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ROBERT SIEGEL, host:

For the past few weeks, as concern has mounted over subprime lending, we've been in a take-your-pick, a credit squeeze, a credit crunch, a credit crisis. When you're in the middle of something, it's hard to find the right word to describe it.

With 100 years hindsight, we can talk a little more plainly about things. And 100 years ago, Wall Street's woes were so dramatic, they were described as "The Panic of 1907." That's the title of a new book by Robert Bruner and Sean Carr, who find some lessons from that panic and to draw a theory of what causes panics.

Sean Carr joins us from Charlottesville, Virginia, where both authors work at the University of Virginia. Welcome to the program.

Mr. SEAN CARR (Director, Corporate Innovation Programs, University of Virginia; Co-Author, "The Panic of 1907: Lessons Learned from the Market's Perfect Storm"): Thank you.

SIEGEL: And first, how bad was the panic of 1907?

Mr. CARR: In 1907, the world was on a verge of an economic collapse and it was centered on the financial district in New York City. Despite record earnings and buoyant economic growth, the American stock market crashed, prices crumbled, brokerages were closing, interest rates were soaring, stock values were down for the year 37 percent. New York City failed to float its bonds, and the New York Stock Exchange itself almost suspended. And runs on the banks were rampant, throughout the country.

SIEGEL: Now, some of the conditions that preceded this panic actually sound a little familiar to a reader in 2007 looking around in the economy today. Perhaps you can tell us what some of those were.

Mr. CARR: The circumstances surrounding the panic of 1907 will sound awfully familiar, and there are many parallels. Some of which are circumstantial. There was a Republican president in the White House, a moralist. War was fresh on the mind and in the headlines. New technologies, transportation, communication were changing the way people live their lives. And immigration was having a massive impact on the sociological fabric of the United States.

But some of these parallels are more consequential. There was a booming economy, accompanied by an incredible demand for capital. This demand created investors who were leveraged, highly leveraged. They had high amounts of debt. Individuals and institutions had a lot of money out.

And third, there was an emergence of a relatively new, unregulated form of financial innovation, then they were called trust companies, we might think of hedge funds or private equity today. And finally, it was a highly complex and globalized financial system in which information is shared unequally and through which a contagion can spread very quickly.

SIEGEL: Now, some noteworthy differences between 1907 and 2007. For one, those were the days before the Federal Reserve. The president, as you say, a Republican, a moralist, Theodore Roosevelt was more unsympathetic to big business than any recent president has been. And in those days, a single banker, J. P. Morgan, could wield an influence that would be mythic today.

Mr. CARR: It's really hard for us to appreciate just what kind of a role he played in American finance. He was the colossus of American finance in 1907. Yet, by 1907, he was 70 years old, somewhat ailing, semi-retired and, in fact, handed over the operations of his firm, J. P. Morgan & Company to his son, Jack.

Nonetheless, he commanded such respect and power that he could influence other bankers. He was at the center of a circle of other financiers and the heads of other leading institutions, that he could affect change in a way that no one else could. He played the role of a de facto central bank. And because of the events of 1907 and the need for that kind of leadership that we now have a central bank in the form of the Federal Reserve System today. But it really called upon all of the strength and power and influence of J. P. Morgan to see the United States through this crisis and to prevent it from becoming far worse that it actually was.

SIEGEL: One strange aspect of the panic of 1907, and it maybe something that's strange about all such panics, is that there are odd financial events - in this case, it involve stock in a copper company - that seemed to be only about that particular company and it's hard to understand how they could have great ramifications beyond that. And that proves to be the thread which when tugged upon leads to the unraveling of far more.

Mr. CARR: And this is what we tried to draw out in this book is that most often in the past we all try to look for the silver bullet. We look for the single cause behind the financial crisis. But financial systems are far too complex for that and it's important to look for a variety of factors that would converge, as we say, to create the perfect storm in the market. And there may be a trigger.

In 1907, one of those triggers, the proximate cause for the downturn in the stock market and the panic at the banks were these manipulations by a few speculators in the market, but that just pricked the bull and ignited the flame that caused people to be ever more anxious about the safety and security of their deposits at banks and trust companies around the country.

SIEGEL: The book is "The Panic of 1907: Lessons Learned from the Market's Perfect Storm." It's by Robert Bruner and Sean Carr. Sean Carr, thank you very much.

Mr. CARR: Thank you.

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