i was emailed this today.
dunno if the facts are correct or not.
an over view to market crashes. seems to be missing the asian market crash and the dotcom crash though.
funny to think i've already lived through 2 recessions that i can clearly remember and i'm not even 40 yet.
Widespread liquidity crises have been strangely absent in recent times, but they have a long and colourful history.
Aldous Huxley wrote that 'the charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different'.
The current credit crisis is certainly completely different from those that have gone before it. Never before have the world's financial institutions been so closely intertwined, and never before have there been dysfunctional markets in credit default swaps and speculators sitting at home gambling on contracts for difference over the internet. But it's the usual blend of greed and arrogance, and fear and panic, that have got us into this mess, and we'll need the usual bail-outs and blind faith to get us out of it. So we decided to trawl back through the history of banking panics and here's what we found.
The panic of 1819
Ever since people have been giving their savings to other people they've been anxious about getting it back, but we'll pick up the story in the early 19th Century, with the American panic of 1819. The US had been enjoying boom conditions in the aftermath of the War of 1812, as ever with an associated expansion of debt. But it all came to a shuddering halt in 1818 when the Bank of the United States started to rein in its lending in order to make repayments on overseas loans which had financed the 'Lousiana Purchase'.
The rush for cash caused a collapse in prices, and a brutal depression quickly followed, with staggering rates of unemployment: 75% in Philadelphia at its peak. But the depression seems to have raged so fiercely that it quickly burnt itself out, and by 1823, the economy was back on track.
The panic of 1837
The US suffered another major panic in 1837 after a boom financed largely from overseas, particularly the UK. Several factors then combined to tighten the money supply: US crop failures in 1835 and 1837; a directive from President Andrew Jackson that government agents should accept only 'specie' (that is gold and silver coins) in payment; and a reversal of money flows from the UK following a rise in interest rates by the Bank of England.
'What is wanted and what is necessary to stop a panic is to diffuse the impression, that though money may be dear, still money is to be had... Either shut the Bank at once ... or lend freely, boldly, and so that the public may feel you mean to go on lending.' Walter Bagehot, Lombard Street: A Description of the Money Market, 1873.
Businesses began to fail in April 1837 and by May there was outright panic, when every bank in New York stopped payment in specie. With the Second Bank of the United States (formed to finance the boom that led to the 1819 panic) having been scrapped by Andrew Jackson in 1836, and President Van Buren ideologically opposed to interfering in the business cycle, there was little to stem the flow. Ultimately almost half of America's banks went out of business and a severe depression followed, lasting until 1843.
Australian panics of the early 1800s
Australia suffered its own problems during this period. The Bank of NSW got into trouble after expanding its lending in the boom of the early 1820s, from £23,577 in 1820 to £95,408 in May 1826. A surge in imports then led to a severe shortage of coinage in the colony and the bank was forced to seek help from the NSW Governor in 1826 and 1828. On both occasions, confidence was restored by loans to the bank, alongside undertakings to reduce lending and rebuild capital.
The next serious episode in Australia came in 1843, when several banks failed following a boom in the 1830s and another surge in imports (of wheat following a severe drought in 1838-40). The largest victim was the Bank of Australia, but its depositors were repaid in full after a controlled liquidation. Fearing that it had lost money in Bank of Australia, depositors staged a run on the Savings Bank of NSW, but confidence was restored after the government guaranteed its deposits.
The 'founders' crash'
There were further panics in 1847 and 1866, centred in London, and in 1857 in the US, with the bursting of a speculative bubble in US railroads. But the next major global liquidity crisis began in May 1873 when several Viennese banks failed in the aftermath of the 'founders' crash' on the Vienna Stock Exchange. The crisis quickly spread throughout Europe, and in September it reached the US, where the banking system was already weakened by overinvestment in railways (again). The ensuing panic forced the closure of the New York Stock Exchange for ten days and marked the beginning of the 'Long Depression' of 1873-96.
There were several other notable panics in this period. In 1890, Barings Bank was bailed out by the Bank of England after investment losses in Argentina threatened it and the entire London banking system. (Of course Barings wasn't so lucky in 1995, when it was alone in its troubles after Nick Leeson's trading losses and the Bank of England allowed it to fall.) And in 1893 it was railways again, when the collapse of the Philadelphia and Reading Railroad in February sparked a series of bank runs. In the credit contraction that followed, 15,000 companies and 500 banks failed in the US, pushing the unemployment rate up into the high teens.
In Australia, a combination of drought and the bursting of the 1880s real estate bubble led to a collapse in confidence in 1892, particularly in Victoria. The Associated Banks of Victoria (constituted in 1877 as the banks undertaking government banking business in the state) issued a statement in March 1892 that its members would offer each other mutual support. But it went back on its word by allowing its smallest member, the Federal Bank, to fail in January 1893. Unsurprisingly, this undermined confidence and prompted runs on the remaining members. At the height of the panic, banks counting for 56% of Australia's deposits were forced to suspend operations.
