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date: 25 July 2021

Financial Crises in American Historyfree

Financial Crises in American Historyfree

  • Christoph NitschkeChristoph NitschkeRothermere American Institute
  •  and Mark RoseMark RoseFlorida Atlantic University

Summary

U.S. history is full of frequent and often devastating financial crises. They have coincided with business cycle downturns, but they have been rooted in the political design of markets. Financial crises have also drawn from changes in the underpinning cultures, knowledge systems, and ideologies of marketplace transactions. The United States’ political and economic development spawned, guided, and modified general factors in crisis causation. Broadly viewed, the reasons for financial crises have been recurrent in their form but historically specific in their configuration: causation has always revolved around relatively sudden reversals of investor perceptions of commercial growth, stock market gains, monetary availability, currency stability, and political predictability. The United States’ 19th-century financial crises, which happened in rapid succession, are best described as disturbances tied to market making, nation building, and empire creation. Ongoing changes in America’s financial system aided rapid national growth through the efficient distribution of credit to a spatially and organizationally changing economy. But complex political processes—whether Western expansion, the development of incorporation laws, or the nation’s foreign relations—also underlay the easy availability of credit. The relationship between systemic instability and ideas and ideals of economic growth, politically enacted, was then mirrored in the 19th century. Following the “Golden Age” of crash-free capitalism in the two decades after the Second World War, the recurrence of financial crises in American history coincided with the dominance of the market in statecraft. Banking and other crises were a product of political economy. The Global Financial Crisis of 2007–2008 not only once again changed the regulatory environment in an attempt to correct past mistakes, but also considerably broadened the discursive situation of financial crises as academic topics.

Subjects

  • Late 19th-Century History
  • 20th Century: Pre-1945
  • 20th Century: Post-1945
  • Political History
  • Economic History
  • Cultural History

How, when, and why have financial crises occurred in the United States? One of the recurrent and defining features of U.S. history, financial crises are instances of a system-wide loss of confidence and increase in perceived risk that have led people to sell stocks and bonds or withdraw money from banks. Investors and depositors fear the depreciation of their financial instruments and rush to convert them into currency. Collectively, they bring about falling prices, debt defaults, and insolvencies. This weakens the financial system’s ability to distribute capital and credit, thus freezing business activity and harming the economy.1 Excepting, for example, short-lived instances of stock market crashes, most U.S. crises have directly involved the banking sector and led to emergency liquidity measures among lending institutions. On the other hand, the United States has been spared the types of financial crises that have involved the destabilization of sovereign debts or the rapid devaluation of currency (such as Latin America in the 1890s, or Germany’s 1920s hyperinflation). Financial crises have sometimes been constrained to certain regions or institutions, but they regularly spread across the whole country, and they have often had highly international origins and consequences.

For its first 150 years, the United States averaged a financial crisis almost every decade. The most severe ones in this era were in 1818, 1837, 1857, 1873, 1893, 1907, and 1929, while many smaller banking panics or brief stock market crashes also characterized the years between major disturbances. Following the regulatory responses to the Great Depression, notably deposit insurance and the separation of commercial and investment banking, financial crises remained conspicuously absent for a while. Over the course of a little more than a generation, however, the familiar pattern of repetitive breakdowns returned with the 1973–1974 stock market crash, the International Debt Crisis of 1982, Black Monday of 1987, the Savings and Loan failures in the 1980s and 1990s, the dotcom bubble of the early 2000s, and the Global Financial Crisis of 2007–2008.2

Why have financial crises been so frequent? Setting aside for the moment the comparison of U.S. financial history with those of less volatile countries, possible answers might suggest that instability and growth are opposite sides of the same coin, and that crashes appear almost as frequently as business cycle downturns. Taking risks can be extremely rewarding, especially when costs and benefits are unevenly distributed. Whether during the 19th or 20th centuries, bankers made risky loans to often-unreliable customers. If those customers repaid the loans, the banks prospered. But when multiple customers failed to make their payments (and “defaulted” on their loans), the bank’s total capital and the savings of thousands of customers were put at risk. And yet, if banks selected only the safest loans, they ran the risk of missing out on politically sanctioned booms that promised prosperity for all.

Another approach to the study of system-wide crises might point to the broad range of sources from which potentially catastrophic blows to ever-changing financial markets and the health of banks can come. While they are perennial subjects of academic treatment, especially since the Panic of 2008, financial crises do not seem to be generally predictable. Similarly, it is impossible to ascertain that a crisis would have undoubtedly happened in the absence of a particular preventative action. Most broadly, financial crises are results of a relatively sudden lack of economic activity, currency and credit, and information or confidence. Either of these changes usually meets a situation in which money, in particular private debt, was previously easily available and concentrated in a particular market or class of securities.3

The economic historians John Turner and William Quinn propose an analytical triangle for the emergence of such asset bubbles: The first condition is the marketability of the asset, which mainly depends on its legal status, divisibility into small shares, availability and liquidity, and transportability. The second condition is the obtainability of money and credit through low interest rates and loose lending conditions, which tend to push down yields on safe investments while spawning more risky ventures. The third condition is the boom’s attraction to both amateur speculators and to market professionals (who attempt to “ride the bubble”). Either a technological innovation or a government policy can unite all three conditions into a bubble.4

The shape of a triangle, of course, is determined by angles, measured in degrees. How Turner and Quinn’s three conditions relate to one another, and whether any one condition can be sufficient to cause an asset bubble, and potentially a financial panic, is highly dependent on historical context.5 Whether, relatedly, financial crises cause recessions, or if they are themselves products of recessions, is truly a hen-and-egg question.6 Empirical studies suggest that recessions with financial crises tend to be more severe than economic downturns without trouble on Wall Street or the collapse of banks.7 In the wake of panics and bankruptcies, a lack of cash and credit and other nonmonetary factors can exacerbate the downswing of business cycles.8 Macroeconomic measures of the economic damage which followed financial crises vary considerably.9

Financial crises are complex events that usually feature both recurrent mechanisms and idiosyncratic factors in causation as well as in consequences; they are lenses into decade-long transitions while themselves profoundly affecting many areas of life; and they have led to fundamental changes in U.S. history. At the same time, major decisions by politicians and market participants have fundamentally shaped financial crises. Their frequency, origins, beginnings, progressions, depths, and outcomes have never followed a predetermined path.

Chronological Overview

Antebellum Crises

After independence, the United States faced many important questions about its financial system. The Constitution’s authors assigned the right to coin money and control the currency supply to the Federal Government. The new U.S. dollar derived its value from gold and silver reserves. Because bullion was rare, states began to charter banks that issued their own banknotes to provide credit to businesses. Lending institutions were not allowed to have interstate branches (a powerful fragmentation of the banking system called “unit banking”). A wide variety of money therefore circulated in the early republic—federally minted coins, ubiquitous foreign specie, and a myriad of paper instruments and commercial bills, counterfeit included.10 The dynamic if fractured currency regime supplemented other innovations in America’s political economy, like the restructuring of the public debt, the creation of securities markets, and the pooling of capital in corporations. Taken together, these developments—many of which emerged from policy decisions by the nation’s first Treasury Secretary, Alexander Hamilton (in post 1789–1795)—allowed the U.S. financial system to generate effective economic growth.11

And yet, rapid growth came at the cost of extreme instability. The United States faced many more financial crises in the 19th and early 20th centuries than almost any other industrializing country (such as northern neighbor Canada, whose relative stability can be traced to nationwide bank branches and a more cautious attitude toward commercial innovation).12 By framing the policies that attempted to guide the diverse money supply that bankrolled economic growth, government officials from the outset also framed financial crises.

Until 1836, the financial system revolved around two successive central banking organizations. Congress chartered the First and the Second Banks of the United States (1791–1811 and 1816–1836) to hold collected taxes and extend loans to the government, perform fiscal tasks like paying the national debt, and regulate the issuing of paper money by banks across the country. Its sudden contraction of credit in 1818 lost the Second Bank sympathy and contributed to the Panic of 1819. Under its final president Nicholas Biddle, the Second Bank then expanded credit more carefully than before, in step with the growing economy. But opponents rallied around the Bank’s alleged unconstitutionality and claims that it unfairly favored capitalists over farmers. In this so-called Bank War, supporters of incumbent Andrew Jackson turned out in force. Jackson’s victory in the 1832 presidential election ensured that the Second Bank’s charter would expire four years later.13 Hereafter and until 1913, U.S. banking had to endure without a central bank, and it remained atomized and highly sectional even until the late 20th century.

The availability and distribution of gold and silver, which ostensibly backed the credit extended upon it, was largely a political question. Whether they favored a more central monetary authority or not, Americans often doubted whether the currency they used to conduct business was indeed properly backed by the available precious metal (i.e. that banknotes and other instruments were convertible into coin upon request, and at face value). The specie reserves of the United States also fluctuated considerably, and a short supply made money scarcer, raising interest rates and deflating prices. Both instances could prompt depositors to lose confidence in anything but solid gold and withdraw their balances from banks. Increased withdrawals or shortages of bullion could also lead banks to reconsider the quantity and quality of loans they could make against their reserves. Both instances could lower the availability of money in the system and create obstacles to economic activity. Such credit freezes could create or exacerbate times of duress, including during the nation’s early financial crises.

The crises of 1819, 1837, and 1854 all followed the collapse of asset prices. Crashes were usually precipitated by a boom-turned-bubble: by fast economic growth, rising prices, and the rapid expansion of investment in a particular sector or invention. Often reinforced by international gold inflows, easy credit in the antebellum era came from an expanding money stock and free, largely unregulated lending. Booms were functions of widely available means to invest combined with the cultural excitement and political guidance to do so in a particularly innovative, recently opened, or otherwise distinguished area.14 In the settler economy of the early 19th century, for example, federal land acquisition policies created new markets, and plenty of investment went into landed property, cotton, and internal improvement projects, such as the Erie Canal (completed in 1825). Bubbles developed alongside surging credit, when speculators took up debts just to buy the booming assets for later resale. When optimism subsided, for example due to negative signals that radiated from increasingly frequent business failures, bubbles either quietly deflated, or they burst violently. Leveraged speculators—those who owed more than they could pay back without their winnings—faced falling prices for land, commodities, and securities, and became overextended. Banks soon had to deal with loan defaults. Their balance sheets suffered in turn. If they now encountered a large number of customers who demanded cash by presenting banknotes or withdrawing deposits, banks needed to sell other assets to generate liquidity: those heretofore unaffected by the price collapse. The alternative was to suspend operations, which critically impacted the cashflow of other financial institutions. A general fall in prices and the increasing unavailability of money to pay debts could prompt fire sales on the markets and runs on banks—“panics,” as they were increasingly called later in the 19th century.15

The Panic of 1837, for instance, arose from a sharp course correction to domestic and international expectations of the prices for American land and cotton. New banks in the Old Southwest—roughly the triangle between present-day Texas, Missouri, and Alabama—packaged mortgages by farmers and slaveholding planters into state-endorsed bonds. The hope was that rising prices for land, crops, and slaves would repay investors, including a broad array of Northern and European buyers who thus helped fund the dispossession of indigenous people and the expansion of slavery. Investment slowed down in 1836/37. The previous three years of rapid expansion had been driven by a money supply which Mexican silver dollars, British gold, and the risky lending practices of American banks had increased by 30percent each year—a growth rate ten times larger than in the pre-bubble period.16 The Bank of England blamed exuberant British investments in abundant American debt for its own depleted bullion reserves, and raised its interest rates, which drained gold from the United States.17 At the same time, the Jackson administration withdrew the government’s gold surplus from the Second Bank and redistributed it across the country, rendering it unavailable to Eastern money centers. While this action boosted easy lending in the interior and further inflated the bubble, it weakened key financial institutions. Drained specie reserves and lowered reserve ratios limited the commercial credit of East Coast banks, which, together with a new law that required land to be paid in increasingly scarce coin, helped topple land prices.18 These patterns and cycles of expansion, lending-fueled booms, credit contraction, and price adjustments repeated throughout the 19th and early 20th century.

Due to overproduction and new competition on global markets, cotton prices, too, had been falling before the Panic of 1837.19 Cotton dealers like Hermann, Briggs & Co. went under as they received insufficient profits from their sales in Liverpool to repay their debts. The resulting loan defaults caused problems for deeply involved New York brokers. Throughout the spring of 1837, investors and depositors lost confidence. By May, New York City’s reserve ratios were strained enough for institutions to suspend convertibility of their banknotes into specie, a move soon followed by banks across the country. A gold premium emerged, and people eschewed doing business in paper. Even if financial institutions were fundamentally solvent, which many were not, they were unable to effectively distribute credit to where it was needed. Calling in loans created further defaults, and stock prices collapsed. Book assets had to be written off, and eventually over a quarter of all chartered banks suspended operations. During the ensuing six years of depression, bank and railroad stocks fell by 32 and 63 percent, respectively.20

The exact moment when confidence reverses is difficult to pinpoint and explain, and not only for the collapse of 1837 and its encore in 1839. How people made sense of events determined how they acted. Financial crises in general are conditioned by the stories and narratives that emerge as they progress. Different types of media and varying usage of language modify how information is received and interpreted.21 Capitalists arrive at their decision to withdraw cash or liquidate investments in various ways. Bank-run theory hypothesizes that depositors and investors rationally react to shock signals or insufficient information, and that they respond according to personal risk affinity and driven by emotion. Yet it is nearly impossible to predict any such behavior.22 Capitalists also draw from their historically specific knowledge frameworks and experiences, which in turn are constructed in light of the prevailing narratives that have emerged from past crises. While the Panic of 1837 pioneered new regulation and furthered economic discourse, people at the time favored factional interpretations and assigned blame for the crash across the aisle. Much like the effects of the Panic of 1857, this way of thinking helped solidify political divisions in the antebellum era.23

