matters, and what we can learn from it. Beginning with a catastrophic earthquake in San Francisco and culminating in the shocking suicide of the deposed president of one of New York's leading financial institutions, this book will draw you into the central issues surrounding the panic of 1907. Throughout this journey, you'll not only become familiar with the events of the crisis, but you'll also discover how larger-than-life figures, such as the inestimable J. Pierpont Morgan, took it upon themselves to provide leadershipand inspire confidenceat a time of great uncertainty and instability.

Filled with in-depth insights, The Panic of 1907 offers a deeper understanding of what influences financial marketsboth then and now. Through this engaging case study of the panic and crash, Bruner and Carr provide a useful framework for understanding these events, suggesting that major financial crises can be the result of a convergence of certain, unique forcesthe forces of the market's "perfect storm"that can cause investors to react with alarm.

When the many elements of the next financial storm converge, will you be ready? With The Panic of 1907 as your guide, you'll be prepared to assess, understand, and anticipate the factors that can lead to a crisis.

Aus dem Klappentext

Why do markets crash and bank panics happen? Conventional wisdom has gathered, like iron filings, at two intellectual poles: at one extreme is a hodge-podge of idiosyncratic, period-specific causes and at the other is a host of all-encompassing "single bullet" theories. In The Panic of 1907, authors Robert Bruner and Sean Carr offer an alternate perspective through a detailed narrative of one of the worst crises in modern financial historyone which ultimately transformed the American financial system and resulted in the establishment of the modern Federal Reserve.

Drawing from rare source materials, Bruner and Carr take you day by day through the crisis in 1907, revealing what happened, why it matters, and what we can learn from it. Beginning with a catastrophic earthquake in San Francisco and culminating in the shocking suicide of the deposed president of one of New York's leading financial institutions, this book will draw you into the central issues surrounding the panic of 1907. Throughout this journey, you'll not only become familiar with the events of the crisis, but you'll also discover how larger-than-life figures, such as the inestimable J. Pierpont Morgan, took it upon themselves to provide leadershipand inspire confidenceat a time of great uncertainty and instability.

Filled with in-depth insights, The Panic of 1907 offers a deeper understanding of what influences financial marketsboth then and now. Through this engaging case study of the panic and crash, Bruner and Carr provide a useful framework for understanding these events, suggesting that major financial crises can be the result of a convergence of certain, unique forcesthe forces of the market's "perfect storm"that can cause investors to react with alarm.

When the many elements of the next financial storm converge, will you be ready? With The Panic of 1907 as your guide, you'll be prepared to assess, understand, and anticipate the factors that can lead to a crisis.

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The Panic of 1907

John Wiley & Sons

Chapter One

A man I do not trust could not get money from me on all the bonds in Christendom. -J. Pierpont Morgan

In 1907, the young American economy was roaring. Between the mid-1890s and the end of 1906, the nation's annual growth rate was a stunning 7.3 percent, which had doubled the absolute size of all U.S. industrial production during a relatively brief period. The volatility of this growth also leaped from just over 6.5 percent to 8.0 percent per year-although, relative to the high rate of growth, this economic volatility was slightly lower than what it had been during much of the nineteenth century. Even so, compared with previous periods of major industrial expansion, the U.S. economy in 1907 was larger and growing faster than ever (see Figure 1.1).

With the dramatic growth and economic development of the United States at the turn of the century came an enormous demand for capital. In 1895 the U.S. economy added $2.5 billion to its fixed plant and inventories, and by 1906 the annual rate of capital formation was running at nearly $5 billion, a blistering pace (see Figure 1.2). Much of this was financed by the country's exports, which appeared as a bulging current account surplus after 1895. But even exports were insufficient to finance the very large growth rate in the formation of capital in 1905 (12.7%) and 1906 (21.8%).

Into this prodigious vacuum moved a tightly knit network of financiers in New York and London who possessed the sophistication and credibility to raise the necessary funds for America's factories and infrastructure in the world's capital markets. Their success in attracting foreign capital to America's "emerging market" was reflected in the immense importations of gold in 1906: the inflow of gold to the United States spiked sharply upward to $165 million, dwarfing all gold flows after the Civil War, except during the year of a significant economic downturn in 1893.

America's rapid industrialization during this period also hastened the emergence of business entities of unprecedented scale, complexity, and power. Between 1894 and 1904, more than 1,800 companies were consolidated into just 93 corporations. Some of these large firms had grown by buying up smaller competitors during times of economic distress, while others were organized by financiers seeking to control competition and build efficiencies of scale. Much of the volume of new debt and equity financing for these large corporations again flowed through a relatively small circle of financial institutions in New York, including J. P. Morgan & Company; Kuhn, Loeb & Company; the First National Bank; the National City Bank; Kidder, Peabody & Company; and Lee, Higginson & Company.

In 1907, the informal but undisputed leader of this financial community in the United States was J. Pierpont Morgan, known to his family and friends simply as "Pierpont." A complex man, biographers have found unusual clues to Morgan's personality. Historian Vincent Carosso characterized him as a devoted family man, a "strong-willed, affectionate, protective, and generous paterfamilias." Biographer Jean Strouse divined that Morgan was estranged (but not divorced) from his wife, that he had amorous relations with other women, and at the same time was a prominent figure in the Episcopal church in New York City. Strouse also determined that Morgan suffered from periods of clinical depression-indeed, business and family letters are replete with open references to his bouts with the "blues." But all biographers are agreed that Morgan was a forceful personality.

