“This paper analyzes asset pricing behavior during the period leading up to the Crisis of 1873. Evidence is presented that equities, options, and bonds priced risks consistently, suggesting that investors were actively monitoring the risk of investing and were not caught up in an irrational, speculative mania… Concerns were concentrated on riskier, more leveraged firms with uncertain prospects. Deteriorating balance sheet fundamentals for the riskiest U.S. railroads set the stage for a market disruption in 1873 as information asymmetries worsened.”
“The collapse of an investment mania usually reminds people that the phrase ‘This time is different’ is dangerous. Recollections of this mantra then typically either state outright or at least imply that ‘It is never different.’ However, there is at least one counterexample to this cautious view, a giant and wildly speculative investment episode that was profitable for investors… The example of the railway mania of the 1830s serves as a useful antidote to claims that bubbles are easy to detect or that all large and quick jumps in asset valuations are irrational. This episode also suggests the need to reexamine much of the work on business cycles and diffusion of technologies.”
“For most Americans, the sudden and horrific collapse of the Enron Corporation will go down as the most shocking and significant corporate event of their generation. Yet, remarkably, it is a surprise to many people that the New Deal regulatory framework – which was recently reformed and toughened in response to the Enron debacle – was itself created in the wake of a strikingly similar corporate crash. In late 1931 and early 1932, investors, business executives, and ordinary citizens looked on in horror as Samuel Insull’s grand and seemingly invulnerable electric utility holding company empire foundered without warning and slipped into receivership. This debacle wiped out the holdings of 600,000 shareholders and 500,000 bondholders,1 most of whom believed that they had entrusted their savings to a safe and secure electric utility enterprise.”
At OSAM, we wrote an article discussing Samuel Insull’s empire as part of our research on value investing.
“The world’s first national data network was constructed in France during the 1790s. It was a mechanical telegraph system, consisting of chains of towers, each of which had a system of movable wooden arms on top. Different configurations of these arms corresponded to letters, numbers and other characters. Operators in each tower would adjust the arms to match the configuration of an adjacent tower, observed through a telescope, causing sequences of characters to ripple along the line. Messages could now be sent much faster than letters, whizzing from one end of France to the other in minutes. The network was reserved for government use but in 1834 two bankers, François and Joseph Blanc, devised a way to subvert it to their own ends.”
I wrote an article about this topic, which you can find here.
Listen to a fascinating podcast on this cyber attack.
“There is a notable lack of long-run analyses of monetary systems and their stability. This column addresses this gap by looking at the monetary systems of major European states between 1300 and 1914. The evidence collected suggests that, despite many switches between standards and systems, fiscal capacity and political regimes ultimately shaped patterns of monetary stability. Theories of monetary stability that rely on the mechanics of monetary systems perform poorly when such a long-run perspective is taken.”
