Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Many financial historians argue that financial panics and crashes are self-fulfilling events,

driven by irrational herd behavior where investors become more concerned with each other's

actions than economic reality.

Another group will argue that these events are driven by real economic shocks, asymmetric

information and legitimate concerns about insolvency in the financial system.

There's truth to be found in each of these beliefs, but it's a mistake to search for an overly

simplistic explanation for big economic events like these as you run the risk of walking

away with a simple but inaccurate understanding of the events, which can lay the foundation for inappropriate solutions

being put in place by decision makers.

One of the most fascinating periods in modern financial history was the panic of 1907, a financial

crisis that took place in the United States over a three-week period, when the New York Stock

Exchange fell almost 50% from its peak the prior year.

Twenty-five banks and 17 trust companies failed during the panic of 1907, before the crisis

was brought to a halt by a small group of business leaders whose collective action

calmed the markets and brought an end to the crisis. Some financial crises appear to stem from

a single large event, while others like the Panic of 1907 result from a combination of smaller

unique forces that combine into a perfect storm.

Complicated events like this might be the most difficult to understand, but they may be the

ones that we can learn the most from. A number of unrelated events like an earthquake, an

attempted short squeeze, a difficult political environment

for businesses, and inconsistent banking regulation produced an extremely severe and extraordinarily

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