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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    The trigger for the Panic of 1873 was the failure of Jay Cooke Co America s premier banking house Cooke made his name as the chief financier of the Union army but he was a latecomer to railroad finance By the time he agreed to fund the Northern Pacific Railway s project to connect the Oregon coast with the existing northeastern rail network the first transcontinental line had already been completed Fears of overcapacity along with cost overruns and the general distrust of railroad securities after the Crédit Mobilier scandal depressed Northern Pacific bond prices in 1873 Cooke s firm closed its doors in September precipitating bank runs a U S stock market panic and some argue a worldwide depression that some scholars believe extended into the 1890s 7 Experts disagree on the underlying causes of the Panic of 1873 but most emphasize the ebb and flow of investment from Europe Jay Cooke for example was one of many American bankers who established a London house in the 1860s as part of a broader effort to secure European funds Cooke s difficulties in 1873 were compounded by the U S Treasury s decision to force him to share the profits of floating a government loan with a syndicate that included major European bankers such as the House of Rothschild and Barings Brothers not to mention Cooke s main American rival the German educated J P Morgan 8 German investors played a particularly large role in financing American railroads and in instigating the panic The German appetite for American railroad securities increased in the mid 1860s after the United States emerged from civil war and indemnity payments from France after the Franco Prussian War 1870 1871 further swelled the German capital available for overseas investment However demand contracted suddenly in 1873

    Original URL path: http://www.library.hbs.edu/hc/crises/1873.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    management mechanisms and his efforts to reform the industry anticipated later debates over a firm s responsibilities to small and vulnerable policyholders By 1900 there was 20 billion of life insurance in force in the United States Consequently the executives responsible for investing these funds became major players on the stock market In 1905 a lavish costume ball thrown by James Hyde vice president of the Equitable Life Assurance Society provoked rumors that he and other executives were profiting at policyholders expense The ensuing scandal revealed that the Equitable s executives regularly blurred the line between personal and company investments A Price Waterhouse audit in 1906 concluded that Officers and Directors of the Society have been interested in Syndicates in which the Society has participated or from which it has purchased securities and that some of these managers made profits that were not repaid to the firm 10 The contrast between the advertised aims of life insurance provision for widows and orphans and the high living directors who speculated with their policyholders hard earned money became a popular target for muckraking journalists and populist politicians culminating in governmental investigation and prohibition of popular forms of life insurance According to contemporaries the investigation and reform of the life insurance industry in 1905 1906 had chilling effects on the stock market eventually contributing to the Panic of 1907 11 Another financial innovation of the period was the trust company Trusts performed many of the same functions as traditional banks but enjoyed greater freedom and were thus able to offer higher rates of return 12 When the stock market tumbled in October 1907 and set off a series of bank runs many overextended trust companies found themselves in serious trouble The failure of New York s Knickerbocker Trust and the suicide of its

    Original URL path: http://www.library.hbs.edu/hc/crises/1907.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    over 14 Part of the popularity of the regional exchanges was due to the lax listing requirements that made them particularly attractive to firms engaging in dubious issues such as highly leveraged investment trusts Firms listed on one of the regional exchanges were subject only to relatively toothless state regulations known as blue sky laws that were designed to keep companies from selling investors valueless securities such as shares in the sky These firms could often be listed on other exchanges with no further questions asked a practice that was sharply curtailed after 1929 15 The securities legislation of 1933 1934 and subsequent founding of the Securities Exchange Commission SEC have been regarded as a successful chapter in financial regulation These efforts bear the stamp of Harvard Professor of Law James Landis one of the first legal academics to target the problem of regulation until then left largely to elected legislators Landis blamed the failure of previous regulation on a disconnect between legislation and administration a dangerous gap he bridged both by careful drafting and by serving as chairman of the SEC Unlike so many draftsmen of regulatory legislation wrote Harvard Business School Professor Thomas McCraw Landis recognized the importance

    Original URL path: http://www.library.hbs.edu/hc/crises/1929.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    which pioneered the production of watches from interchangeable parts Like all manufacturers of non essential products Waltham leadership faced difficult decisions in times of financial upheaval A business so sensitive as ours to the touch of hard times wrote then owner Royal E Robbins could not simply hunker down and wait for prosperity to return 18 In 1837 1857 and 1873 shrewd leaders turned crisis into opportunity It was the Panic of 1837 that inspired company founder Aaron Dennison to mechanize the production of watches a technique recently applied to firearms Dennison an artisan watchmaker underemployed throughout the crisis years calculated that interchangeable parts could dramatically reduce the high labor costs associated with handicrafts manufacture Dennison spent the recession devising machinery and prototypes for his mill and when investment funds became available in the late 1840s he was well positioned to put his inventions to work 19 Dennison s genius was for innovation not management however When the next crisis hit in 1857 he had too many watch lines in development The firm went bankrupt but the new manager owner Royal Robbins embarked on a disciplined new strategy that transformed Dennison s vision into a profitable company First Robbins dedicated the factory to a single product line Then instead of curtailing production during the downturn he kept the mills running full steam and persuaded workers to accept a 50 percent pay cut Salesmen sold large quantities of watches cheaply often at auction to popularize the product with a public accustomed to thinking of watches as expensive luxury items When prosperity returned inexpensive Waltham watches had a ready market 20 Waltham watches had saturated the domestic market by the 1870s so Robbins took advantage of the 1873 downturn to court new customers women with their often overlooked purchasing power and the

