Recession reading during a recession

Here are two excerpts from nonfiction books, and one from a very prose like poem, that I'd like to share. All of them relate to economic downturn. All were written well before the current flat economy, but I think they all have a great deal of relevance to what's going on now.


"The intoxicating economic expansion of the Age of Capital came to a wrenching halt in 1873. In September, Jay Cooke and Company, a pillar of the nation's banking establishment, collapsed after being unable to market millions of dollars in bonds of the Northern Pacific Railroad. Within days, a financial panic engulfed the credit system. Banks and brokerage houses failed, the stock market temporarily suspended operation, and factories began laying off workers... In a way, it was fitting that the Northern Pacific's financial problems triggered the Panic, for if the railroad boom nourished postwar growth, the network's overexpansion, paid for by an outpouring of speculative credit, created a financial house of cards whose eventual collapse was only a matter of time. By 1876, over half the nation's railroads had defaulted on their bonds and were in the hands of receivers." Foner, Reconstruction: America's Unfinished Revolution, 1863-1877, 1988, p. 512.


Change "railroad" to "subprime mortgages" in these sentences, make "Jay Cooke and Company" into "Lehman Brothers" or "Bear Stearns" and it sounds an awful lot like 2008, no?

Second excerpt:

"A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it. The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others. Thy must lend to merchants, to minor bankers, to 'this man and that man,' whenever the security is good. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them... The problem of managing a panic must not be thought of as mainly a 'banking' problem. It is primarily a mercantile one. All merchants are under liabilities; they have bills to meet soon, and they can only pay those bills by discounting bills on other merchants. In other words, all merchants are dependent on borrowing money, and large merchants are dependent on borrowing much money. At the slightest symptom of panic many merchants want to borrow more than usual; they think they will supply themselves with the means of meeting their bills while those means are still forthcoming. If the bankers gratify the merchants, they must lend largely just when they like it least; if they do not gratify them, there is a panic."
Bagehot, Lombard Street: A Description of the Money Market, pp. 51-52 of the Wiley Investment Classics edition (work first published in Great Britain in 1873--the same year the Panic in America began).

In a time like this we could sure some clear, Walter Bagehot type thinking about how panics--or as we now call them, recessions--can be softened by clear, logical policies rather than rash acts that make everybody think the financial sky is falling. I don't mean to propose Pollyannish optimism, but in times like these bad news feeds on bad news. My guess is that after January 20th, the New York Times and the Atlanta Journal-Constitution will suddenly decide that hey, maybe things aren't so bad after all--look what the money spent during inauguration week did for Washington D.C.'s economy! Some company or companies will decide the NYT and the AJC are onto something; they'll think maybe they don't need to maintain such grim projections for 2009, then some Wall Street maverick will advocate investing in stock of those companies, and all of a sudden we're looking up.

And that, finally, brings me to the third excerpt. Carl Sandburg in 1936--again, during hard times--published The People, Yes which includes the poem "They Have Yarns" My favorite of the yarns is:

"One of the oil men in heaven started a rumor of a gusher down in hell. All the other oil men left in a hurry for hell. As he gets to thinking about the rumor he had started he says to himself there might be something in it after all. So he leaves for hell in a hurry."

Alas, then there would be no oil men left in heaven to take advantage of the great business opportunity if a gusher suddenly appeared beyond the Pearly Gates. And I'll bet you anything that somewhere, right now, some enterprising person is poised to prosper from seizing an opportunity no one else is around to pounce on. He or she, and others like him or her, will be the trailblazers towards recovery.