A New Nation’s Panic: 1873

Another vicious boom-and-bust cycle took place during the late 1860s and early 1870s. On the back of postwar exuberance, international interest, financial innovation, the hugely expanded role of the Federal Government, and considerable corruption, vast quantities of money poured into stocks and bonds. Now linked by transatlantic telegraph, American securities and European money traveled swiftly across the ocean.24 In 1863, Civil War exigencies forced the U.S. government to adopt a fiat currency. The unbacked paper dollars called “greenbacks” fluctuated against the value of gold (and against the performance of the Federal Government) and led to inflation, rising prices, and high interest rates. Depreciated greenbacks also effectively cheapened American investments for European capitalists. Greenbacks made up about one-sixth of the nation’s enormous public debt, which amounted to $2.8 billion by the end of the Civil War, not counting repudiated Confederate debt. The majority of the debt was funded in new government bonds, many of which were skillfully marketed to small American investors across the country by Philadelphia financier Jay Cooke, a pioneer in the democratization of finance. Significant amounts of the bonds also ended up in the hands of American banks, whose novel federal charters obligated them to buy and hold the securities as reserves against national bank notes. Tying bank currency to government bonds was a wartime innovation that manufactured a market for the public debt; as the government reduced the public debt over subsequent decades, it also created deflation.25

After the war, the prices of government bonds rose and their yields fell, and money moved from sovereign into corporate debt. An emerging class of investment bankers sold the bonds of industrial companies. Spurred by the completion of the nation’s first transcontinental railroad in 1869, other Western roads sketched out hugely ambitious plans to reach, settle, and integrate vast stretches of land. Broad corridors of real estate had been granted to federally chartered transcontinental railroad projects, like Jay Cooke’s Northern Pacific, which sold mortgage bonds to domestic and international capitalists.26 German, Dutch, and British investors saw profitable opportunities; in contrast to the loans of the 1830s and 1840s, which had resulted in the memorably daunting default of a series of U.S. states, American stocks and bonds now seemed to come with the implicit and explicit sanctioning of the newly powerful Federal Government. Since interest rates were low, new corporate laws forgiving, and French reparations to the new German empire forthcoming, investors in London, Frankfurt, Berlin, and Amsterdam were flush with capital. Fueled by European credit, from 1867 to 1874 the American railroad sector boomed to the tune of a fivefold increase in bonded debt (a large slice of which went to underwriting banks). Railroad executives and investment bankers doubled the nation’s total mileage from 1865 to 1873, a year in which they spent $121 million on new track ($2.6b in 2019 dollars).27

The railroad industry’s unprecedented growth turned unstable when traffic failed to materialize, prices fell, money grew more expensive, and political support lost its credibility. More so than business warnings—railroad failures almost tripled from 1872 to 1873—the Crédit Mobilier scandal dominated the newspapers.28 The Union Pacific’s construction company with the fancy name had liberally bribed Congressmen and embezzled federal subsidies. The high-level corruption prompted lengthy investigations that implicated the Vice President and the Secretary of the Treasury, among others.29 U.S. investments at this time had been boosted not only by the newly powerful international networks of a nascent class of American financiers, but also by the support and credibility which pragmatic American diplomats and consuls threw behind corporate stocks and bonds. Wrapped in the Stars and Stripes, American investments became nation- and empire-building projects with apparent federal support and seemingly guaranteed financial returns. Alongside Crédit Mobilier, however, a failed government loan and a series of American embarrassments around the Vienna World Exhibition further tainted transatlantic perceptions throughout 1873. The apparent political, financial, and diplomatic ineptitude of the Federal Government now tempered expectations for rapid U.S. expansion along the tracks of subsidized railroads. Faced with uncertainty, transatlantic investors skeptically re-evaluated American creditworthiness and their own portfolios.30 Having passed its high-water mark in late 1872, the flood of foreign investment ebbed off through the crisis year. Speculators still played in the waters, but they now swam against the current.31 And unregulated private banks like Jay Cooke & Co. had locked up crucial funds by underwriting (i.e., guaranteeing the sale of) millions of dollars of railroad bonds. To cope with liabilities, they had to turn to increasingly stringent money markets.

The simultaneous closing in New York, Philadelphia, and Washington D.C. of all the branches of the renowned house of Jay Cooke & Co. on September 18, 1873 came as a shock to the nation’s financial psyche. Participation in America’s developing financial capitalism relied to a large extent on the trustworthiness of big names and assured character.32 Now, trust and confidence disappeared, and the financial floodgates opened. Uncertain which banks were connected to the Cookes, to their investments, or to other toxic railroad debt, depositors rushed to withdraw their funds. Bank runs spread through the money centers of the eastern seaboard. Withdrawals in person as well as “silent” (but massive) interbank requests from the nation’s interior led to more failures, despite the sale of assets in previously unaffected markets. For the first time in history, on October 22, the New York Stock Exchange reacted to the overall drop of the market and closed its doors for a full ten days. After two days without Wall Street, New York banks suspended cash withdrawals for almost a month, triggering a currency premium and over 100 failures nationwide.33

The first postwar panic resulted in the longest depression in U.S. history.34 It also set the scene for a series of frequent crashes in the Gilded Age and Progressive Era. Perhaps the most important consequence of the 1873 panic was its subsequent political realignment, which heralded the end of Reconstruction.35 But many contemporaries were more interested in repositioning themselves for the political battle over the so-called “money question” between inflationary paper (and later silver), and deflationary gold.36 Over the next twenty years, sectionally divided lawmakers failed to settle this question with clarity, and so bimetallist hopes and fears became a central factor in the Panic of 1893.

Gold and Silver in the National Banking Era: The Financial Crisis of 1893

What Congress also failed to address at this time was an inelastic money supply and the fragile banking system, both of which barely coped with seasonal money movements that reflected the credit needs of the agricultural interior, and could not cope at all with exogenous shocks.37 The risky if productive system of the national banking era (1863–1913) allowed “country” banks to deposit parts of their required contingency cash with the banks of more populous reserve cities. Those, in turn, had a part of their currency reserves earn interest in the vaults of central reserve city institutions—New York City banks—where they provided essential short-term liquidity, “on call,” to Wall Street brokers. During sowing and harvesting seasons, this money was recalled. The wide edifice of the nation’s interbank deposits stood on the narrow foundation of a few national banks in the money capital—not a house of cards, but a monetary sleight of hand that could quickly make funds disappear.38

The magic trick of swiftly transmitting monetary pressures across the country had proved fateful in 1873 and did so again periodically afterwards. In June 1893, banks in the West and Northwest began to succumb to runs. Widespread mistrust in bank deposits resulted in suspensions in cities like Milwaukee, Louisville, Kansas City, Denver, and Portland. By August, over 500 banks had closed their doors, including many national banks with large liabilities. While scores of financial houses were merely illiquid and not insolvent—a difference unrecognizable to depositors—interbank payments fell tremendously, and monetary pressures shifted to New York. The call loan market spiked, and prices plummeted. In a second phase of the panic, New York City banks then reacted to the heavy drain on their reserves by restricting currency payouts to the weakening country banks. From August 3rd to September 2nd, this led to a currency premium, disruptions to the commercial payments system, and more failures.39

What had caused the collapse? As for the previous financial crises, and indeed for the following ones, business cycle factors, monetary shifts, and political risk were all at play. From late 1892, business activity slowed down. Nonfinancial bankruptcies like railroads picked up throughout the crisis year, especially in the West and Northwest. Stock markets dropped by almost 9 percent in May.40 Western farm mortgage bonds collapsed together with land prices.41 Investors became concerned about the soundness of companies, and depositors worried about the loan portfolios and lending standards of their banks, many of which had been badly if not fraudulently managed.42 Over the four years before the crash, U.S. Treasury gold reserves fell by more than half, partly on account of British policies and retrenching foreign investors. Reserves dipped below the symbolic threshold of $100 million in mid-April, prompting Americans to wonder if the government was really pledged to gold. Banks contracted their loans. Since the money question was politically volatile and the commitment to the gold standard potentially shaky, depositors may have been anxious about a coming devaluation of the dollar. To safeguard their capital, they needed gold. Where doubts spread about the ability of banks to meet withdrawal requests, runs developed and set off a systemically dangerous chain reaction.43 The banking crisis amplified a business downturn, and an extremely harsh recession replete with labor unrest and populist political gains followed. The poor state of the Treasury’s gold reserves harmed its ability to enact recovery measures. Faith in the dollar and the solvency of the Government returned only when banker J. P. Morgan coordinated industry efforts to buy millions of government bonds.44

The (Shadow Bank) Panic of 1907

The first collapse of the 20th century concluded a forty-year period of financial crises and extreme economic volatility, but also rapid growth. In the spring of 1907, another vigorous, decade-long boom came to an end. A novel class of state-chartered financial intermediaries had contributed to spectacular growth, especially the massive expansion of industrial securities.45 Financial trust companies, which were distinct from corporate trusts such as Standard Oil, existed to pool upper-middle-class monies and invest them in securities. Institutions like the large Trust Company of America were loosely regulated and could engage in direct investment activities prohibited to other organizations. Just like private banks, they bought company shares and underwrote bond issues, but they did so with deposits. In the boom before the crisis of 1907, trusts saw a massive growth in aggregate capital, which they loaned directly to Wall Street brokers without collateral. The short-term money market had previously been dominated by national banks, but now trusts provided the extra liquidity on the cheap.46

New York City nonetheless attracted massive amounts of foreign credit. Its now-solid commitment to the gold standard still linked Wall Street tightly to the City of London.47 The flow of gold from England to the United States had risen over the past years and spiked with Lloyds insurance payments to policyholders struck by the devastating San Francisco earthquake. In 1906/07, the Bank of England sought to reverse the situation. Much like in antebellum days, the Bank began to discriminate against American commercial bills, raised its discount rate, and thus regained bullion. Commodity prices such as copper suffered, stocks fell, and credit in New York became scarcer, especially once seasonal money demands picked up in the fall.48 The situation offered fertile grounds for rumors of banking instability.

Perhaps the one most true to its name, the Panic of 1907 began in mid-October, when Mercantile National Bank president Charles Heinze’s failed stock operation publicly turned him into a Wall Street pariah—and anxious depositors out on the bank’s doorstep.49 Other financial houses linked to Heinze and his associates also experienced runs. Most were protected by being members of the New York Clearing House, a sort of private club whose function exceeded settling daily interbank balances (“clearings”) to set sound standards of behavior and provide emergency aid in times of crisis. But only after a few days did the Clearing House publicly declare the solvency of the affected member banks. By that point, however, the conflagration had spread and found the real incendiary material.50

On October 18, rumors broke that the large Knickerbocker Trust had bankrolled Heinze’s scheme. That opaque financial intermediaries like trusts may have been involved in the attempted stock market manipulation seemed believable to contemporaries, who had just witnessed the public scandals, investigation, and reform of the life insurance industry.

The run on Knickerbocker intensified three days later, when the National Bank of Commerce, the nation’s second largest, announced that it would no longer act as agents for the trust.

With its commercial bills publicly rejected, Knickerbocker was unable to organize another loan. Having paid out $8 million worth of deposits in one day, the trust broke on October 22.51

A bona fide banking panic ensued. Unlike earlier crises, runs spread not to national banks across the country, but to other trusts. Knickerbocker’s failure signaled that no one was willing to bail out these new financial intermediaries, who did not cooperate among each other. Their low reserve requirements—15 percent of deposit values in assets, and only 5 percent in cash, or just over a third of what was required for national banks—made them particularly vulnerable to runs. But the collapse of trust companies actually threatened the entire financial system. These institutions held nearly a third of all deposits in New York City at the beginning of the panic, and they commanded assets that rivaled the country’s largest banks. To generate liquidity, trusts called in loans everywhere and sold off high-quality securities. With trust funds increasingly frozen out, the short-term money market spiked to interest rates over 100 percent, leaving brokers scrambling and the stock exchange paralyzed. Measures to alleviate the pressure included liquidity injections from the Treasury, which were limited by the low level of government reserves. More important was the collaborative lending pool formed to buttress trusts and other institutions. Such coordination required the immense social, political, and monetary powers of private financier J. P. Morgan (thus once again demonstrating the necessity of a central bank). By this point, however, national banks had already come under pressure from heavy withdrawals from interior banks, which continued into November. National banks in New York City faced few runs, since the Clearing House had suspended the convertibility of deposits into cash on October 26.52 The resulting currency premium and other panic effects only wore off once gold imports eased the money markets.53

Despite the relatively limited number of seventy-five bank suspensions overall (thirteen of which in New York City), the panic’s credit crunch transformed a downturn into an extremely severe, but brief, depression. The reduction of loans and financial services from trusts greatly injured industrial corporations in particular, where production fell by 40 percent.54 This was the only crash of the national banking era which produced four times as many bank failures, with eleven times as much asset loss, in the year following the panic.55

The Panic of 1907 sparked a dedicated attempt to learn the lessons of the past and implement reforms that had been suggested since at least 1893.56 In addition to its documented inability to flexibly adjust the money supply, the financial system also lacked an emergency lender of the last resort, an institution where banks could replenish their currency supply. Over the previous decades, the New York Clearing House had selectively taken on that role, but with limited success, except in the smaller panics of 1884 and 1890.57 The Panic of 1907, at any rate, revealed the systemic risk posed by institutions outside the Clearing House.

The newly formed National Monetary Commission then used a sweeping approach to answer the question of a central bank, producing, among others, detailed reports on the British and German systems (as well as Oliver Sprague’s 1910 book on the financial crises of the national banking era). Itself rooted in decades of public debate on monetary policy and political economy, and accelerated by America’s financial crises, the complicated process ultimately led to the passing of the Federal Reserve Act in December 1913.58 While Congress thus privileged an institution with control over the money supply and interest rates, it also gave the Federal Reserve System limited powers, a regional structure, and a decentralized nature. Disagreements, sectional differences, and occasional paralysis in monetary policy contributed to the Fed’s failure to act as an effective lender of the last resort.59 Despite the regulatory ideas behind the Fed, its officers would not be able to contain the speculation of the 1920s and the financial collapse that began in 1929.

The Crises of the 1920s and 1930s

The 1920s was a decade of material and financial “firsts.” Americans for the first time purchased mass-produced goods. Large numbers listened to radio, took to the road in automobiles, and brought toasters, vacuum cleaners, and washing machines into their new homes. More Americans relied on credit to finance their purchases—whether a mortgage supplied by an insurance company, a charge account at Sears, Roebuck and Company, or a loan from General Motors Acceptance Corporation to finance their new automobile. Called “an engine of enterprise” by historian Rowena Olegario, credit boosted consumption and economic growth.60 American also started to purchase stocks on credit.

