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October 15, 2008
Panics, Then and Now
A typically literate and lovely column from Edward Chancellor in the FT today. It is on the historical parallels and context for the current credit crisis/panic, and it is wonderfully rich historical reading.
Every panic is marked by a sense that the financial system is close to complete collapse. Never were such feelings more marked than during the panic that started in London in December 1825. “If the difficulties which existed in the money market had continued only eight-and-forty hours longer ...” William Huskisson, the president of the Board of Trade, told the House of Commons, he sincerely believed “that the effect would have been to put a stop to all dealing between man and man, except by way of barter.” Or, as a director of the Bank of England put it during the midst of the crisis: “We must ask not who is gone, but who stands?”
Yet even in 1825 the authorities belatedly succeeded in quelling the panic in that incident by borrowing money from France and distributing a stash of old banknotes found in the vaults of the Old Lady. In the 20th century, the end of the panic tended to coincide with decisive government intervention: Roosevelt’s bank holiday of March 1933, the launching of the Bank of England’s “lifeboat” in December 1974 and the nationalisation of Japan’s Long-Term Credit Bank in October 1998, which was accompanied by a $500bn capital injection into the stricken banking system.
More here.
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