IDEAS home Printed from https://ideas.repec.org/p/hkm/wpaper/102012.html
   My bibliography  Save this paper

Deja vu All Over Again: Agency, Uncertainty, Leverage and the Panic of 1857

Author

Listed:
  • Timothy J. Riddiough

    (University of Wisconsin and Hong Kong Institute for Monetary Research)

  • Howard E. Thompson

    (University of Wisconsin)

Abstract

The panic of 1857 is revisited with the benefit of hindsight provided by the panic of 2007-08, where a number of parallels are identified between the two panics. We present new evidence on causes of the failure of the financial institution that triggered the panic of 1857 and conduct a detailed analysis of railroad financial and accounting practices. New financial innovations are also studied-the railroad farm mortgage and farm mortgage-backed security-which had similarities to the modern sub-prime mortgage loan and MBS. Neglected risks and Knightian uncertainty appear to be fundamental reasons why investors continued to participate in a boom market that was also extremely fragile.

Suggested Citation

  • Timothy J. Riddiough & Howard E. Thompson, 2012. "Deja vu All Over Again: Agency, Uncertainty, Leverage and the Panic of 1857," Working Papers 102012, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:102012
    as

    Download full text from publisher

    File URL: http://www.hkimr.org/uploads/publication/15/ub_full_0_2_317_wp-no-10_2012-final-.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174, National Bureau of Economic Research, Inc.
    2. Jeremy Atack & Fred Bateman & Michael Haines & Robert A. Margo, 2009. "Did Railroads Induce or Follow Economic Growth? Urbanization and Population Growth in the American Midwest, 1850-60," NBER Working Papers 14640, National Bureau of Economic Research, Inc.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    4. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-781, December.
    5. Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2010. "Corporate Bond Default Risk: A 150-Year Perspective," NBER Working Papers 15848, National Bureau of Economic Research, Inc.
    6. repec:rnp:ecopol:09111 is not listed on IDEAS
    7. Calomiris, Charles W. & Schweikart, Larry, 1991. "The Panic of 1857: Origins, Transmission, and Containment," The Journal of Economic History, Cambridge University Press, vol. 51(4), pages 807-834, December.
    8. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Markus K. Brunnermeier & Isabel Schnabel, 2014. "Bubbles and Central Banks: Historical Perspectives," Working Papers 1411, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 31 Oct 2014.
    2. Zvezdin, Nikolay, 2019. "Tranched Value Securities," MPRA Paper 92302, University Library of Munich, Germany.
    3. Freeman, Alan, 2016. "The Whole of the Storm: Money, debt and crisis in the current Long Depression," MPRA Paper 84394, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    2. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    4. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46, January.
    5. Kräussl, Roman & Lehnert, Thorsten & Stefanova, Denitsa, 2016. "The European sovereign debt crisis: What have we learned?," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 363-373.
    6. Nason, James M. & Tallman, Ellis W., 2015. "Business Cycles And Financial Crises: The Roles Of Credit Supply And Demand Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 19(4), pages 836-882, June.
    7. Goetz von Peter, 2003. "A Unified Approach to Credit Crunches, Financial Instability, and Banking Crises," Macroeconomics 0312006, University Library of Munich, Germany.
    8. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.
    9. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    10. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
    11. Frederic Malherbe, 2020. "Optimal Capital Requirements over the Business and Financial Cycles," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 139-174, July.
    12. Franklin Allen & Elena Carletti, 2010. "Financial Regulation Going Forward," IMES Discussion Paper Series 10-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
    13. Franklin Allen & Xian Gu, 2018. "The Interplay between Regulations and Financial Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(2), pages 233-248, June.
    14. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46, January.
    15. Matsuoka, Tarishi, 2018. "Banks and liquidity crises in emerging market economies," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 43-62.
    16. Gary B. Gorton, 2019. "The Regulation of Private Money," NBER Working Papers 25891, National Bureau of Economic Research, Inc.
    17. Moen, Jon R. & Tallman, Ellis W., 2000. "Clearinghouse Membership and Deposit Contraction during the Panic of 1907," The Journal of Economic History, Cambridge University Press, vol. 60(1), pages 145-163, March.
    18. Gary Gorton, 2008. "The Panic of 2007," Yale School of Management Working Papers amz2372, Yale School of Management.
    19. Gary Gorton, 2008. "The Subprime Panic," Yale School of Management Working Papers amz2504, Yale School of Management.
    20. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:102012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: HKIMR (email available below). General contact details of provider: https://edirc.repec.org/data/hkimrhk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.