Customer Reviews

Panic on Wall Street: A History of America's Financial Disasters

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Excellent resource for understanding the motivations and details of U.S. financial panics past. Look for the 1988 editon that includes commentary on the 1987 Crash: ISBN 0-525-48404-3. Later edition is simply a reprint of the original 1968 text without this information. Also highly recommended: Devil Take the Hindmost by Edward Chancellor and Dying of Money by Jens Parsson (long out-of-print) for the hyperinflatiory events of Weimar Republic, Germany.

I'm not certain about how many stars to award this book: since Sobel's writing style matured, historical scholarship has improved immensely and some of Sobel's views will be regarded as clichéd. Sobel died ten years ago, and most of his work for this work was done over 40 years ago. As a work of history, the book is invaluable, and students specifically interested in the evolution of US financial institutions (including regulatory institutions) would be well-advised to read it, or have an good explanation why they haven't.

Moreover, there really isn't a lot of competition to this book; feints at competition, including Michael Lewis' Panic (2009) are actually inferior (see my review for that book). So this is an example of a book that is problematic, but indispensable.

The problems are as follows:

1.Sobel figuratively wags his finger (or shakes his head) at the "folly" of people pursuing a killing on the market. In this, he seems to imitate Charles McKay, Extraordinary Popular Delusions (1856), in which a group of people behave in a way that is bad for the whole, but is perfectly sensible for the individual members. Lots of individuals get very rich in booms, and BECAUSE they sold out, someone else could buy in.

A panic necessarily is associated with an untenable run-up in asset values, and while the two put together are a setback for economic development, it makes perfect sense for participants in a bubble to do try their luck. Likewise, rational behavior (including illegal, but rational, behavior) is described as a form of collective madness. One is inclined to ask why Sobel didn't, therefore, anticipate what fools these mortals be and get rich on the stock market.

2. Sobel focuses (like most previous accounts of bubbles) on the fiduciary irregularities of the perpetrators, which (in my opinion) had a minor role in the phenomenon of the panic generally. In some cases, the panic took the form of a run on a particular liability, such as the early banks; owing to the newness of the institution at the time, there was inadequate oversight and excessive leverage. More generally, however, this was not a real cause of the panic.

This might seem harmless enough, but it perpetuates a dangerous delusion that flourished then and now: capitalism doesn't fail people, people fail capitalism.

Nevertheless, the book provides a lot of period detail that contextualizes the behavior of the principals. We learn, for example, of the great debate in the early days of the Republic over the legitimacy of trading shares in existing enterprises (as opposed to land speculation and venture capital). Later, we get to observe the rise of new investment vehicles that are totally accepted today.

Panics are extremely complex events, and multiple versions of the same crisis can focus on entirely different events (a good example of this is the 1997 Asian Currency Crisis). Your basic economic narrative will mold your selection of details, so that the most important events in your narrative may not even rate a mention in someone else's. *Panic on Wall Street*, however, remains almost unique as a survey of narratives, and the backstory it provides is probably one that any student of these episodes would need to include.