The Bankers' Panic of 1907
If you feel mad at the overpaid bankers for the current crisis, spare a thought for those affected by the US 'bankers' panic' of 1907, which resulted from an attempt by Otto Heinze and Charles Morse to corner the market in United Copper shares and force a 'bear squeeze'.
'If people will keep their money in the banks, everything will be all right.' John Pierpont Morgan, 24 October 1907.
The scheme failed and so did its backers. Serves them right, you might say; and you'd be right. But the crisis then spread to other institutions that were guilty only by association, including the unfortunately named Knickerbocker Trust Company. The Knickerbocker's collapse sparked a major panic and other trusts started dropping like flies. The US didn't have a central bank at the time and the crisis was instead resolved by the original J P Morgan, who was able to organise a concerted operation to restore confidence.
The Great Depression
As ever, it's hard to be sure about which is the chicken and which the egg, but the Great Depression began with the crash in 1929 and the contraction of credit that followed. The general contraction was marked by four heightened panics in the US, three in 1930-1 and an outlier in 1933, when various states, and then the national government, declared 'bank holidays' to give banks time to demonstrate their creditworthiness (or otherwise). The plan backfired, as depositors rushed to withdraw funds from their banks before they too were given holidays.
'As the Commonwealth Bank has control of the note issue, it can command resources in the form of currency to any extent which in the opinion of the Bank Board is deemed necessary... I am authorised by the Prime Minister, Mr Scullin, to say that his government will support the Bank Board in any measure which it deems advisable to take... The bank will never close its doors, so long as the nation itself stands!' Robert Gibson, Commonwealth Bank chairman, 3 May 1931.
The Great Depression affected the whole world, as Europe and America pulled their money home, and Australia was no exception, but the nation's banking system proved relatively resilient. The most notable panic surrounded the failure of the Government Savings Bank of NSW (GSBNSW). Confidence was knocked in February 1931 when the NSW Treasury defaulted on its bonds (of which the GSBNSW was the largest holder), and the bank was forced to suspend payments in April.
The shock prompted runs on other savings banks, but calm appears to have been restored following assurances in a radio broadcast by the chairman of the Commonwealth Bank.
The 1973-5 credit crisis
The last serious liquidity crisis, in 1973-5, bore a particular similarity to the current situation because it was associated with a commodities boom and a sharp rise in the price of oil - on top of the traditional debt binge in the preceding few years.
After the 1971 collapse of the Bretton Woods Accord - which linked the world's currencies to the US dollar and therefore, theoretically, gold - money supply had surged around the world, leading to a commodity price boom and a sharp bout of inflation. Between January 1971 and January 1975, the price of gold jumped from US$38 to US$177, but that was nothing compared to oil which, with supply disrupted by the Yom Kippur War and the resulting Arab oil embargo, leapt from US$3 to almost US$12 in six months from October 1973 and March 1974.
International debt markets became tight during the northern summer of 1973, but the crisis reached a peak in the UK in November, with the failure of London and County Securities. This sparked a series of insolvencies among London's 'secondary' banks - the equivalent of 'sub-prime' mortgage lenders at the time.
In December, with rumours abounding that the crisis was set to move to the major banks, with NatWest in particular said to be at risk, the Bank of England organised a 'lifeboat' package, in which it gave assistance to some sixty institutions, apparently at a cost of around £100m. This action stemmed the flow of insolvencies in London, but during 1974 the crisis spread around the world, with the US's Franklin National Bank going under in October.
Australia in the 1970s
In Australia, the collapse of property developers - notably Cambridge Credit in September 1974 - prompted runs on building societies across the nation, with the Hindmarsh Building Society in South Australia most severely hit. After assurances that the Reserve Bank would stand behind any banks providing liquidity to soundly managed building societies, the National Australia Bank stepped in to help Hindmarsh, but soon it too was short of cash.
Calm was eventually restored when the South Australian Premier, Don Dunstan, spoke to queuing customers outside the Hindmarsh's offices, assuring them that their funds were safe. However, problems among building societies continued for several years, with a number of failures, including the optimistically named Queensland Permanent Building Society in 1977.
The 1980s/90s and the current crisis
The 1980s boom caused problems all over the world, in the form of the Savings and Loans Crisis in the US and 'corporate cowboys' such as Alan Bond and Christopher Skase in Australia. But although numerous 'thrifts' failed in the US (747 of them, apparently) and several banks needed rescuing in Australia - notably the State Bank of Victoria and the State Bank of South Australia - there was no widespread panic and no threat to the overall financial system.
And that brings us to the current crisis, which is the same as all those that have gone before, but at the same time completely different. The major new ingredient this time around seems to be the degree to which the global financial system has become interdependent, but we've also never before seen the same level of concerted intervention by the world's central banks.
History suggests that the odds of escaping unscathed from a major credit contraction aren't good, but then the sharemarket already seems to be discounting a serious recession - even if the nation's economists generally aren't. Of course, history also shows that there will be an eventual recovery, and the market will also no doubt factor that in long before it appears. Quite where we lie on that path at the moment, however, is anybody's guess.
one day 