Starting in the 1920s, a small number of wealthy Americans launched into the exciting business of buying shares of stock in the great corporations of the day. The arrival of larger numbers of enthusiastic buyers pushed share prices higher, especially in visible firms like the Radio Corporation of America and General Motors (GM), maker of automobiles such as the Chevrolet, Buick, and the high prestige Cadillac. Who, too, could have doubted that the Pennsylvania Railroad, known widely by its 1916 motto, “The Standard Railroad of the World,” represented a sensible investment? On October 17, 1929, Yale University economist Irving Fisher announced that “`stock prices have reached what looks like a permanent high plateau.’”61

With stock prices soaring, higher-income Americans purchased shares of stock through inexpensive loans, and often “on margin.” Margin describes the amount of money that a stock buyer had to put down to purchase shares. With a modest 10 percent requirement in the 1920s, a wealthy stock buyer, for example, could put down $10,000 to buy $100,000 worth of premier corporate shares. Banks or stockbrokers, such as Merrill Lynch, loaned the difference. More circumspect investors might start with $100 to buy $1,000 of stocks, maybe in GM. Stock market experts and observers lauded the idea that buying shares on margin allowed investors to “leverage” small sums into large purchases, sometimes creating fabulous rates of return. The Federal Reserve Bank of New York charged brokers between 6 and 12 percent for money. New York Stock Exchange members also borrowed massively from banks and corporations. But even at those high rates, making margin loans or buying on their own accounts earned brokers immense profits on soaring stock prices. Using only a dime of their own money to purchase a dollar’s worth of stock, margin buyers catapulted the market to truly lofty heights. This speculation was extremely unstable, as leveraged speculators relied on rising prices to cover their debts.

A sudden downturn in prices, known since as the Great Crash, then caused havoc on Wall Street. Between September and the middle of November 1929, the free-falling market wiped out $26 billion of wealth.62 On October 29, stock prices fell in dramatic fashion. Shares of visible firms such as U. S. Steel and General Electric, a New York Times writer observed, “led the list in volume of liquidation and in scope of losses.”63 Because only 1.5 million Americans, out of a total population of 123 million, were active on Wall Street, the stock market was only indirectly linked to the operating economy. Most barbers, dressmakers, electricians, and typewriter salesmen were not stock buyers. But the crash damaged or even bankrupted wealthy investors and scared away large institutions. Easy credit, especially for consumer goods, was now no longer possible. Many Americans still owed payments on their cars or vacuum cleaners and did not have access to savings.64 Americans with the lowest wages and fewest resources were also among the most likely to face lengthy periods of unemployment, even extending into the late 1930s. Starting soon after the crash, a growing number of debtors stopped repaying their loans. Banks and bankers suffered, too, but in far less harsh fashion.

Banks and the Stock Market During the Great Depression

Banking was an inherently risky business. At the same time, politics had shaped American banking from top to bottom, adding to the risk. State legislators usually allowed Americans to organize small, independent banks; and those bankers in turn used their growing influence in state and federal governments to block the development of larger banks operating multiple branches. In 1921, a peak moment in small bank development, the United States featured more than 30,000 independent commercial banks. By the late 1920s, as problems at small banks became public news, depositors rushed to many of those banks to retrieve deposits, effectively setting off a series of runs and putting multiple banks in jeopardy or out of business. Between 1930 and 1933 another 9,100 banks stopped operations. By 1933, only 14,000 banks remained in business, and it was entirely unclear whether they were on the brink of failure.65 Their owners and top executives persevered with the Federal Government’s assistance.

On March 5, 1933, President Franklin D. Roosevelt proclaimed a Bank Holiday to separate the weak banks from the strong. Federal officials would inspect banks’ books and only financially solid firms would be permitted to open. Of course, federal officials lacked the ability to inspect every bank in detail. But when banks opened a week later, customers returned, often waiting in line to redeposit funds. The bank runs stopped. What had happened? The stock market crash of 1929 had not only brought the first decade of mass buying of consumer goods to a close. By the time of Roosevelt’s Bank Holiday three years later, the old banking regime had ceased to exist.66

Roosevelt and Senator Carter Glass (D-VA) launched the new regulatory framework. Glass was a principal architect of the Federal Reserve Act of 1913. Glass persuaded members of Congress to approve several measures that helped usher in decades of financial stability and enhanced safety at local banks. The Banking Act of 1933 (or Glass–Steagall Act) created the Federal Deposit Insurance Corporation (FDIC), which safeguarded Americans’ money in the bank, up to $2,500. Glass–Steagall’s authors also prohibited bankers from underwriting securities issues. Accordingly, executives at the august J. P. Morgan & Co. had to separate their securities operations into a new, independent investment bank named Morgan Stanley. At the same time, officials at existing investment banks, such as Goldman Sachs, no longer had to worry about competition for securities deals brought by commercial bankers like New York’s Chase National Bank (later, Chase Manhattan and then JP Morgan Chase). And as yet another safety measure, Glass also prohibited bankers from paying interest on checking account deposits. Known among bankers as Regulation Q, Glass’s idea was to prohibit small “country” banks from leaving deposits with big city bankers, who in the past had regularly used those funds to make loans to securities dealers and fund margin buying.67 In the middle of an economic downturn that wiped out savings, forced businesses to close, and brought massive unemployment, leaders of a nation that was rhetorically committed to unhampered enterprise placed bankers in a regulatory regime that fixed interest rates and determined which businesses they could enter.

In truth, the connections among banks, the crash, and the depression were less direct than Carter Glass and his supporters had determined. The economists Charles Calomiris and Stephen Haber report “no evidence linking securities underwriting or lending by money-center banks to securities dealers with the Great Depression.” Small bankers, in fact, had pushed for Glass–Steagall’s enactment, especially federal deposit insurance, in order to ward off the arrival of larger banks featuring multiple branches.68 American business firms of every type worked across state lines, but small bankers creatively blocked larger banks such as Chicago’s First National from extending credit to firms in nearby Indiana, or even into the Chicago suburbs.

Whatever the extent of Carter Glass’s misunderstanding, bank failures practically disappeared during the next forty years. Bankers took deposits and made loans; Savings and Loan associations specialized in mortgage lending; securities dealers underwrote new stock issues; and insurance firms remained outside the commercial bank business (such as checking accounts). A growing postwar economy and a rigid separation of bankers and securities dealers into distinct lines of work perhaps helped bring about “a golden age of financial stability.”69 By any measure, politics remained in this era’s financial driver’s seat.

The Slow and Uncertain Movement Toward Abolishing Glass–Steagall

By September 1945, the depression decade of the 1930s and the horrors of the Second World War were past events. Those earlier sacrifices now offered the chance to achieve durable prosperity. During the war, millions had placed their savings in deposit-insured banks to buy cars and homes in the future. Now, as servicemen and women returned from Europe, Africa, and Asia, government and private employers created lots of jobs. High employment and wages plus wartime spending and savings encouraged the first stages in a decades-long boom in consumer goods. Fundamentally, these growth expectations rested on credit extended by banks, Savings and Loan associations, or increasingly, credit card companies.70

Prosperity talk was in the ascendance. Wealthier and predominantly white Americans moved to new suburbs. Two government agencies—the Veteran’s Administration and the Federal Housing Administration—guaranteed their mortgages, especially for returning GIs, though many African-American veterans were forced to miss out on the postwar housing boom. The Federal Government brought even more resources to that racialized prosperity. In 1956, President Dwight D. Eisenhower signed the Federal-Aid Highway Act, launching full-scale construction of the Interstate Highway System. Massive expressway projects helped create additional suburbs, more jobs, and expanding urban regions.71 Amidst the Federal Government’s multiple growth programs, the Glass–Steagall Act’s many financial regulations found few critics. In 1957–1958, an economic downturn—dubbed the Eisenhower Recession—helped launch American leaders on the search for new financial rules. Higher interest rates and a reduction in government spending had fostered the recession. Politicians of every background, however, acknowledged the government’s responsibility for economic predictability. No idea loomed larger in American social and political affairs than the prospect of achieving rapid economic growth—a growth that would outperform that of the Soviet Union, reduce unemployment, and raise living standards across the board.

In September 1960, presidential candidate John F. Kennedy pledged “an administration that will get this Nation moving again.”72 Banks, with their unique ability to create credit, offered one pathway back to rapid economic growth. Once in office, Kennedy appointed James J. Saxon to the post of Comptroller of the Currency. When Saxon arrived at the comptroller’s office in 1961, it was small in size and had last played a substantial role in the late 19th century; few Americans had heard of it. Despite its anonymity, the comptroller’s office issued bank charters and made most of the rules that governed what bankers could do. While Kennedy seems to have made no specific recommendations to Saxon regarding bank expansion, the President recognized the strictures that Glass–Steagall placed on the financial industry.73 Kennedy was also alert to the political obstacles in front of any such headlong expansion.

During the next five years, Comptroller Saxon sought to create larger banks and additional growth. He approved mergers, authorized bankers to open branch offices, and awarded new bank charters. Larger financial institutions, Saxon contended, would enjoy access to additional capital, which was supposed to lead to improved services for businesses of every type in the regions. Saxon even authorized some deposit banks to sell insurance and underwrite securities, challenging long-standing prohibitions and raising stark fears among insurance and securities’ executives about losing business to banks. National banks, according to Saxon, were better equipped to stimulate economic growth.74

Walter B. Wriston was among the first bank executives to see the growth potential in Saxon’s decisions. As president of First National City Bank (later Citigroup), one of the nation’s largest financial institutions, Wriston disliked regulations that prevented his bank from entering new lines of business. He challenged regulators to deny his acquisitions of securities and insurance firms, which they often did. By the early 1970s, Wriston and a few other financial executives built on Saxon’s actions to launch a long-term effort to modify Depression-era regulations and eliminate restrictions on securities trading and branch openings. Carried forward by subsequent comptrollers, Presidents, and key bankers, the process of unraveling the Glass–Steagall Act ultimately extended to 1999. The urge to promote growth justified each of the small steps along the way.

Early in 1970, any falloff in the pace of economic growth threatened President Richard M. Nixon’s re-election prospects. Nixon was also a policy politician; and he sought to reorganize the American financial industry with a view toward achieving long-term, stable growth. The Nixon administration turned to Comptroller Saxon’s and Citicorp’s Wriston’s earlier ideas. Bank customers, at least the wealthier ones, would in the future take out loans, make deposits, and purchase insurance and stocks at one location. Advocates for this model talked about “supermarket banks.” but the term never caught on in the United States. Bankers in Europe, especially Germany, had long organized financial services into large conglomerates (or universal banks). Yet small American bankers—whether located in Chicago or in rural Texas—naturally opposed the creation of such formidable competitors.75 If they were to appear on the American landscape, supermarket banks needed the support of national regulators and the President of the United States.

Where the Nixon and Ford administrations failed to persuade cautious bankers and members of Congress to abandon Glass–Steagall’s protective regulatory walls, President Jimmy Carter made some headway. By 1980, rising rates of inflation and unemployment encouraged Carter to follow Ford’s public and energetic commitment to bank “deregulation.” Several of the nation’s largest banks, led by the powerful American Bankers Association, joined in the effort. Finally overcoming the opposition from smaller, independent bankers, in March 1980, Congress and President Carter approved the awkwardly named Depository Institutions Deregulation and Monetary Control Act.76 Regulation Q, which had limited the interest that bankers could pay depositors since the 1930s, was to be phased out over six years. Interest rates would rise, but bankers would be able to pay competitive rates to obtain funds, or so ran the reasoning among a wide swath of political and business leaders.

Rescuing the S&Ls Takes Precedence

American banking also included a large number of Savings and Loan associations (S&Ls). Those S&Ls were in the business of taking deposits and writing mortgages; and the American home-building industry and its thousands of suppliers and employees relied on them to keep the cash flowing. And despite the steps taken under the Carter administration, in the early 1980s, the Savings and Loan institutions still needed additional federal aid. Most basically, the problem among the S&Ls was that they had to pay high interest rates to attract deposits—sometimes as high as 18 percent. And yet, S&L executives still held mortgages that earned only 6 percent. As a consequence, the S&L industry’s total reserves plunged from $31 billion to $4 billion. “There is hardly an S&L . . . [in Washington, D.C] that isn’t seeking to cut costs, either by laying off personnel or by merging with another thrift institution,” a Washington Post journalist noted in March 1980. Rising rates of inflation and unemployment only added to the fear and uncertainty that S&L executives, bankers, and ordinary citizens faced on a daily basis. “How could things go so wrong in a land as blessed as ours?” Presidential candidate Ronald W. Reagan asked in a televised address on October 25, 1980, less than two weeks before election day on November 4.77 Ten weeks later, Reagan inherited responsibility for resolving this financial crisis.

In 1982, Congress and Reagan approved the Garn–St. Germaine Depository Institutions Act, which removed several barriers that had prevented S&L executives from entering the banking business. Banks, on the other hand, were still not permitted to sell insurance or underwrite new securities issues (i.e., the original goals of deregulation advocates since Saxon). Reagan called this omission “unfortunate.” And yet, in an economy suffering from unemployment as high as 10 percent and lofty interest rates, the President judged that rescuing the precariously situated S&Ls took precedence over the difficult-to-achieve (but more desirable) goal of permitting banks to offer a range of financial services. Neither Carter nor Reagan and their advisors could foresee the problems that S&L managers would soon cause for their firms and for the U.S. economy.

