October 15, 2007

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Biz Books: 1906 earthquake rippled through financial world

By Cecil Johnson
| McClatchy-Tribune News
Service

October 15, 2007

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The Panic of 1907, by Robert F. Bruner
and Sean D. Carr; John Wiley & Sons Inc.; 258 pages
($29.95).

The earthquake that devastated San Francisco sent economic
shock waves around the world.

In The Panic of 1907, University
of Virginia corporate finance experts Robert F. Bruner and Sean D. Carr assert
that the 1906 San Francisco earthquake triggered a "global liquidity" crisis
that reached its climax the following year.

"The strains from the catastrophe in California rippled
instantly through the global financial system. At the time, San Francisco was
the financial center of the West and home to the Western branch of the U. S.
Mint, so anything that disrupted business in San Francisco threatened the entire
Western region economically," write Bruner and Carr

News of the
earthquake, they point out, led to massive sell-offs of stock on the New York
and London stock exchanges, strains and huge losses for domestic and foreign
insurance companies and serious depletion of British and American gold
reserves.

"Panic had not yet set in, but telegrams flew across the
Atlantic between the world's leading financiers, reflecting a growing anxiety
within the financial community about liquidity and the likely actions of the
Bank of England," write Bruner and Carr.

Relief shipments of gold to the
West, say Bruner and Carr, caused a scarcity of capital in New York. They were
occurring at time when the agricultural cycle required credit for harvesting and
shipment of crops.

"As a result of the capital shortage, the price of
money in New York grew dear, and other sectors of the American economy started
to feel the pinch. By the winter of 1906-07, severe credit shortage had set in,"
write Bruner and Carr.

But the San Francisco earthquake was only one
ingredient of the "perfect storm" that battered the American economy during the
15 months from September 1906 to November 1907. In fact it was only one of two
"real shocks" to the financial system that occurred at the time. The other real
shock, say Bruner and Carr, was the Bank of England's decision in the summer of
1907 to curtail acceptance of American finance bills.

This is a
well-written, reader-friendly tome that many will find entertaining as well as
informative. That is particularly true of the suspense-filled narration of J. P.
Morgan's effort to keep the roof of the financial world from
collapsing.

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Copyright © 2007, South Florida Sun-Sentinel

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