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by Bill Bonner  - The Daily Reckoning (Sign up FREE today!)

History of Financial Disasters: Here’s How to Make Sure the Answer Is No

I have seen financial disaster up close. And it ain’t pretty.

If you ever wonder how bad things can actually get, look no further than the story of my grandfather – a good man beaten by forces he couldn’t control.

My grandfather was a bank director in the 1920s. He was active in the community, and commanded a lot of respect in a time when people had to work hard to earn respect. With a prosperous business and a growing family, all was well.

Then, when he was 57 years old, the financial roof caved in on him.

It wasn’t his fault… not entirely. He just went wrong trying to do the right thing.

It all started, of course, with the market crash of Oct. 29, 1929. The single largest financial disaster in the history of the New York Stock Exchange wiped out all the gains of the previous year. Between Oct. 29 and Nov. 13 of that year, when stock prices hit their lowest point, over $30 billion disappeared from the balance sheet of the American economy.

(By comparison, that was more than the total sum that the U.S. federal government had spent to fight the First World War, and exceeds over $800 billion of today’s dollars.)

It should have been a wake-up call – the first sign that something in the American economy was terribly amiss. And in fact, millions of people – including my grandfather – were genuinely worried. But officials and commentators who should have known better stepped in to reassure Americans that there was nothing to fear.

History of Financial Disasters: When Doing the “Right” Thing Is the Wrong Idea

The campaign of misinformation started with President Herbert Hoover, who chose his words carefully when he discussed the state of the economy in 1929. In the lexicon of American economists and politicians, previous downturns were referred to as “Panics,” such as the “Panic of 1873″ and the “Panic of 1893.” Hoover tried to put a less harsh face on the calamity by calling the 1929 downturn a “Depression,” instead of a “Panic.” (Of course, that name stuck, with a vengeance.)

But that was nothing compared with the sunnier picture other people tried to paint on things.

“Don’t worry,” said Richard Whitney, the then-41-year-old whiz-kid vice-president of the New York Stock Exchange. “This is just a temporary setback.” Legend has it that Whitney thereupon marched onto the floor of the New York Stock Exchange and casually placed an order for 10,000 shares of U.S. Steel at $205, or 40 points above the market price. (Later, U.S. Steel would lose over 90% of that value.)

“The economy is still strong and should come back soon,” added Yale’s Irving Fisher, who had been so wrong in his assessment of the economy only days before Black Tuesday.

Still, this wave of optimism was fairly convincing – and quite contagious. In fact, it trickled down to my grandfather.

His best friend and business partner told him, “Your money is safe in this bank. Besides, how would it look if you — a director — took your money out of the bank? People would think the bank was ready to fail.”

So my grandfather did what he thought was the responsible thing to do. He kept his money in the bank to serve as an example for others.

With the hindsight of history, we know what a huge mistake that was. And if anyone at the time had stopped to consider the implications of the stock market crash, they would have, too.

History of Financial Disasters: Watching the Dream Become a Nightmare

Without consumer confidence, liquidity simply dried up. One bank would call in its loans from another. That other bank would call in its loans to businesses and private individuals. Most of the businesses and individuals did not have sufficient cash to repay the called loans. So one entity went bust, which caused other entities to go bust, and so the cycle continued and cascaded. Factories closed, offices were vacated and farms were sold out literally from under the feet of the former owners. The national unemployment rate eventually exceeded 25%.

My grandfather found himself in the middle of this spiral. And when his bank failed, he lost everything.

He and his partners had to sell the business for a song. He and my grandmother sold their house for a huge loss. And at one point, my grandfather had to borrow $25 from his brother just to feed his family.

This isn’t the way it was supposed to be. Throughout his life, he’d been told how good things were.

In 1929, John Raskob, chief executive of General Motors and head of the Democratic National Committee, published an article entitled, “Everybody Ought to Be Rich” in no less a trusted and credible source than the Ladies’ Home Journal.

That same year, President Hoover commented that “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.”

As the great American humorist Will Rogers later remarked, “We are the first nation in the history of the world to go to the poorhouse in an automobile.”

Those words haunt me as I see history repeating itself today…

History of Financial Disasters: Could Something Like What I Have Described Happen to You or Me?

All my business career, the idea of my grandfather having to borrow $25 from his brother — at 57 years of age — has stuck in the back of my mind, buzzing like a fire alarm that won’t turn off. “What went wrong?” I have asked myself. How could it be prevented? And most troubling of all, could it happen again?