Financial problems among S&Ls only grew worse. Authors of the Garn–St. Germain legislation had authorized S&L executives to enter new lines of business, as for instance direct investments in suburban housing developments. In many cases, however, S&L leaders lacked an understanding of local markets or even basic knowledge about constructing and pricing homes, apartment buildings, or shopping malls. And a few S&L executives such as Charles L. Keating, the head of Lincoln Savings & Loan, engaged in fraudulent activities. Within a few years, Keating had pushed the apparent value of Lincoln from $1 billion to $5 billion. By the mid-1980s, Lincoln comprised only one of many troubled S&Ls. In 1986, federal regulators closed the Western Savings Association, noting management’s “speculative lending” and “shoddy record-keeping.” Whether through shenanigans like Keating’s or through poor judgment at S&Ls like Western Savings, S&L executives lost billions for their firms. During the mid- and late 1980s, S&Ls located throughout the United States were deeply in debt. Because a federal agency insured S&L deposits, the Federal Government had to take responsibility for the failed S&Ls, either by finding buyers among solvent S&Ls or shutting them down. To resolve more than 700 failed S&Ls, federal regulators eventually spent $480 billion. A writer for the Federal Deposit Insurance Corporation described an “S&L debacle.”78 In late 1989, at the same time as East Germans were tearing down the Berlin Wall, President George H. W. Bush’s top officials were preparing legislation to dismantle bank regulation. The S&L crisis had only increased their desire to create large, nationwide banks that offered a range of financial services such as loans, stocks, and insurance. Enthusiasts for this approach hopefully predicted that those multiservice banks, with risks distributed more evenly around the United States, would eventually replace the small, haphazardly managed S&Ls and thousands of small banks scattered about the countryside. By the late 1980s, Comptroller Saxon’s ideas about eliminating the Glass–Steagall Act’s banking restrictions enjoyed widespread popularity among government officials and a number of prominent bankers. Yet, Bush and his administrative team experienced no greater luck than their predecessors in passing legislation that allowed bankers to market financial products like insurance and mutual funds across state lines. As late as May 1991, Rep. John Dingell (D-MI), chair of a powerful house committee, remained opposed to the administration’s plans to eliminate the Glass–Steagall Act. Instead, Bush signed legislation that provided taxpayer funds to assist with the resolution of failing S&Ls. In 1993, still smarting about the way the S&L problem had been permitted to fester across several decades, a Texas bank president described “the savings and loan industry catastrophe . . . [as] the greatest failure of government policy since the founding of our nation.” S&L (and bank politics) evoked passions among participants.79

President Bill Clinton and Elimination of the Glass–Steagall Act, 1993–1999

Clinton was not burdened with the S&L problem. But he inherited an economic downturn that extended into his first year in office. Large numbers of Americans, as a New York Times writer noted in October 1992, feared and resented “the loss of high-paying factory jobs that allowed a high school dropout to raise a family comfortably.” Clinton, like Kennedy and each succeeding president, looked toward financial deregulation to foster accelerated economic growth. During the previous decades, American bank politics had swung between recession and boom. And each President’s answer to every downturn was to emancipate bankers to make more loans, cross state lines, sell insurance, and underwrite stock issues.80

Early in 1993, Clinton and his aides devised a plan to eliminate the Glass–Steagall Act. NationsBank’s president, Hugh L. McColl, Jr., joined Clinton in this new effort. Having observed Walter Wriston’s innovations at Citicorp, McColl’s goal was to create the largest, full-service bank in the United States. He had already identified legal devices at the state level that permitted him to create branch operations in North Carolina, Georgia, Florida, and Texas. The President signed the Riegle–Neal Interstate Banking and Branching Efficiency Act on September 29, 1994. McColl as well as the presidents of the Chase Manhattan and other large banks joined Clinton at that bill signing, signaling their support for nationwide banking.81

Next and equally important, Clinton appointed Eugene A. Ludwig as Comptroller of the Currency. Ludwig once described Saxon as the trailblazing “father of modern banking,” and he hung a painting of the former Comptroller in his office. It was clear to every recalcitrant banker and insurance executive that Ludwig—perhaps in lockstep with Congress or leaders of the Federal Reserve, such as the market-oriented Alan Greenspan—would allow banks to engage in previously off-limits activities. In November 1996, Ludwig determined that bankers could enter any activity that was part of the “business of banking” (such as insurance or securities) and organize that activity inside a bank subsidiary. Through the Comptroller’s office, the White House, in effect, now possessed the authority to accelerate or slow banking activities. Ludwig, for all intents and purposes, abolished Glass–Steagall and enhanced the President’s hand in managing economic activity.82

A host of mergers and reforms followed. They built on the momentum that Ludwig (and to some extent Greenspan at the Fed) created to form banks offering a full range of services around the world. In April 1998, Sanford A. Weill at the Travelers Group and John S. Reed at Citicorp agreed to form Citigroup, the world’s largest financial services company. Soon after, the aggressive Hugh McColl at NationsBank purchased San Francisco’s venerable BankAmerica and rebranded it Bank of America, now headquartered at Charlotte. Additional legislation followed. Written in part at the direction of the market-oriented Senator Phil Gramm (R-TX), the Gramm Leach Bliley Act, signed by Clinton on November 12, 1999, abolished Glass–Steagall’s remnants and brought its era to a close.83

But Clinton and Gramm had not simply eliminated Depression-era legislation. Instead, they shaped a political and legal architecture to guide the creation of large, multipurpose banks which had been talked about since the 1960s. At first glance, the results looked excellent. The United States was “the best economy I’ve ever seen in fifty years of studying it every day” Greenspan told Clinton at a White House meeting in 1999.84 Clinton was still not finished with his efforts to foster growth. In late 2000, Gramm and Clinton agreed on details of the Commodities Futures Modernization Act. Bankers now possessed legal authority to speculate in financial instruments that lacked a visible backing. Corn or hogs could be observed, measured, and weighed; but a contract to insure an asset-backed security that was always fluctuating in value—and perhaps not directly owned by the insurance buyer—represented a bet on something that could never be directly observed and known.

And yet, the business had the illusion of solidity. Insurance companies such as American International Group, for example, were now permitted to sell insurance on bundles of home mortgages (those sophisticated asset-backed securities) that other financial institutions traded around the world. Numbers on screens and big boards at stock exchanges took the place of detailed knowledge about the related conditions of the debt. How was the local housing market actually doing; what jobs did debtors work; what were their income and expenses? In addition, the market value of these asset-backed securities changed in price constantly. Global traders, many of them in the new big banks, bought and sold asset-backed securities and other complex instruments every few seconds. Late in the 1990s, Greenspan worried about the elevated risk that these massive transactions might bring about. Yet the market’s natural workings, Greenspan and others concluded, would force bankers to act in a prudent fashion. No one had an interest in being associated with policies that might lead to a slowdown of the boom.85

Into the Great Recession, 2000–2007

Nowhere did the politics of growth succeed more than in the field of home mortgages. In 2000, for example, 2.5 million Americans refinanced their homes; three years later, it was more than 15 million. As prices continued to increase, a house, many judged, represented a savvy investment. Lower-income borrowers and those with poor credit histories were not eligible for sharply falling mortgage rates, however. What they signed up for were so-called subprime mortgages. In 2003, the nation’s dealers wrote 1.2 million subprime mortgages. Executives at brand-name banks like Wells Fargo Home Mortgage and at newcomer banks like Countrywide Financial were quick to expand their subprime business. Anthony Mozilo, Countrywide’s chairman, even recommended eliminating down payments for subprime borrowers. Serious loan delinquencies—payments that were more than ninety days overdue—began to rise. And because subprime borrowers paid a higher rate of interest, their defaults contributed heavily to dragging down the balance sheets of banks that purchased asset-backed securities packed with subprime mortgages. Few bankers or economists, including Countrywide’s Mozilo, could perceive that the rapid expansion in mortgage writing and trading was actually helping to bring about a rapid close to the relative financial stability of the “Great Moderation” that started in the mid-1980s and extended to 2007.86

The end of that period of moderation arrived incrementally. Starting in 2006, stories of lost jobs and lost homes began to fill the business and popular press. “As housing market cools, foreclosure rate rises,” headlined one periodical in September 2006. Subprime mortgages were at the heart of the slowly emerging problem. In June 2007, the sober Mortgage Bankers Association reported that a whopping 19 percent of subprime mortgages were past due or in foreclosure. That figure was actually much larger in lower-income and minority neighborhoods. In July, a writer for another business publication identified a veritable “subprime meltdown.”87 In the middle of 2007, the crisis had not yet arrived in full-blown fashion. No one could predict its direction, duration, or eventual depth.

But that moment of stress was increasingly visible from the middle of 2007. In late November, a team of writers for the otherwise optimistic American Banker described a “mortgage collapse” that resided “at the heart of the worst credit crisis in a decade.” During the next six months, Treasury Secretary Henry Paulson worked with New York Federal Reserve Bank President Timothy Geithner and Federal Reserve Chair Ben Bernanke to arrest the impending crisis. In March 2008, for example, they arranged for a multi-billion-dollar credit line to permit JP Morgan Chase to purchase Bear Stearns, an investment bank that had suffered heavily from losses in subprime mortgages. In July 2008, officers of the Federal Deposit Insurance Corporation were forced to assume control of IndyMac, a large savings bank that was also deeply involved with subprime mortgages. Depositors promptly lined up outside IndyMac’s branches to secure their savings. That same month, Paulson and Bernanke asked members of Congress to permit government regulators to create “new tools . . . for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy.” Still lacking those tools in mid-September, Paulson and other federal officials arranged for Bank of America to purchase the fabled investment bank Merrill Lynch. “No more free markets in the land of the free,” a snarky Euromoney writer observed.88 The financial crisis that had started imperceptibly in mid-2006 was at hand.

As business and political leaders issued near-hourly warnings of vast layoffs and business shutdowns, Paulson and other bank regulators attempted to manage the crisis. During the weekend of September 12–14, Paulson and Geithner hosted a meeting for leading bankers at Geithner’s New York Fed headquarters in Lower Manhattan. They urged the attendees to assemble a rescue package for Lehman Brothers. But Lehman was a huge bank that held a vast number of subprime mortgages and came with unknown levels of risk. On September 15, Lehman’s attorneys filed for bankruptcy protection, and 15,000 employees were put on the street. The very next day, Bernanke’s Federal Reserve Board approved a $85 billion loan to American Insurance Group (AIG), the company that wrote most of the insurance on subprime mortgage packages. But no rescue package existed to shore up the more than $13 billion in underperforming loans that Bank of America inherited when executives purchased the failing Countrywide.89

Still, Paulson and other regulators continued their rescue efforts. Early in October, members of Congress approved the Troubled Asset Relief Program, quickly named TARP. Through TARP, $700 billion for loans to troubled banks became available. To launch the program, Paulson, Geithner, and Bernanke directed nine top bankers to appear at the U.S. Treasury. Paulson and his associates decreed that those often-imperious bankers accept between $10 and $25 billion each. Acceptance of those injections removed the perception that several top banks were underfunded (which they were). By February 2009, government agencies had loaned, injected, or insured a whopping $9.7 trillion.90

The Great Recession’s Political Origins

Ordinary Americans enjoyed precious little formal education, practical information, or solid experience to help them understand how such a calamity had befallen their jobs, their foreclosed homes, and their unprotected investments. Nonetheless, in February 2009, Time magazine assigned responsibility for the crisis to the American consumer—and to twenty-four persons like Countrywide’s Mozillo, Senator Gramm, Federal Reserve Chair Greenspan, Treasury Secretary Paulson, Citigroup founder Sanford Weill, and President Clinton. The common element among this group of overwhelmingly male actors was past advocacy for eliminating the Glass–Steagall Act that had separated investment and commercial banking. Moreover, according to Time, they had all approved legislation permitting bankers to speculate in subprime mortgages without owning the underlying houses or mortgages. These decisions, the magazine reasoned, had unleashed a torrent of problems, the consequences of which had extended for years among low-income Americans who lost homes and jobs. Yet in truth, neither President Clinton’s early initiatives nor Gramm, Leach, and Bliley’s 1999 legislation led naturally and inevitably to the 2008 financial crisis.91

Top bankers, as a start, failed to appreciate the way subprime mortgages worked in practice. In the past, financiers had retained mortgages on their books for up to thirty years. Nonpayment risk endured across decades on the originating banker’s books. The idea underlying the packaging of subprime mortgages (or any such asset-backed security) was that bankers would sell them to investors who actually wanted to assume that risk—in return for the promise of hefty income payments for years to come. As late as 2008, Paulson described a system whereby insurance firms like AIG sold those mortgages as a way to “help manage and disperse risk and make the economy more efficient.”92 But at Citigroup and elsewhere, bankers retained those high-paying, asset-backed securities on their own books. When the value of those securities fell sharply, Citigroup was stuck—and still worse, Citigroup’s traders could no longer unload those securities on unsuspecting customers.

But Citigroup officials had created unperceived risks for their customers. At the start, Citi’s traders sold those asset-backed securities to other bankers. Bank officials everywhere described trading partners as counterparties, a word rarely heard among plain-spoken Americans. The counterparty system extended outward from that original sale. For a fee, AIG insured counterparties’ asset-backed securities, whether purchased from eager traders at Citigroup, Bear Stearns, or Lehman. The men and women who sold houses, initiated mortgages applications, and dealt in asset-backed securities earned fabulous commissions. So lucrative did selling homes appear that some number of lawyers in New York took a forty-five-hour course in order to switch careers and work as realtors.93 Looked at from a distance, here was a carefully reticulated set of connections that put low-income Americans in houses, allowed higher-income Americans to refinance homes and withdraw cash, and still earned vast amounts of money for bank counterparties and for successful realtors and traders up and down the chain. And again, according to Paulson, the system of creating and selling asset-backed securities dispersed risk and made the economy more efficient. Everyone, by this reasoning, stood to benefit. But buying and selling one or many asset-backed securities was never simply a series of clear and crisp transactions that ended when securities and cash changed hands.

Most basically, the entire system of creating and marketing asset-backed securities rested on opaque elements that had long characterized American banking. Traders knew the names of their counterparty firms, but the record-keeping ended there. No one, it turned out, kept track of the vast number of counterparties around the globe who owned all those asset-backed securities. Nor for that matter did regulators inquire each day—or even each month—about the countless and often gigantic loans that bankers made to each other to finance those security sales. Executives at Wells Fargo, the gigantic California bank, had set up financial subsidiaries to handle the complex financing of subprime mortgages. Those subsidiaries (called Special Purpose Vehicles) legally operated off the bank’s books, allowing executives to evade the regulator’s gaze.

