Michael Burry, a famous hedge fund manager who predicted the 2008 financial crisis, has noted some similarities between the current troubles in banking andbankers and the Panic of 1907. He observed that three weeks after J.P. Morgan stood up for what he believed was right,the panic had gone away and the markets started to recover. The well-known investor mentioned that something similar happened this past weekend too.
How Similar is the 1907 Panic to Banking Now? An Insight from Michael Burry
Michael Burry, the founder of a company called Scion Asset Management, has noticed some similarities between now and what happened in 1907 when multiple banks failed. He is well known for being one of the first people to figure out that the US was heading towards its subprime mortgage crisis during 2007-2010. Michael Lewis wrote a book called “The Big Short” which tells the story of Michael Burry and it was made into a movie starring Christian Bale.
A famous investor tweeted this week about something that happened a long time ago in 1907. A bank called Knickerbocker Trust made some risky decisions and it caused another panic. Then, two more banks failed which made the situation even worse. Eventually, J.P. Morgan stepped up and helped calm everyone down. After three weeks, things settled down and the markets stabilized again. Something similar recently occurred over the weekend where someone else took charge and solved the problem.
Knickerbocker Trust Company was one of the biggest banks in the United States. When it failed in 1907, people started to panic and lost trust in banking systems. J.P. Morgan saved several large banks with a “bailout” and convinced other rich people to do the same, which made people feel better about their money again. After that, The Federal Reserve System was founded on December 23th 1913 as a way to help avoid these situations.
Recently, two big banks in the United States had to shut down – Silicon Valley Bank and Signature Bank. Regulators closed Silicon Valley Bank last Friday and the New York State Department of Financial Services made Signature Bank close a couple of days later.
The government wants to help make sure that all bank customers have access to their money and restore confidence in the banking system. The Treasury Department, Federal Reserve Board, and Federal Deposit Insurance Corporation have announced plans to make this happen. The Federal Reserve Board will also provide special funding for banks so they can keep up with meeting the needs of all their customers.
People had different reactions on social media regarding what Burry said. Some agreed with him while some mentioned that the current economic situation is different now since the Federal Reserve System wasn’t there in 1907.
In another tweet, Burry said that this crisis could come to an end soon and he doesn’t think it’s dangerous. Before this, he warned about inflation rates rising and a long-term recession for the United States economy.
Do you agree with Michael Burry that the Panic of 1907 is similar to what’s happening in banking right now? Leave a comment below and let us know your opinion!