But it really boils down to a single question: Are today’s crops of bank presidents, or eminent economists, or stock market experts really that much better today than they were way back then?

I still do not claim to know all the answers. But I am taking precautions. And here is your opportunity to take a precaution as well.

Through a special arrangement with the London-based publishing house Pickering & Chatto, I am pleased to be able to offer for sale in the United States a three-volume history, entitled History of Financial Disasters 1763-1995. As the title implies, these three volumes review the origins and consequences of the Western world’s most important financial crises in the past quarter millennium.

The editors of these three fine volumes have chosen to highlight and delve into 19 seminal economic crises between 1763-1995. Rare public and private papers, offering insightful firsthand accounts from some of the principal insiders, offer rich source material and penetrating background on the events that occurred. In addition, the editors have culled the stacks of academic literature to assist the reader in interpreting these events, and in drawing conclusions and lessons for our own time. In short, History of Financial Disasters is a road map to understanding “what went wrong” in the U.S., British and other Western economies throughout modern history.

During a financial disaster, a lot of money changes hands. In my grandfather’s case, as was the case for so many millions of others, the money left his hands and never returned. But the difference between losing a lot of money and making a lot of money in a time of financial disaster is often just being in possession of a little bit of critical insight. And that’s what these fine books offer, insight – the kind that could be worth a fortune to the perceptive reader who can make the correct relationships between past and current events. That critical element of insight might make all the difference in the world.

Because even now, the clouds are gathering. And it’s not hard to see what could easily happen over the next five years:

  • The prices of gasoline, heating oil, natural gas, basic foodstuffs and many other daily essentials of American life skyrocketing astronomically as the value of the U.S. dollar plummets and foreign suppliers stop selling increasingly scarce commodities into U.S. markets
  • State and local court dockets clogged with lawsuits as lenders sue their former customers for repayment of borrowed funds
  • Tow trucks prowling the streets of your neighborhood, the drivers holding “notices of repossession” in their hands
  • Family members and old friends approaching you with sheepish and embarrassed looks on their faces. They will ask if you can loan them “just a little bit of money until times get better”
  • Corporate America downsizing even more than in the past decade of so-called “boom times” with cheap oil and a growing economy. But this time, companies won’t be downsizing to goose their stock prices – but to avoid having to file for bankruptcy
  • If the newspapers are still allowed to report such things, you may read about food riots by hungry people who have no real option other than to smash and grab (remember New Orleans in the aftermath of Hurricane Katrina?). You may also read about health care riots, as people literally storm hospitals, confront the medical staff and demand treatment for sick children and other relatives. And because the jails will already be so full of some truly bad hombres, the police may refuse to arrest the food and health care rioters for any but the most extreme acts of violence
  • Even death might not be a respite or reprieve from the financial disaster. Hundreds, and maybe thousands, of insurance companies across the country will see their portfolios plummet and their cash reserves and other assets simply evaporate. They will be unable to pay out on claims. These undercapitalized insurance companies, who were always there when you paid your premiums, will simply close their doors. Their annuities and policies of insurance will become worthless.

Will all of these terrible things come to pass? Probably not all of them. But certainly a few. Maybe even most of them.

What makes me so sure? History – the dramatic details you’ll discover in your very own set of History of Financial Disasters books.

History of Financial Disasters: From the World’s Pre-eminent Publishing House

You will not find this fascinating trilogy on the shelves of your local shopping mall bookstore. Nor will you see it on the best-seller list of The New York Times. This is because Pickering & Chatto is not your ordinary publishing company. This 180-year-old institution does not publish books to sell into the mass market. Rather, it has established its name as a purveyor of fine volumes to the most important libraries and the most discriminating collectors in the world.

Pickering & Chatto publishes important and lasting works such as the complete writings of famed biologist Charles Darwin, all 29 volumes of the man’s opus. Several years ago, Pickering & Chatto also issued the first in a series of collectible editions containing the writings of key Austrian economists. This set sold out almost immediately, and is now available only in the secondary market at a rather substantial premium. The same can be said for the three-volume set entitled The Case for Gold, published by Pickering & Chatto in 2002.

In short, these types of books are geared toward the interested collector, and are sold into the highest levels of the limited, but worldwide market.

So History of Financial Disasters is more than just a mother lode of economic knowledge and critical insight into key economic events throughout history. It is also a prized product in its own right.