And yet, it is unclear whether even the keenest-eyed regulator would have been able to notice that the financial system was headed toward the Great Recession. As late as March 2007, Geithner reported years later, “the Fed staff’s analytic work didn’t flag subprime as a major systemic risk . . . .” Even Ben Bernanke, the Federal Reserve Chair, had to be briefed on the complex business of issuing subprime mortgages and converting them into asset-backed securities. To be sure, however, problems in discerning how subprime mortgages worked and how asset-backed securities were potentially linked to oncoming recession could never be remedied through improved training and sharper analysis. First, the American regulatory system lacked coordination. Agencies included the FDIC, the Federal Reserve, and the Comptroller of the Currency, among a plethora of others on both federal and state levels. Altogether, those multiple bank regulators had no method for maintaining a singular, all-encompassing watch on the accumulated workings of thousands of large and small banks spread across an enormous landscape. Ratings agencies comprised another uncoordinated part of the regulatory system. Rating agencies earned hefty fees to report on the value of each and every asset-backed security, but those agencies—S&P Global Ratings was among the largest and best known—often failed to check in detail. Comptroller Saxon’s original work in the early 1960s and Ludwig’s handiwork in the 1990s fit in at this point. As Ludwig had determined, bank securities units at, say, Bank of America and JP Morgan Chase, worked in tandem with their banks. The U.S. Securities and Exchange Commission checked the securities units’ transactions for honesty and accuracy, but never with an eye to any emerging problem of overextended trading and inflated prices.94 In previous decades, economists and politicians had advocated merging regulators into one unit, but those ideas failed to gain congressional approval.

Nor were the largest investment houses regulated in any useful fashion. As one illustration, executives at investment banks like Bear Stearns and Lehman were not part of the Federal Reserve System; much like financial trusts in 1907, they comprised part of what came to be known as the “shadow banking” system. The financial crisis of 2007–2008 started among these shadow banks and spread to the securities operations at the regulated banks. The counterparty system had no boundaries. Like the situation that developed at regulated banks such as Wells Fargo, no one person or organization possessed system-wide knowledge of buying, selling, and loan-making at Bear, Lehman, or among any of the remaining shadow and regulated banks located around the world. As long as low-wage householders made their mortgage payments, the creation of the asset-backed securities system went forward, as well as its attendant payments to owners and its commissions to traders. From late 2006 onwards, however, existing mortgage loans hit contractually agreed “resets.” Interest rates rose among subprime borrowers, and many now failed to make their higher monthly payments. Of course, asset-backed securities did not lose all value over night. But it was impossible to identify which ones consisted of failing loans. All of a sudden, bankers who were formerly eager to assemble lucrative deals grew anxious about the soundness of the mortgages stuffed into asset-backed securities. Another financial bubble was bursting.

During earlier crises, nervous customers had lined up at bank doors to retrieve their deposits. In 2007–2008, nervous bankers, lacking knowledge of opaque counterparties’ ability to honor contracts, refused to finance the overnight transactions that served as the center of the asset-backed securities business. Starting in August 2007 and extending far beyond Lehman’s bankruptcy, Americans endured another financial crisis that started as a banking panic. The ensuing Great Recession disrupted the career and family plans among a generation of Americans, perhaps for many years. And without doubt, the loss of jobs and savings, the repossessed automobiles, and the foreclosed homes included households across the nation, especially in lower-income and African-American neighborhoods. As late as 2018, University of Pennsylvania management professor Matthew Bidwell found a widespread, “corrosive sense that the system is broken, without any constructive suggestions about what to do about it.’”95

Conclusion

The crash of 2007–2008 and the accompanying Great Recession had elements in common with earlier crises and their subsequent economic downturns. In most boom-and-bust episodes, Americans loaded up on easy credit to purchase better lives—perhaps a homestead in much of the 19th century, maybe a house and a car in the 20th. Members of a new generation of bankers and salespersons usually offered innovative monetary contracts whose sophistication and attraction helped propel financial markets to ever greater heights. But those novel financial instruments—whether bank notes, mortgages, bonded debt, call loans, gold certificates, life insurance, futures, asset-backed securities, subprime mortgages, or credit default swaps, to name only a few—were not only opaque; their rapid spread and increasing complexity also made them systemically dangerous. To be sure, ordinary Americans never uttered those phrases; and wealthier Americans, whose school districts and municipalities purchased complex securities, never understood how they were assembled. Irrespective of the ways in which they were advertised, packaged, bought, and sold, the homes and mortgages behind the derivatives of 2007 had their equivalent over the past 200 years in other financialized goods. Among the most important were land, crops, slaves, railroads, industrial companies, bank stocks, and the various trading arrangements of consumer debt, all of which were apt to support price bubbles.

Yet without doubt the most important constants among financial crises in American history are their political origins. The American financial system was never based on laissez-faire ideals. And in turn, politics was always involved in the workings of any system that distributed money and determined its price. In the nineteenth century, for instance, the state pushed for territorial expansion and subsidized the purchase of land and the construction of railroads across the continent, thereby manufacturing speculation in what amounted to settler colonialism. And as a twentieth century example, federal agencies constructed expressways to the suburbs, guaranteed mortgages, and created a legal system that protected asset-backed securities that were obscure to all but the best-trained bankers. Causation for economic change cannot be traced in a straight line. But the constituting forces in the design of ever-changing markets emerge from political power relations. A myriad of factors like federal regulations, state and local property laws, subsidies, tax rates, target interest rate decisions, and national narratives have therefore created historically specific modes of capitalism. Far from purely technical subjects, financial crises have been both cause and effect of vast societal transformations in American history.

Discussion of the Literature

The crash of 2007–2008 and its subsequent economic downturn greatly renewed academic attention to, and paced popular and professional interest in, the history of financial crises. Suggesting various similarities, scholars have specifically pointed to the comparability of the Panics of 1873, 1907, and the Great Depression.96 These crises, incidentally, had produced the first lasting works of scholarship that remain important today, such as Oliver Sprague’s History of Crises (1910) and Irving Fisher’s Booms and Depressions (1932).97 For the next fifty years or so, scholarship somewhat lacked the momentum of a fresh panic. The crises and transformations of the 1970s and 1980s—when financial instability returned together with explosive growth of the financial industry and an increasing decoupling of the sector from industrial production—then led to a blossoming of the discipline, in conjunction with a growing body of theoretical and empirical scholarship in economics.98

Charles Kindleberger’s Manias, Panics, and Crashes (1978) produced the first systematic comparison of crises through history to illustrate the repetitive nature of speculative boom and bust. Kindleberger employed the financial instability hypothesis developed by economist Hyman Minsky to argue that cycles of credit expansion led to speculative manias.99 The ready availability of credit, both through a growing money supply and the liberal lending practices to distribute it, created asset price bubbles and allowed for leveraged speculators. Their eventual defaults, because of insufficient returns or tightened credit, could spread losses throughout the financial system. The combination of this model with historical analysis has become an influential line of thinking, perhaps best illustrated by the fact that Manias, Panics, and Crashes reached its seventh edition in 2015.100

Following the contraction of credit, prices might fall or even crash. But financial crises can also happen as the results of banking panics, according to Milton Friedman and Anna Schwartz’s landmark Monetary History of the United States, 1867–1960 (1963). They posited that banking panics and failures transformed economic slowdowns into severe recessions.101 Later theoretical work provided explanations of bank runs as random events that did not necessarily have to be related to any trouble in the wider economy. For Douglas Diamond and Philipp Dybvig (1983), banking panics are self-fulfilling prophecies where the fear of a bank run prompts depositors to run on their banks: expecting massive withdrawals by others, anxious depositors create the exact situation they imagined.102

Other scholars challenged Friedman and Schwartz’s monetarist view that a self-destroying financial sector froze credit and dragged down companies and investors. Peter Temin asked Did Monetary Forces Cause the Great Depression? (1976) and argued that the four large banking panics of 1930–1932 resulted from the damage which financial institutions had suffered from the already sliding economy.103 This view tends to go together with theories developed in the 1980s and 1990s that treat bank runs as depositors’ rational reactions to a slowdown in economic activity. Depositors translate bad news (like company bankruptcies) into expectations of difficulties among banks. Not knowing sound from unsound banks, they seek to liquidate their assets.104 Subsequent empirical studies by scholars like Gary Gorton and Charles Calomiris (1988, 1991) linked many panics to the business cycle, arguing that crises were reactions to fundamental economic developments that caused insolvency, not merely illiquidity, among banks.105

A plethora of econometric works based on advanced statistical methods and ever-larger collections of painstakingly unearthed—though not always reliable—historical data has continued to produce more complicated views. Once again in focus, the four banking crises of the Great Depression, for instance, were now partly explainable by exogenous shocks, and partly by spontaneous panics.106 The bank-run issue is crucial to blaming or exonerating the Federal Reserve, which may or may not have been able to save banks by providing enough liquidity.107 Either way, its ability to do so was likely constrained by both the gold standard and internal problems.108

These debates are important because they influence larger questions about central banks and regulatory responses. The interest in proving or disproving a certain approach often shines through in long-run treatments of financial crises. Elmus Wicker’s Banking Panics of the Gilded Age (2000), for example, pays much attention to the actions of the private New York Clearing House as a de facto lender of the last resort.109 Left unanswered is why the Clearing House stopped its previously successful responses to bank panics, or more generally, why and how private institutions and market actors could fail to act efficiently, to the same extent as the allegedly inefficient public regulatory bodies. For complex motivations, specific configurations of markets, and broad context, then, financial crisis history relies less on financial economics and more on the core methods of historiography.110

Indeed, how contemporaries made sense of what was happening, collectively and individually, has had a direct effect on the unfolding of financial crises. This has been the focus in the early 21st century of many cultural and often transatlantic histories, like Scott Nelson’s A Nation of Deadbeats (2012) or Jessica Lepler’s The Many Panics of 1837 (2013).111 Other works have emphasized that political change not merely followed, but also precipitated financial crises and created the conditions for the collapse.112 The scale for these investigations has steadily increased, and William Quinn and John D. Turner’s Boom and Bust (2020) was the first attempt at a global history of financial crises.113

Such scholarship easily meshes with works on the role of economic ideas in bringing about economic, political, and social change.114 The cultural history of financial crises draws strength from recent behavioral approaches in economics (and vice versa). Robert Shiller’s Narrative Economics (2019) basically argues that viral storylines have economic power, thereby framing the discussions that take place among bankers, politicians, and even historians.115 Since “the search for historical analogies,” as Larry Neal puts it, “is as much a feature of financial crises as the condemnation of financiers held responsible for the collapse,” it is not merely present narratives but also past histories that drive economic change.116

Primary Sources

The study of financial crises through primary sources naturally depends on the specific research question. While almost any type of source could feasibly be viewed through the lens of either boom or bust, not all sources are equally useful. Here are a few suggestions regarding the location of primary source materials that are accessible yet broad and deep in coverage.

One might start with identifying when, where, and how, financial crises happened, or at least when people thought they did. Newspapers and contemporary periodicals, many of which are available online, cover major economic events, market expectations and observations, notable financial disturbances, and contested political responses. Newspapers often carry price information and interviews with decision-makers. Aside from the large daily newspapers such as the New York Times (first published 1851–), specialist papers include the Commercial and Financial Chronicle (1865–1987), Institutional Investor (1967–), the Wall Street Journal (1889–), the Financial Times (1888–), the American Banker (1836–), the Investment Dealers’ Digest (1935–), the National Mortgage News (1976–), and the Economist (1843–).

Other printed sources—which can also be the basis of decidedly quantitative approaches—include government publications.117 An immense amount of information can be mined from serial documents like the Annual Reports of the Secretary of the Treasury and the Comptroller of the Currency. Many other executive bodies have yearly publications, such as the President’s Council of Economic Advisors. Senate and House Documents, and the Congressional Record, are also valuable, as are court records. The Fed itself, whose research divisions are likely the nation’s largest employer of economists, supplies an immense amount of research and data, especially in the FRED and FRASER digital libraries.118 The Federal Reserve Bank of New York maintains a superb archive of their former presidents’ files.

While federal agencies publish massive quantities of information, the National Archives and Records Administration allows researchers who have a plan to go much deeper. It is worth exploring the record groups to look past the obvious agencies, landing at the records of the office of the Comptroller of the Currency (RG101), for example, or of the Federal Reserve System (RG82). Still other materials of important individuals in government service are readily found at the Library of Congress, such as the papers of Donald T. Regan, who served as head of Merrill Lynch and later as Treasury Secretary in the Reagan administration. Depending on the crisis of choice, the personal papers of central bankers, department heads, or Congressmen and Congresswomen (perhaps members of the financial services committee) can be of interest. Rounding off the government section are presidential libraries, many of which regularly make new material available. Much of the above, of course, is mirrored in other countries.

Historians also frequently unearth correspondence, protocols, and data sets from the archives of companies and financial institutions. Depending on the sector (and nature of the respective boom), many company archives can add value to financial crisis research. The Hagley Museum and Library (Wilmington, DE), for example, has large collections on American enterprises. It is not always easy to establish whether any given bank of the past that has long been dissolved has left records behind. Ledgers and letters might have been moved (in name and perhaps in object) during mergers and acquisitions, though this is far from guaranteed. Many large and accessible financial archives do exist, however. The Morgan Library and Museum in Manhattan, and the Rothschild Archive (London and Roubaix) and Baring Archive (London) each cover almost global correspondence networks over wide spans of time. Many international banks naturally deal with the United States, and so collections like the Deutsche Bank America Office (Frankfurt) should be of interest. The World Bank Group (online) and Bank of International Settlements (Basel, Switzerland) also archive a wealth of material. For earlier periods, the records of the New York Clearing House at Columbia University in New York City may be of interest. On regional and state levels, chambers of commerce and financial interest groups are other possibilities.

Lastly, researchers should consider private papers. Whether those come from political, financial, or business leaders, relating the individual decision-making which this material might reflect to the macro processes of financial crises can be particularly enriching. What were the common narratives of crisis, before and after the crash? Did any single financial institution, intermediary, rating agency, or regulatory body see developments differently, and if so, why? Personal papers can provide deep dives into the rewarding task of disentangling “the” economy into its constituting parts. And those same personal papers can help make visible where unintended consequences may have been bred, or why investors periodically considered “this time” to be different from the wide range of past financial crises.

