The Best Books about Financial Panics

A reader asked me what my favorite books are about financial panics.

Before getting into them, it’s worth mentioning that books can only do so much. They can’t teach you how to invest, they can’t help you to control your emotions, and they can’t prepare you for how to deal with the unexpected. What they can do is give you a sense of what has happened before so that we might understand what can happen again.

Learning about how we’ve dealt with previous panics gives me a sense of optimism, because we know they all ended, but also a sense of realism, because we know many people got wiped out before they were over.

These are the best books that I’ve read about financial panics.

Once in Golconda by John Brooks

When the crash finally came, it came with a kind of surrealistic slowness- so gradually that, on the one hand, it was possible to live through a good part of it without realizing that it was happening, and, on the other hand, it was possible to believe that one had experienced and survived it when in fact it had no more than just begun.

Devil Take the Hindmost by Edward Chancellor

After the Mitsui Corporation acquired the Exxon Building in Manhattan for a record price of $610 million in 1986, it was reported that Mitsui’s Japanese president had paid $260 million above Exxon’s asking price in order to see his name in the Guinness Book of World Records.

The Great Crash 1929, by John Kenneth Galbraith

The recondite problems of Federal Reserve policy were not the only questions that wee agitating Wall Street in 1929. There was worry that the country might be running out of common stocks. One reason prices of stocks were so high, it was explained, was that there weren’t enough to go around, and, accordingly, they had acquired a “scarcity” value. Some issues, it was said, were becoming so desirable that they would soon be taken out of the market and would not reappear at any price.

The Big Short by Michael Lewis

It was the first time in two years that Goldman Sachs had not moved the trade against him at the end of the month. “That was the first time they moved our marks accurately,” he notes, “because they were getting in on the trade themselves.” The market was finally accepting the diagnosis of its own disorder.

The Great Depression, a Diary,by Benjamin Roth

I am reading a book written by Claude Bowers entitled The Tragic Era. In it, he describes the panic of 1873 and I am amazed at the similarity to conditions today. He mentions the following high-lights of all of which are true of this 1930 panic:

1. The 1873 panic was preceded by Civil War-then 8 or 9 years of hectic prosperity, speculation, rising prices, corruption in government- and then sudden panic, bank closings, etc.

2. In 1873 the farmers revolted for higher prices

3. Organized movements to stop foreclosures

4. Wild schemes to inflate currency, greenbacks etc

5. Talk against tariff

6. Untold unemployment and suffering and considerable radical talk about capitalistic system, socialism, etc.- a change of political parties.

When Genius Failed by Roger Lowenstein

If the population of price changes is strictly normal, on the average for any stock…an observation more than five standard deviations from the mean should be observed about once every 7,000 years. In fact such observations seem to occur about once every three to four years.

The Panic of 1907 by Robert F. Bruner and Sean D. Carr

With astonishing speed and clarity, Morgan had crafted a proposal that J.P. Morgan & Company would take $30 million of the city’s revenue bonds with optional terms of one, two, or three years, bearing an interest rate of 6 percent…This measure would thereby result in an additional $30 million in liquidity for the City of New York as well as provide $30 million in credit for the city through the banks.

The regulation of economic activity is without doubt the most inelegant and unrewarding of public endeavors