This set of books is an elegantly bound limited edition. Each of the three volumes in this trilogy is lovingly hand bound in rich navy blue, library-grade buckram with classic gold-detailed spines. The process uses book crafters’ techniques that date back many centuries. These volumes are not some “production run” from a machine that would not otherwise look out of place in an automobile assembly plant. Instead, these fine volumes are the end product of the efforts of master bookbinders, which only Pickering & Chatto and a handful of European publishers can afford to commission and employ. It is not too strong a statement to say that each volume is a work of art in its own right.

Even before you begin reading this remarkable collection of historical knowledge and wisdom, when you touch the luxurious bindings and feel the silk-smooth pages, you will understand and appreciate that you have purchased something that is truly exceptional.

The materials that go into these volumes exceed the level of standards set by the American National Standards Institute. Only the finest 100% wood-free pulp available is used as raw material, and then it is laced with microfibers to prevent tearing. The paper is better than simply the so-called “acid-free.” It is “neutral pH” paper, with an alkaline reserve, or buffer, in the finish of every page.

Barring some unforeseen accident, or your own unfortunate “disaster,” these exceptional volumes are heirlooms that should last for centuries. The publisher is confident that in 100 years and more, people will still treasure these books for their outward beauty, as well as for the wisdom contained inside. Meanwhile, this set of outstanding books will enhance your personal library and be a lasting symbol of who you are and, more importantly, of what you know and in what you believe.

This information is priceless. If I set a price of thousands of dollars, it would be worth every cent. After all, that is what it took to put these books together… and years of critical research. Yet I believe these books offer you so much remarkable wisdom that Pickering & Chatto sold this book to some of the most prestigious libraries in the world for $495. But because I bought all the remaining stock, I can offer you a substantial discount. You’ll pay just $395 – a special discount of $100. And if the books are shipped to you within the United States, I will pay the shipping and handling on top of that.

In my view, there are dark clouds on the horizon and they are moving toward us rapidly. There is probably less time than you think to prepare.

And whatever you wind up doing, please accept my best wishes and hope for good luck to you and your family…

Sincerely,

William Bonner,
President, Agora, Inc.

P.S. I believe that these books are a legacy that you will want to pass on down the generations with love and pride. You may want to make a special bequest of these books in your will to some favored beneficiary (and in my opinion, that beneficiary should be very grateful to you for your generosity). While not, of course, exactly the same thing as a Gutenberg Bible or a Shakespeare First Folio, these books are crafted to become the same kind of lasting classics of knowledge and bookbinder’s art as the finest of antique collections. You will only find such volumes as these in the most exclusive rare bookstores or in the restricted archives of the finest libraries. In short, History of Financial Disasters is a landmark in economic, investment and intellectual history.

History of Financial Disasters will enable you to make better-informed investments. The information in these books will assist you, or those favored few to whom you lend the volumes, in developing the kind of high-level understanding and long-term worldview that govern the savviest of investors in the world, people like George Soros, Jim Rogers and Warren Buffett.

P.P.S. Once the limited number of the sets of History of Financial Disasters is sold out, that will be the end of it. So if you are interested in obtaining your own copy, please click the “Order Now” button below. There is no risk to you in this purchase, except if you do not act promptly. I promise that if we receive your order form after our supply is exhausted, you will promptly receive your refund in full.

Order Now


Here are some other Daily Reckoning articles about Financial Disasters:

A review of History of Financial Disasters
Byron King reviews a remarkable new study of the major financial disasters of the past 240 years.

A Financial Fiasco
The Mogambo Guru explains that, with required reserves at 1% of liabilities, why Economic Disasters always start with banks.

Man-Made Disasters
Dr. Marc Faber compares the respective government reactions to Flooding in Thailand’s Chiangmai region and the much greater disaster Hurricane Katrina, explains why the US suffers by the comparison, and discusses the impact of Katrina on the US economy.

The Value Of Catastrophe
Dan Ferris explains how catastrophes like Hurricane Andrew and 9/11 affect the insurance and Reinsurance industries, and how such catastrophes can be money-making opportunities.

Useful Links on Financial Disasters

The Motley Fool UK: Fool’s Eye View
How To Cope With Financial Disasters. By Cliff D’Arcy July 29, 2003. A Foolish reader called me yesterday on behalf of a friend who is currently…

8 financial train wrecks you can avoid – MSN Money
By now all these financial disasters are history, but it’s never too late to learn the hard-won lessons of other people’s financial foul-ups.

Setting Financial Goals – The Second Step in Personal Financial
Read the third and final article in the Introduction to Personal Financial Planning series: “Building a Financial Safety Net” to prevent financial disasters …