Links to Digital Materials

Board of Governors of the Federal Reserve System, Transcripts and other historical materials. Includes transcripts of Federal Open Market Committee meetings.

EH.net. This is a useful database and encyclopedia with free overview articles on broad subjects, written by experts in the field.

Federal Reserve Bank of New York, Economic Policy Review, 1996–.

Federal Reserve History. Expert essays on U.S. financial history through the lens of the Fed.

Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Washington, DC: Government Printing Office, 2011). A government investigation of the Global Financial Crisis of 2007–2008.

Financial History Review Bibliography. Specialist guide to publishd works.

FRASER: Federal Reserve Bank of St Louis, Economic, financial, and banking history database.

FRED: Federal Reserve Bank of St Louis, Economic Research data.

National Monetary Commission (1909–1912), publications and papers. Including Sprague’s History of Crises.

Presidential Libraries websites. Several presidential libraries have put a large number of financially relevant documents online.

Further Reading

  • Allen, Franklin, and Douglas Gale. Understanding Financial Crises. Oxford: Oxford University Press, 2009.
  • Bilginsoy, Cihan. A History of Financial Crises: Dreams and Follies of Expectations. New York: Routledge, 2015.
  • Calomiris, Charles W., and Stephen H. Haber. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton, NJ: Princeton University Press, 2014.
  • Cassis, Youssef, Richard S. Grossman, and Catherine R. Schenk, eds. The Oxford Handbook of Banking and Financial History. Oxford: Oxford University Press, 2016.
  • Eichengreen, Barry. Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History. New York: Oxford University Press, 2015.
  • Geisst, Charles. Wall Street: A History, 4th ed. New York: Oxford University Press, 2018.
  • Gorton, Gary B. Misunderstanding Financial Crises: Why We Don’t See Them Coming. New York: Oxford University Press, 2012.
  • Hsu, Sara. Financial Crises, 1929 to the Present. Northampton, MA: Edward Elgar, 2013.
  • Kindleberger, Charles P., and Robert Z. Aliber. Manias, Panics, and Crashes: A History of Financial Crises, 7th ed. New York: Palgrave Macmillan, 2015.
  • Neal, Larry. A Concise History of International Finance: From Babylon to Bernanke. Cambridge: Cambridge University Press, 2015.
  • Quinn, William, and John D. Turner. Boom and Bust: A Global History of Financial Bubbles. New York: Cambridge University Press, 2020.
  • Rose, Mark H. Market Rules: Bankers, Presidents, and the Origins of the Great Recession. Philadelphia: University of Pennsylvania Press, 2019.
  • Shiller, Robert J. The Subprime Solution: How Today’s Global Crisis Happened, and What to Do About It. Princeton, NJ: Princeton University Press, 2008.
  • Sylla, Richard. “From Exceptional to Normal: Changes in the Structure of US Banking since 1920.” Financial History Review 27, no. 3 (November 2020), 361–375.
  • Vague, Richard. A Brief History of Doom: Two Hundred Years of Financial Crises. Philadelphia, PA: University of Pennsylvania Press, 2019.
  • White, Eugene N., ed. Stock Market Crashes and Speculative Manias. Northampton, MA: Edward Elgar, 1996.

Notes

  • 1. This broad definition of a financial crisis competes with many more fine-grained ones; Charles Kindleberger and Robert Aliber, for example, suggest talking about subdivided commercial, industrial, monetary, banking, fiscal, and financial market-related crises. Charles P. Kindleberger and Robert Z. Aliber, Manias, Panics, and Crashes: A History of Financial Crises, 7th ed. (London: Palgrave Macmillan, 2015), 29.

  • 2. Andrew Jalil, “A New History of Banking Panics in the United States, 1825–1929: Construction and Implications,” American Economic Journal: Macroeconomics 7, no. 3 (2015), 295–330; and Michael Bordo, Barry Eichengreen, Daniela Klingebiel, and Maria Soledad Martinez‐Peria, “Is the Crisis Problem Growing More Severe?” Economic Policy 32 (2001), 53–82.

  • 3. Moritz Schularick and Alan M. Taylor, “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008,” NBER Working Paper 15512 (2009); Òscar Jordà, Moritz Schularick, and Alan M. Taylor, “When Credit Bites Back,” Journal of Money, Credit and Banking 45, no. 2 (2013), 3–28; Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009); Michael D. Bordo, “Reflections on the Evolution of Financial Crises: Theory, History and Empirics,” in Coping with Financial Crises: Some Lessons from Economic History, ed. Hugh Rockoff and Isao Suto (Singapore: Springer, 2018), 1–15; and Richard Vague, A Brief History of Doom: Two Hundred Years of Financial Crises (Philadelphia: University of Pennsylvania Press, 2019).

  • 4. William Quinn and John D. Turner, “Bubbles in History,” Working Paper of the Queen’s University Centre for Economic History (September 2020); and William Quinn and John D. Turner, Boom and Bust: A Global History of Financial Bubbles (Cambridge/New York: Cambridge University Press, 2020), chapter 1.

  • 5. See e.g., Jeroen Klomp, “Causes of Banking Crises Revisited,” North American Journal of Economics and Finance 21, no. 1 (2010), 72–87.

  • 6. Please see Discussion of the Literature.

  • 7. E.g. Michael D. Bordo and Joseph Haubrich, “Credit Crises, Money and Contractions: An Historical View,” Journal of Monetary Economics 57, no. 1 (2010), 1–18; and Jalil, “New History of Banking Panics”; Bordo et al., “Is the Crisis Problem Growing More Severe?”; also Anna J. Schwartz, “Real and Pseudo-Financial Crises,” in Financial Crises and the World Banking System, ed. Forest Capie and Geoffrey E. Wood (New York: Macmillan, 1986), 11–31.

  • 8. See e.g. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963), especially chapter 7; Ben Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression,” American Economic Review 73 (1983), 257–276; and Charles W. Calomiris, “Financial Factors in the Great Depression,” Journal of Economic Perspectives 7 (1993), 61–85; Giovanni Dell’Ariccia, Enrica Detragiache, and Raghuram Rajan, “The Real Effect of Banking Crises,” Journal of Financial Intermediation 17, no. 1 (2008), 89–112; and John A. James, James McAndrews, and David F. Weiman, “Wall Street and Main Street: The Macroeconomic Consequences of New York Bank Suspensions, 1866–1914,” Cliometrica 7, no. 2 (2013), 99–130.

  • 9. For the period since 1945, for example, see Carmen M. Reinhart and Kenneth S. Rogoff, “The Aftermath of Financial Crises,” NBER Working Paper 14656 (January 2009).

  • 10. See Sharon A. Murphy, “Banking and Finance from the Revolution to the Civil War,” Oxford Research Encyclopedia in American History (Oct. 2019); and Joshua R. Greenberg, Bank Notes and Shinplasters: The Rage for Paper Money in the Early Republic (Philadelphia: University of Pennsylvania Press, 2020), and Stephen Mihm, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Cambridge, MA: Harvard University Press, 2007).

  • 11. Richard E. Sylla, “Political Economy of Financial Development: Canada and the United States in the Mirror of the Other, 1790–1840,” Enterprise and Society 7, no. 4 (2006), 653–665; and Richard E. Sylla and David J. Cowan, “Hamilton and the U.S. Financial Revolution,” Journal of Applied Corporate Finance 31, no. 4 (2019), 10–15.

  • 12. Christopher Kobrak and Joe Martin, From Wall Street to Bay Street: The Origins and Evolution of American and Canadian Finance (Toronto: University of Toronto Press, 2018); Charles W. Calomiris and Stephen H. Haber, Fragile By Design: The Political Origins of Banking Crises and Scarce Credit (Princeton, NJ: Princeton University Press, 2014), 284–286; and Michael D. Bordo, Hugh Rockoff, and Angela Redish, “Why Didn’t Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or . . .)?,” Economic History Review 68, no. 1 (January 2015), 218–243.

  • 13. Murphy, “Banking and Finance”; see Jane E. Knodell, The Second Bank of the United States: “Central” Banker in an Era of Nation-Building, 1816–1836 (New York: Routledge, 2016); and e.g., Andrew H. Browning, The Panic of 1819: The First Great Depression (Columbia, MO: University of Missouri Press, 2019).

  • 14. For two recent studies of modern-day bubbles, see Brent Goldfarb and David A. Kirsch, Bubbles and Crashes: The Boom and Bust of Technological Innovation (Palo Alto, CA: Stanford University Press, 2019); and Robert J. Shiller, Narrative Economics: How Stories Go Viral and Drive Major Economic Events (Princeton, NJ: Princeton University Press, 2019).

  • 15. Cihan Bilginsoy, A History of Financial Crises: Dreams and Follies of Expectations (New York: Routledge, 2015), 129–135; Kindleberger and Aliber, Manias, Panics, and Crashes, chapter 2. See fundamentally Hyman Minsky, Stabilizing an Unstable Economy (reprint New York: McGraw-Hill, 2008 [1986]). On the changing terminology of “panic” in the 19th century, see e.g., Jessica M. Lepler, “Introduction: The Panic of 1819 by Any Other Name,” Journal of the Early Republic 40, no. 4 (2020), 665–670.

  • 16. Jane Knodell, “Rethinking the Jacksonian Economy: The Impact of the 1832 Bank Veto on Commercial Banking,” in Journal of Economic History 66, no. 3 (Sept. 2006), 547–588; Emily Connolly, “Panic, State Power, and Chickasaw Dispossession,” Journal of the Early Republic 40, no. 4 (2020), 683–689; and Edward E. Baptist, “Toxic Debt, Liar Loans, Collateralized and Securitized Human Beings, and the Panic of 1837,” in Capitalism Takes Command: The Social Transformation of Nineteenth-Century America, ed. Michael Zakim and Gary J. Kornblith (Chicago: University of Chicago Press, 2012); Howard Bodenhorn, State Banking in Early America: A New Economic History (New York: Oxford University Press, 2003), chapters 9–11.

  • 17. Jessica Lepler, The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis (New York: Cambridge University Press, 2013), 54.

  • 18. Stephen W. Campbell, “The Transatlantic Financial Crisis of 1837,” in Oxford Research Encyclopedia of Latin American History (March 2017); and Peter Rousseau, “Jacksonian Monetary Policy, Specie Flows, and the Panic of 1837,” Journal of Economic History 62, no. 2 (June 2002), 457–488.

  • 19. Sven Beckert, Empire of Cotton: A Global History (New York: Vintage Books, 2014), 171, 242–243.

  • 20. Lepler, The Many Panics of 1837, chapters 4–7; Campbell, “Transatlantic Financial Crisis”; Rousseau, “Jacksonian Monetary Policy,” 457.

  • 21. In historian’s Caitlin Rosenthal’s words, “the stories we tell about finance reconfigure its operation.” See her “In the Money: Finance, Freedom, and American Capitalism,” American Quarterly 68, no. 1 (2016), 161–175: 168.

  • 22. Key works in bank-run theory include Douglas W. Diamond and Philipp H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy 91 (1983), 401–419; Frederic S. Mishkin, “Asymmetric Information and Financial Crises,” in Financial Markets and Financial Crises, ed. Glenn R. Hubbard (Chicago: University of Chicago Press, 1991), 69–108; and Charles W. Calomiris and Gary Gorton, “The Origins of Banking Panics: Models, Facts, and Bank Regulation,” in Financial Markets and Financial Crises, ed. Glenn R. Hubbard (Chicago: University of Chicago Press, 1991), 109–173. For a behavioral approach, see Robert J. Shiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton, NJ: Princeton University Press, 2009).

  • 23. See Alasdair Roberts, America’s First Great Depression: Economic Crisis and Political Disorder after the Panic of 1837 (Ithaca, NY: Cornell University Press: 2012); and James L. Huston, The Panic of 1857 and the Coming of the Civil War (Baton Rouge: Louisiana State University Press: 1987).

  • 24. See Christopher Hoag, “The Atlantic Telegraph Cable and Capital Market Information Flows,” Journal of Economic History 66 (2006), 342–353.

  • 25. Richard Bensel, Yankee Leviathan: The Origins of Central State Authority in America, 1859–1877 (New York: Cambridge University Press, 2003), chapters 3–5; George A. Selgin, “The Suppression of State Banknotes: A Reconsideration,” Economic Inquiry 38, no. 4 (2000), 600–615; David K. Thomson, “‘Like a Cord through the Whole Country’: Union Bonds and Financial Mobilization for Victory,” The Journal of the Civil War Era 6, no. 3 (2016), 347–375; and Henrietta Larson, Jay Cooke, Private Banker (Cambridge, MA: Harvard University Press, 1936), chapters 9–11.

  • 26. See Richard White, Railroaded: The Transcontinentals and the Making of Modern America (New York: W. W. Norton & Co., 2011).

  • 27. United States Department of Commerce, Historical Statistics of the United States, Colonial Times to 1970, 2 vols. (Washington, DC: Government Printing Office, 1975), ii, 732–734; Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cambridge, MA: Harvard University Press, 1989), 114–123; Richard E. Sylla, The American Capital Market, 1846–1914 (New York: Arno Press, 1975), 155–161; Dorothy R. Adler, British Investments in American Railways, 1834–1898 (Charlottesville, VA: University of Virginia Press, 1970), 73–78; Richard White, The Republic for Which It Stands: The United States During Reconstruction and the Gilded Age, 1865–1896 (New York: Oxford University Press, 2017), 261; Clement Juglar, A Brief History of Panics and Their Periodical Occurrence in the United States, 3rd ed. (New York: Putnam’s, 1893), 94; and Samuel H. Williamson, “Seven Ways to Compute the Relative Value of a U.S. Dollar Amount, 1790 to Present,” MeasuringWorth (2020). See also the detailed Augustus J. Veenendaal, Slow Train to Paradise: How Dutch Investment Helped Build American Railroads (Palo Alto, CA: Stanford University Press, 1996).

  • 28. White, Railroaded, 47–87; and Matthew Simon, Cyclical Fluctuations and the International Capital Movements of the United States, 1865–1897 (New York: Arno Press, 1978), 162–163.