    Original URL path: http://www.library.hbs.edu/hc/crises/leadership.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    of the 1920s with the later stock market bubble and the Great Depression that followed Limited data on 1920s home prices and foreclosures means that many questions remain unanswered 22 Historical trade publications like the weekly New York Real Estate Record and Builder s Guide of which Baker Library holds a sixty year run allow researchers to fill in the blanks The implications of early findings may challenge conventional wisdom about the factors that caused and prolonged the Great Depression In the 1920s Florida was the site of a real estate bubble fueled by easy credit and advertisers promoting a lifestyle of sunshine and leisure Contemporary accounts describe a collective madness that consumed Florida investors city lots in Miami were bought and sold as many as ten times in a single day The received wisdom holds that a 1926 hurricane pricked the bubble but house price indices and construction data suggests that the boom and bust was in fact a nationwide phenomenon whose causes and consequences remain unclear 23 The housing price downturn in 1926 led to a rise in the foreclosure rate Foreclosures were the cause of considerable hardship in the 1920s but public attention focused on the plight

    Original URL path: http://www.library.hbs.edu/hc/crises/forgotten.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    Boston Whipple Damrell 1840 Hoyt Homer One Hundred Years of Land Values in Chicago The Relationship of the Growth of Chicago to the Rise in Its Land Values 1830 1933 Chicago The University of Chicago Press 1933 McCabe James Dabney Behind the Scenes in Washington Being a Complete and Graphic Account of the Credit Mobilier Investigation New York Continental Publishing Company 1873 Full text available online with Google Johnson Arthur M and Barry E Supple Boston Capitalists and Western Railroads A Study in the Nineteenth Century Railroad Investment Process Cambridge Mass Harvard University Press 1967 Kindleberger Charles P Manias Panics and Crashes A History of Financial Crises 5th ed New York John Wiley Sons 2005 Landis James M Legislative History of the Securities Act of 1933 George Washington Law Review Vol 28 1959 Full text available as networked resource Harvard users only Harvard ID and University PIN required Larson Henrietta Jay Cooke Private Banker Cambridge Mass Harvard University Press 1936 Marsh E A and Waltham Watch Company The Original American Watchmaking Plant With a Brief Account of Its Origin and Growth Some of Its Offshoots Also Some Mention of the Quantity and Quality of Its Fruit Waltham Mass Waltham Watch Company 1909 McCraw Thomas K Prophets of Regulation Charles Francis Adams Louis D Brandeis James M Landis Alfred E Kahn Cambridge Mass Belknap Press of Harvard University Press 1984 Full text available as networked resource Harvard users only Harvard ID and University PIN required Mixon Scott The Crisis of 1873 Perspectives from Multiple Asset Classes Journal of Economic History Vol 68 no 3 2008 Full text available as networked resource Harvard users only Harvard ID and University PIN required Moen Jon and Ellen Tallman The Bank Panic of 1907 The Role of Trust Companies Journal of Economic History Vol 52

    Original URL path: http://www.library.hbs.edu/hc/crises/bibliography.html (2016-02-18)
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  • Bubbles, Panics & Crashes – Historical Collections – Harvard Business School
    the 1920s Research Links Site Credits Site Credits Curator Caitlin E Anderson Faculty from both Harvard Business School and the Faculty of Arts and Sciences at Harvard University provided guidance and support Walter Friedman Research Fellow and Co Editor Business History Review David A Moss John G McLean Professor of Business Administration Tom Nicholas Associate Professor of Business Administration Emma Rothschild Jeremy and Jane Knowles Professor of History Website Design and Production Alex Taylor Big Ring Design Production Management Cliff Moreland Knowledge and Library Services Harvard Business School Digital Photography Boston Photo Inc Imaging Services Harvard College Library Editing Julia Collins Katherine Fox Abigail Thompson Exhibition Design Chris Danemayer proun Design Exhibition Staff Priscilla Anderson Katherine Fox Benjamin Johnson Ayako Letizia Laura Linard Timothy Mahoney Melissa Murphy Christine Riggle Print Design Eleanor Bradshaw EB Fine Design Lenders to the Exhibition The Associated Press The Bostonian Society Old State House Museum Brown Brothers Sterling PA Dun Bradstreet International Ltd The Harvard College Library Library of Congress Prints Photographs Division The Metropolitan Museum of Art Art Resource NY Museum of the City of New York New York Historical Society New York Stock Exchange Archives The Schlesinger Library Radcliffe Institute Harvard University Special

    Original URL path: http://www.library.hbs.edu/hc/crises/credits.html (2016-02-18)
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  • Introduction
    transporting raw materials goods and people and making possible an unparalleled level of commerce The railroads unprecedented in size and complexity became the model on which modern business would be based While few dispute the transformative nature of the industry recent scholarship has compared railroads in Europe to those in the United States These studies reveal how the relationship between the railroads and the state influenced the way railways developed

    Original URL path: http://www.library.hbs.edu/hc/railroads/introduction.html (2016-02-18)
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