Historian William Harbaugh wrote of Morgan, "What a whale of a man! There seemed to radiate something that forced the complex of inferiority ... upon all around him, in spite of themselves. The boldest man was likely to become timid under his piercing gaze. The most impudent or recalcitrant were ground to humility as he chewed truculently at his huge black cigar." Morgan's nickname in the street was "Jupiter," suggesting godly power. Once he reputedly dismissed the threat of a government inquiry with a comment to President Theodore Roosevelt that, "If we have done anything wrong, send your man [the attorney general] to my man [one of Morgan's lawyers] and they can fix it up."

J. P. Morgan operated within a circle of talented professionals and influential figures in the New York and European financial communities, and he demonstrated great faith in their collective abilities to "fix things up." Biographer Frederick Lewis Allen described vividly Morgan's attitude about the role of the Wall Street oligarchs, of which he was the most prominent:

Morgan seemed to feel that the business machinery of America should be honestly and decently managed by a few of the best people, people like his friends and associates. He liked combination, order, the efficiency of big business units; and he liked them to operate in a large, bold, forward-looking way. He disapproved of the speculative gangs who plunged in and out of the market, heedless of the properties they were toying with, as did the Standard Oil crowd. When he put his resources behind a company, he expected to stay with it; this, he felt, was how a gentleman behaved. His integrity was solid as a rock, and he said, "A man I do not trust could not get money from me on all the bonds in Christendom." That Morgan was a mighty force for decent finance is unquestionable. But so also is the fact that he was a mighty force working toward the concentration into a few hands of authority over more and more of American business.

Two of the leading figures in Morgan's circle were George F. Baker, president of First National Bank of New York, and James Stillman, president of New York's National City Bank. Though Stillman and Baker were direct competitors of Morgan for securities underwritings, the three men commanded great mutual respect having worked together in business and on charitable boards. Morgan's son once told a biographer, "Mr. Baker was closer to my father than any other man of affairs. They understood each other perfectly, worked in harmony, and there was never any need of written contracts between them." Baker and Pierpont Morgan were indeed warm friends; they respected each other and shared similar views on business matters. With Stillman, the relationship was perhaps more distant: "[T]hey did not always see eye to eye," wrote a biographer. "Their mutual attitude, however, was one of respect and a certain degree of friendship."

Morgan's preference for the consolidation of power was matched by a record of consistent leadership in times of crisis and advocacy on behalf of investors. In 1893 Morgan stepped into the breach to help President Grover Cleveland raise gold in Europe as a means of resolving the deepening liquidity crisis facing the country. He was instrumental in the consolidation and reorganization of failed companies, most importantly railroads that had overexpanded prior to the depression of the mid-1890s. In the process, Morgan introduced firm discipline and an investor-oriented point of view. In one prominent exchange with a resistant railroad executive, J. P. Morgan, said, "Your railroad? Your railroad belongs to my clients."

Morgan also sought actively to avoid what he viewed as "ruinous competition" by merging competitor firms to produce corporations whose names remain memorable a century later: American Telephone and Telegraph, International Harvester, American Tobacco, National Biscuit (Nabisco), to name a few. In 1901, Morgan played a central role in the formation of U.S. Steel, the largest corporation in America. Capitalized at a value of $1 billion dollars, U.S. Steel was twice the size of the entire budget of the U.S. government in 1907. Carosso thus described J. P. Morgan's general approach to business consolidation:

Conservatism ... stood at the center of Morgan's general business views. If he had any fundamental, guiding business policy at all, it was to promote stability through responsible, competent, economical management, and to be aware of his obligations to an enterprise's owners and bondholders. There was nothing he disliked more than unrestricted competition and aggressive expansionism, which he considered wasteful and destructive. Morgan believed in orderly industrial progress, and he endorsed policies aimed at promoting cooperation. Large enterprises, he affirmed, should adhere to the principle of community of interest, not the Spencerian doctrine of survival of the fittest.

Morgan was more than just a consolidator of existing businesses; he also played the role of venture capitalist. Not only were several Morgan partners investors in Thomas Edison's company, but Drexel, Morgan (the precursor to J. P. Morgan & Company) also served as the depository for the cash of Edison's firm, arranged loans for the company, facilitated foreign transactions, and helped to manage Thomas Edison's private wealth. Morgan even helped Edison with mergers and acquisitions and underwrote the initial public offering for the Edison General Electric Company.

By 1906, J. Pierpont Morgan was disengaging slowly from the day-to-day activities of his firm to attend to his passion for collecting art and literature, serving on boards of charitable institutions, and touring Europe. He relied heavily on his son, J. P. "Jack" Morgan Jr., to manage his firm's daily affairs, as well as his "right-hand man," George W. Perkins, a partner in J. P. Morgan & Company. On April 17, 1906, the aging Morgan turned 69 years old. By this time, he was unquestionably, according to one biographer, "the most powerful figure in the American world of business, if not the most powerful citizen of the United States. His authority was vague, but it was immense-and growing." On the morning after his birthday, an historic catastrophe devastated the city of San Francisco, California, setting in motion a chain of events that would eventually call for all the power, wisdom, strength, and influence that Old Jupiter could muster.

(Continues...)

Excerpted from The Panic of 1907by Robert F. Bruner Sean D. Carr Copyright © 2007 by Robert F. Bruner. Excerpted by permission.
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