  • 29. Mark W. Summers, The Era of Good Stealings (New York: Oxford University Press, 1993), 233–243.

  • 30. Christoph Nitschke, Boom and Bust Diplomacy: The Financial Crisis of 1873 and U.S. Foreign Relations (D.Phil. dissertation, University of Oxford, 2020).

  • 31. See emphases of international causation in Charles P. Kindleberger, “The Panic of 1873,” in Crashes and Panics: The Lessons from History, ed. Eugene N. White (Homewood, IL: Dow Jones-Irwin, 1990), 69–84; and Scott R. Nelson, “A Storm of Cheap Goods. New American Commodities and the Panic of 1873,” Journal of the Gilded Age and Progressive Era 10 (Apr. 2011), 447–453; and compare Scott Mixon, “The Crisis of 1873: Perspectives from Multiple Asset Classes,” Journal of Economic History 68 (Mar. 2008): 722–757.

  • 32. Christoph Nitschke, “Theory and History of Financial Crises: Explaining the Panic of 1873,” Journal of the Gilded Age and Progressive Era 17, no. 2 (2018), 221–240: 232–234; Catherine Davies, Transatlantic Speculations: Globalization and the Panics of 1873 (New York: Columbia University Press, 2018), chapter 3; and Rowena Olegario, A Culture of Credit: Embedding Trust and Transparency in American business (Cambridge, MA: Harvard University Press, 2006), chapter 3.

  • 33. Good overviews of events are Elmus Wicker, “The Banking Panic of 1873,” in Routledge Handbook of Major Events in Economic History, ed. Randall E. Parker and Robert Whaples (New York: Routledge, 2013), 15–23; and Robert Sobel, Panic on Wall Street: A History of America’s Financial Disasters (New York: Macmillan, 1968), 173–193.

  • 34. According to the National Bureau of Economic Research, “U.S. Business Cycle Expansions and Contractions.” After a brief recovery in the late 1870s, the early 1880s then featured the third-longest depression in U.S. history (National Bureau of Economic Research, “U.S. Business Cycle Expansions and Contractions”). Calculations of economic indicators tend to relativize the severity of the downturn; see e.g., Christina Romer, “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97, no. 1 (1989), 1–37; and Joseph H. Davis, “An Improved Annual Chronology of U.S. Business Cycles,” Journal of Economic History 66, no. 1 (2006), 103–121.

  • 35. Nicolas Barreyre, “The Politics of Economic Crises: The Panic of 1873, the End of Reconstruction, and the Realignment of American Politics,” Journal of the Gilded Age and Progressive Era 10, no. 4 (2011), 403–423.

  • 36. See Nicolas Barreyre, Gold and Freedom: The Political Economy of Reconstruction (Charlottesville, VA: University of Virginia Press, 2015); Gretchen Ritter, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865–1896 (Cambridge, MA: Harvard University Press, 1997); and Jeffrey Sklansky, Sovereign of the Market: The Money Question in Early America (Chicago: University of Chicago Press, 2017), chapters 5–6.

  • 37. The relationship between seasonal deposit drains and panic-inducing liquidity shocks has been much but not conclusively studied. See Margaret G. Myers, The New York Money Market, Vol. 1: Origins and Development (New York: AMS, 1931), 107–118; Jeffrey A. Miron, “Financial Panics, the Seasonality of the Nominal Interest Rate, and the Founding of the Fed,” American Economic Review 76, no. 1 (1986), 125–140; Christopher Hoag, “Deposit Drains on ‘Interest-Paying’ Banks Before Financial Crises,” Explorations in Economic History 42, no. 4 (2005), 567–585; and Christopher Hanes and Paul W. Rhode, “Harvest and Financial Crises in Gold Standard America,” Journal of Economic History 73 (Jan. 2013), 201–246. Contemporaries were well aware of seasonal stringency, see e.g., Department of Treasury (ed.), Annual Report of the Comptroller of the Currency (Washington, DC: GPO, here e.g., 1869–1873).

  • 38. In 1873, seven New York City banks held over 70 percent of the nation’s bank deposits. Oliver M. Sprague, History of Crises Under the National Banking System (Washington, DC: Government Printing Office, 1910), 15. See generally Helen H. Updike, The National Banks and American Economic Development, 1870–1900 (New York: Garland, 1985); and John A. James and David F. Weiman, “The National Banking Acts and the Transformation of New York City Banking During the Civil War Era,” The Journal of Economic History 71, no. 2 (2011), 338–362. On call loans, see Jon R. Moen and Ellis W. Tallman, “The Call Loan Market in the U.S. Financial System Prior to the Federal Reserve System,” Working Paper Series of the Federal Reserve Bank of Atlanta 2003–2043 (Dec. 2003).

  • 39. Mark Carlson, “The Panic of 1893,” in Parker and Whaples, Routledge Handbook, 40–49; Elmus Wicker, Banking Panics of the Gilded Age (New York: Cambridge University Press, 2000), 52–82; and Brandon Dupont, “Bank Networks and Suspensions in the 1893 Panic: Evidence from the State Banks and Their Correspondents in Kansas,” Financial History Review 24, no. 3 (2017), 265–282.

  • 40. Sprague, History of Crises, 164–169; Charles Hoffman, “The Depression of the Nineties,” The Journal of Economic History 16, no. 2 (June 1956), 137–164.

  • 41. Sarah L. Quinn, American Bonds: How Credit Markets Shaped a Nation (Princeton, NJ: Princeton University Press, 2019), 48–68.

  • 42. Paula Petrik, “Parading as Millionaires: Montana Bankers and the Panic of 1893,” Enterprise & Society 10, no. 4 (2009), 729–762; and Sprague, History of Crises, 161.

  • 43. Carlson, “Panic of 1893,” 40–42; Brandon Dupont, “Bank Runs, Information and Contagion in the Panic of 1893,” Explorations in Economic History 44, no. 3 (2007), 411–431; and Mark Carlson, “Causes of Bank Suspensions in the Panic of 1893,” Explorations in Economic History 42 (Jan. 2005), 56–80.

  • 44. See Douglas Steeples and David O. Whitten, Democracy in Desperation: The Depression of 1893 (Westport, CT: Greenwood Press, 1998); Hoffman, “Depression of the Nineties”; and Vincent P. and Rose C. Carosso, The Morgans: Private International Bankers, 1854–1913 (Cambridge, MA: Harvard University Press, 1987), chapter 9.

  • 45. Larry Neal, “Trust Companies and Financial Innovation, 1897–1914,” Business History 45, no. 1 (1971), 35–51; and Mary O’Sullivan, Dividends of Development: Securities Markets in the History of U.S. Capitalism, 1866–1922 (Oxford: Oxford University Press, 2016), chapter 4.

  • 46. Ellis W. Tallman, “The Panic of 1907,” in Parker and Whaples, Routledge Handbook, 50–66: 50–51; Youssef Cassis, Crises and Opportunities: The Shaping of Modern Finance (Oxford: Oxford University Press, 2011), 15; Jon R. Moen and Ellis W. Tallman, “The Bank Panic of 1907: The Role of the Trust Companies,” The Journal of Economic History 52, no. 3 (1992), 611–630; and Jon R. Moen and Ellis W. Tallman, “Outside Lending in the New York City Call Loan Market: Evidence from the Panic of 1907,” Financial History Review 26, no. 1 (2019), 43–62.

  • 47. Youssef Cassis, Capitals of Capital: The Rise and Fall of International Financial Centres, 1780–2009 (Cambridge: Cambridge University Press, 2010), 114–115.

  • 48. Kerry A. Odell and Marc C. Weidenmier, “Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907,” The Journal of Economic History 64, no. 4 (2004), 1002–1027; Charles A. Goodhart, The New York Money Market and the Finance of Trade, 1900–1913 (Cambridge, MA: Harvard University Press, 1969), 107–121; Mary T. Rodgers and James E. Payne, “Monetary Policy and the Copper Price Bust: A Reassessment of the Causes of the 1907 Panic,” Research in Economic History 34 (2018), 99–133; and Cassis, Crises and Opportunities, 16–17.

  • 49. The best treatment of events is Robert F. Bruner and Sean D. Carr, The Panic of 1907: Lessons Learned from the Market’s Perfect Storm (Hoboken, NJ: Wiley, 2007).

  • 50. Cassis, Crises and Opportunities, 14–15; and Tallman, “The Panic of 1907,” 56. On the New York Clearing House, see e.g., Gary Gorton, “Clearinghouses and the Origins of Central Banking in the United States,” The Journal of Economic History 45, no. 2 (June 1985), 277–284.

  • 51. Cassis, Crises and Opportunities, 14–15; Tallman, “The Panic of 1907,” 54–57; Henry Clews, Fifty Years in Wall Street (New York: Irving Publishing, 1908), 799; and see e.g., H. Roger Grant, Insurance Reform: Consumer Action in the Progressive Era (Ames, IA: Iowa State University Press, 1988).

  • 52. Tallman, “The Panic of 1907,” 54–56, 60–61; Cassis, Crises and Opportunities, 15–17; Bradley A. Hansen, “A Failure of Regulation? Reinterpreting the Panic of 1907,” Business History Review 88, no. 3 (2014), 545–569; Sprague, History of Crises, 264; and Jon Moen and Ellis Tallman, “The Bank Panic of 1907: The Role of the Trust Companies,” The Journal of Economic History 52, no. 3 (1992), 611–630.

  • 53. Potentially significantly from France, see Mary T. Rodgers and James E. Payne, “How the Bank of France Changed U.S. Equity Expectations and Ended the Panic of 1907,” The Journal of Economic History 74, no. 2 (2014), 420–448.

  • 54. Wicker, Banking Panics, 4–5; Friedman and Schwartz, Monetary History, 156–168; Bruner and Carr, Panic of 1907, 142–143; and Carola Frydman, Eric Hilt, and Lily Y. Zhou, “Economic Effects of Runs on Early ‘Shadow Banks’: Trust Companies and the Impact of the Panic of 1907,” Journal of Political Economy 123, no. 4 (2015), 902–940.

  • 55. U.S. Department of the Treasury, Annual Report of the Comptroller of the Currency (Washington DC: GPO, 1931), 6, 8, compiled in Richard Grossman, “US Banking History, Civil War to World War II/,” EH.Net Encyclopedia, ed. Robert Whaples (March 16, 2008).

  • 56. See Elmus Wicker, The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed (Columbus, OH: Ohio State University Press, 2005).

  • 57. See Wicker, Banking Panics, 45–51.

  • 58. Sprague, History of Crises; Jon R. Moen and Ellis W. Tallman, “Why Didn’t the United States Establish a Central Bank Until After the Panic of 1907?,” Federal Reserve Bank of Atlanta Working Paper Series 99–16 (1999); Wicker, The Great Debate; J. Lawrence Broz, The International Origins of the Federal Reserve System (Ithaca, NY: Cornell University Press, 1997); and James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Ithaca, NY: Cornell University Press, 1986).

  • 59. Gary Richardson, “The Great Depression: 1929–1941,” Federal Reserve History (November 2013).

  • 60. Louis Hyman, Debtor Nation: The History of America in Red Ink (Princeton, NJ: Princeton University Press, 2011), 13–16; and Rowena Olegario, The Engine of Enterprise: Credit in America (Cambridge, MA: Harvard University Press, 2016), 122.

  • 61. Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History (New York: Oxford University Press, 2015), 34–35, and Fisher quote on 106; Julia C. Ott, When Wall Street Met Main Street: The Quest for an Investors’ Democracy (Cambridge, MA: Harvard University Press, 2011), 211.

  • 62. John Kenneth Galbraith, The Great Crash, 1929 (Boston, MA: Houghton Mifflin, 2009), 31, 95, 142, 144. Ott, When Wall Street Met Main Street, 211; and Erik Gellman and Margaret Rung, “The Great Depression,” Oxford Research Encyclopedia of American History, April 2018, 3.

  • 63. “Financial Markets,” New York Times, October 29, 1929.

  • 64. Galbraith, The Great Crash, 1929; Ott, When Wall Street Met Main Street, 211; and Susie Pak, Gentlemen Bankers: The World of J. P. Morgan (Cambridge, MA: Harvard University Press, 2013), 194.

  • 65. Charles W. Calomiris and Stephen H. Haber, Fragile By Design: The Political Origins of Banking Crises and Scarce Credit (Princeton, NJ: Princeton University Press, 2014), 153–189; Galbraith, The Great Crash, 1929, 179; and Richard Sylla, “From Exceptional to Normal: Changes in the Structure of US Banking since 1920,” Financial History Review (November 2020).

  • 66. William L. Silber. “Why Did FDR’s Bank Holiday Succeed?” Economic Policy Review—Federal Reserve Bank of New York 15, no. 1 (July 2009): 19–30.

  • 67. Calomiris and Haber, Fragile by Design, 190–192; Barry Eichengreen, Hall of Mirrors, 66–67; Pak, Gentlemen Bankers, 60.

  • 68. Calomiris and Haber, Fragile by Design, 67, 190–191.

  • 69. Eichengreen, Hall of Mirrors, 67.

  • 70. Sebastian Mallaby, The Man Who Knew: The Life and Times of Alan Greenspan (New York: Penguin Press, 2016), 33; Lizabeth Cohen, A Consumer’s Republic: The Politics of Mass Consumption in Postwar America (New York: Knopf, 2003), 279.

  • 71. Mark H. Rose and Raymond A. Mohl, Interstate: Highway Politics and Policy since 1939, 3rd ed. (Knoxville: University of Tennessee Press, 2012).

  • 72. John F. Kennedy, “Speech by Senator John F. Kennedy in Seattle, WA, at the Civic Auditorium (Advance Release Text),” September 6, 1960, The American Presidency Project, hosted by the University of California, Santa Barbara, www.presidency.ucsb.edu.

  • 73. Ross M. Robertson, The Comptroller and Bank Supervision: A Historical Appraisal (Washington, DC: Office of the Comptroller of the Currency, 1968).

  • 74. Robertson, The Comptroller and Bank Supervision.

  • 75. U.S. President’s Commission on Financial Structure & Regulation, The Report of the President’s Commission on Financial Structure and Regulation (December 1972) (Washington, DC: U.S. Government Printing Office, 1973); Calomiris and Haber, Fragile by Design, 195–198, 467–469.

  • 76. Jeff Gerth, “Bank Target: Glass–Steagall Act,” New York Times, March 3, 1981.

  • 77. D.C. S&Ls to Merge,” Washington Post, March 21, 1980; “Excerpts From Reagan TV Address on the Economy,” New York Times, October 25, 1980.

  • 78. Pauline H. Smale, “Bank and S& L Failures in 1988” Congressional Research Service (July 17, 1989), 2–3; Thomas C. Hayes, “Regulators Declare Texas Savings Unit Insolvent,” New York Times, September 14, 1986; “Bailout Agency Accuses Law firms of Deception,” New York Times, April 4, 1991; S&L Scandal Figure Dies,” American Banker Magazine 124, no. 4 (May 1, 2014); Robert A. Rosenblatt, “GAO Estimates Final Cost of S&L; Bailout at $480.9 Billion,” Los Angeles Times, July 13, 1996; and Federal Deposit Insurance Corporation, An Examination of the Banking Crises of the 1980s and Early 1990s, Volume 1, Chapter 4.

  • 79. Kenneth R. Robinson, “Depository Institutions Deregulation and Monetary Control Act of 1980,” federalreserve.org (website), November 22, 2012; Gillian Garcia, “Garn-St. Germain Depository Institutions Act of 1982,” October 1982; Stephen Knott, “George H. W. Bush: Domestic Affairs,” UVA: Miller Center (website); Stephen Labaton, “Bush’s Banking Plan Still Faces Obstacles,” New York Times, May 28, 1991; and John L. West, “Set the Record Straight on the S&L Crisis,” ABA Banking Journal 85, no. 11 (November 1993): 134.

  • 80. Isabel Wilkerson, “The 1992 Campaign: The Industrial Midwest; and An Inert Economy Is Driving Rust-Belt Voters from Bush,” New York Times, October 5, 1992.

  • 81. Frank W. Newman and Richard S. Carnell, “Banking Regulatory Reform: The Case for the Clinton Plan,” American Banker 159, no. 44 (March 7, 1994); and William J. Clinton, “Remarks on Signing the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,” September 29, 1994, The American Presidency Project (website); “Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,” Federalreservehistory.org (website).

  • 82. Testimony of Eugene A. Ludwig, Comptroller of the Currency, before the Committee on Banking and Financial Services of the U.S. House of Representatives, July 29, 1997; and Mark H. Rose, Market Rules: Bankers, Presidents, and the Origins of the Great Recession (Philadelphia: University of Pennsylvania Press, 2019), 112–123.

  • 83. Mike Siconolfi, “Travelers and Citicorp Agree to Join Forces in $83 Billion Merger,” Wall Street Journal, April 7, 1998; Steven Lipin and Anita Raghavan, “NationsBank to Merge With BankAmerica, and That’s Not All,” Wall Street Journal, April 13, 1998; Michael Schroeder, “Glass-Steagall Compromise Is Reached,” Wall Street Journal, October 25, 1999; and Mallaby, The Man Who Knew, 524–27, 558–60, including quotation on 527.

  • 84. Mallaby, The Man Who Knew, 527.

  • 85. Ibid., 531–535; and Timothy F. Geithner, Stress Test: Reflections on Financial Crises (New York: Crown Publishers, 2014), 86–88.

  • 86. Lew Sichelman, “Mozilo: End Downpayment Requirement,” National Mortgage News 27, no. 21 (February 17, 2003): 1; “BYC Prepayments Fall; Delinquencies Rise,” Mortgage Bankers News 30, no. 2 (October 10, 2005): 2; and James H. Stock and Mark W. Watson, “Has the Business Cycle Changed and Why?” NBER Macroeconomics Annual 17 (2002): 159–218, including first use of “great moderation” on 162.

  • 87. B. Sanders, “As Housing Market Cools, Foreclosure Rate Rises,” New Hampshire Business Review 28, no. 19 (September 1–14, 2006); Vikas Bajaj, “Slumping Confidence in Bonds Tied to Subprime Mortgages,” New York Times, June 16, 2007; “The Subprime Meltdown: A Primer,” Mondaq Business Briefing (July 18, 2007); Eichengreen, Hall of Mirrors, 78.

  • 88. Niamh Ring, et al., “Take One Credit Crunch. Add Deals, Bills, and Exec Shuffles. Shake Well,” American Banker 172, no. 230 (November 30, 2007): 38A; Edmund L. Andrews, “Fed Acts to Rescue Financial Markets,” New York Times, March 17, 2008; Eric Dash, “IndyMac Faces Rush to Withdraw,” New York Times, July 9, 2008; “Bernanke and Paulson Call for New Regulatory Powers over Wall Street Firms,” New York Times, July 10, 2008; and “No More Free Markets in the Land of the Free,” Euromoney 39, no. 473 (September 2008).

  • 89. Joe Nocera and Edmund L. Andrews, “Paulson’s Race to Contain a Hurtling Crisis,” New York Times, October 23, 2008; and “BoA Hammered by Delinquencies,” National Mortgage News 33, no. 4 (October 13, 2008).

  • 90. Mark Landler, “U.S. Investing $250 Billion in Banks,” New York Times, October 13, 2008; and Rose, Market Rules, 157.

  • 91. “25 People to Blame for the Financial Crisis,” Time 173, Issue 7 (February 23, 2009); Ravi Jagannathan, Mudit Kapoor, and Ernst Schaumburg, “Causes of the Great Recession of 2007–2009: The Financial Crisis Was the Symptom Not the Disease!” Journal of Financial Intermediation, 22, no. 1 (January 2013), 4–29; and Timothy J. Galpin, “Repealing the Glass-Steagall Framework: Deregulatory Impact and Policy Considerations in Historical Context,” (Unpublished Ph.D. dissertation, University of Maryland, Baltimore County, 2019), 400–410.

  • 92. Rik Kirkland and Doris Burke, “Hank Paulson Takes on the World,” Fortune 152, no. 2 (July 23, 2007): 120.

  • 93. Eve Tahmincioglu, “Real Estate’s Sizzle Draws New Brokers,” New York Times, October 3, 2004.

  • 94. Geithner, Stress Test, 111–115, 434–435; Rose, Market Rules, 168–170.

  • 95. “How the Great Recession Changed American Workers,” Knowledge, University of Pennsylvania, Wharton School of Management, published podcast, September 10, 2018.

  • 96. See Scott R. Nelson, “The Real Great Depression,” The Chronicle of Higher Education, The Review 55, no. 8 (2008), B98; Ellis W. Tallman and Elmus R. Wicker, “Banking and Financial Crises in United States history: What Guidance can History Offer Policymakers?,” Working Paper Series of the Federal Reserve Bank of Cleveland 1009 (2010); and Eichengreen, Hall of Mirrors.

  • 97. Sprague, History of Crises; Irving Fisher, Booms and Depressions: Some First Principles (New York: Adelphi, 1932); also Max Wirth, Geschichte der Handelskrisen, 4th ed. (Frankfurt, 1890); Clement Juglar, A Brief History of Panics and Their Periodical Occurrence in the United States (New York/London, 1893); and Charles A. Collman, Our Mysterious Panics 1830–1930 (New York, 1931). The interwar years also saw important work on business cycles, e.g., Simon Kuznets, Secular Movements in Production and Prices: Their Nature and Their Bearing upon Cyclical Fluctuations (Boston, MA/New York: Houghton Mifflin Company, 1930).

  • 98. Gerard Caprio, “Banking on Crises: Expensive Lessons from Recent Financial Crises,” Policy Research Working Paper of the World Bank, no. 1979 (September 1998), 3; see also the literature overviews of Youssef Cassis, “Financial History and History,” and Youssef Cassis, Richard S. Grossman, and Catherine R. Schenck, “General Introduction,” in The Oxford Handbook of Banking and Financial History, ed. Youssef Cassis, Catherine R. Schenck, and Richard S. Grossman (Oxford: Oxford University Press, 2016).

  • 99. Kindleberger and Aliber, Manias, Panics, and Crashes; and Hyman P. Minsky, “The Financial Instability Hypothesis: An Interpretation of Keynes and an Alternative to ‘Standard Theory,’” (1975), Hyman P. Minsky Archive 38; Minsky, Can “It” Happen Again?: Essays on Instability and Finance (1982). Long-run studies confirm the systematic link between credit expansion and financial crises, see e.g., Vague, A Brief History of Doom.

  • 100. Kindleberger and Aliber, Manias, Panics, and Crashes.

  • 101. Friedman and Schwartz, Monetary History.

  • 102. Douglas W. Diamond and Philipp H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy 91 (1983), 401–419; and also John Bryant, “A Model of Reserves, Bank Runs, and Deposit Insurance,” Journal of Banking and Finance 4 (1980), 335–344.

  • 103. Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976).

  • 104. Gary Gorton, “Bank Suspension of Convertibility,” Journal of Monetary Economics 15 (1985), 177–193; Charles J. Jacklin and Sudipto Bhattacharya, “Distinguishing Panics and Information Based Bank Runs: Welfare and Policy Implications,” Journal of Political Economy 96 (1988), 568–592; V. Varadarajan Chari and Ravi Jagannathan, “Banking Panics, Information, and Rational Expectations Equilibrium,” Journal of Finance 43 (1988), 749–760; and see e.g., Franklin Allen and Douglas Gale, Understanding Financial Crises (Oxford: Oxford University Press, 2009).

  • 105. Gary Gorton, “Banking Panics and Business Cycles,” Oxford Economic Papers 40 (1988), 751–781; Charles Calomiris and Gary Gorton, “The Origins of Banking Panics, Models, Facts, and Bank Regulation,” and Frederic S. Mishkin, “Asymmetric Information and Financial Crises: A Historical Perspective,” both in Financial Markets and Financial Crises, ed. Glenn R. Hubbard (Chicago: University of Chicago Press, 1991), 109–173 and 69–108, respectively.

  • 106. E.g., Elmus Wicker, The Banking Panics of the Great Depression (Cambridge: Cambridge University Press, 1996), Charles Calomiris and Joseph R. Mason, “Fundamentals, Panics, and Bank Distress During the Depression,” American Economic Review 93, no. 5 (2003), 1615–1647.

  • 107. See e.g., Gary Richardson and William Troost, “Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve District Border, 1929–1933,” Journal of Political Economy 117, no. 6 (2009), 1031–1073; and Calomiris and Mason, “Fundamentals, Panics, and Bank Distress,” respectively.

  • 108. Peter Temin, Lessons from the Great Depression (Cambridge, MA: MIT Press, 1989); Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (New York: Oxford University Press, 1992); and Christina Romer, “Was the Federal Reserve Constrained by the Gold Standard During the Great Depression? Evidence from the 1932 Open Market Purchase Program,” Journal of Economic History 66 (2006), 140–176.

  • 109. Wicker, Banking Panics of the Gilded Age; also see Gary Gorton and Ellis W. Tallman, Fighting Financial Crises: Learning from the Past (Chicago: University of Chicago Press, 2018).

  • 110. See e.g., John D. Turner, “Financial History and Financial Economics,” in Cassis, Grossman and Schenck, Oxford Handbook of Banking and Financial History, 41–55; also Charles P. Kindleberger, Historical Economics: Art or Science? (Berkeley, CA: University of California Press, 1990); and Youssef Cassis and Philip L. Cottrell, “Financial History,” Financial History Review 1, no. 1 (1994), 5–22; and Charles P. Kindleberger, Historical Economics: Art or Science? (Berkeley, CA: University of California Press, 1990)

  • 111. Scott R. Nelson, A Nation of Deadbeats: An Uncommon History of America’s Financial Disasters (New York: Penguin Random House, 2012); Jessica M. Lepler, The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis (Cambridge, UK: Cambridge University Press, 2013); also Jonathan I. Levy, Freaks of Fortune: The Emerging World of Capitalism and Risk in America (Cambridge, MA: Harvard University Press, 2012), Catherine Davies, Transatlantic Speculations: Globalization and the Panics of 1873 (New York: Columbia University Press, 2018). This is not to claim the absolute absence of culture in topics of economic history before the 21st century; see e.g., Peter Temin, “Is it Kosher to Talk About Culture?” Journal of Economic History 58, no. 2 (1997), 267–287.

  • 112. Nicolas Barreyre, “The Politics of Economic Crises: The Panic of 1873, the End of Reconstruction, and the Realignment of American Politics,” Journal of the Gilded Age and Progressive Era 10, no. 4 (2011), 403–423; and Calomiris and Haber, Fragile by Design; Rose, Market Rules; Christopher W. Shaw, Money, Power, and the People: The American Struggle to Make Banking Democratic (Chicago: University of Chicago Press, 2019).

  • 113. William Quinn and John D. Turner, Boom and Bust: A Global History of Financial Bubbles (Cambridge and New York: Cambridge University Press, 2020).

  • 114. E.g., Daniel T. Rodgers, Age of Fracture (Cambridge, MA: Harvard University Press, 2012); and Binyamin Appelbaum, The Economists’ Hour: How the False Prophets of Free Markets Fractured Our Society (London: Picador, 2019).

  • 115. Shiller, Narrative Economics; also George A. Akerlof and Robert J. Shiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton, NJ: Princeton University Press, 2009); Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011); Robert J. Shiller, Irrational Exuberance, revised and expanded 3rd ed. (Princeton, NJ: Princeton University Press, 2016); H. Kent Baker, Greg Filbeck, and John R. Nosfinger, Behavioral Finance: What Everyone Needs to Know (New York: Oxford University Press, 2019); and Goldfarb and Kirsch, Bubbles and Crashes.

  • 116. Larry Neal, A Concise History of International Finance: From Babylon to Bernanke (Cambridge, UK: Cambridge University Press, 2015), 13; Per H. Hansen, “Business History: A Cultural and Narrative Approach,” Business History Review 86, no. 4 (2012): 693–717.

  • 117. A good starting point is https://www.govinfo.gov/#default.

  • 118. Federal Reserve Bank of St. Louis, FRED: Economic Data; and FRASER: Discover Economic History. Also see the private nonprofit National Bureau of Economic Research (NBER).