Michael Burry, a hedge fund manager renowned for predicting the 2008 financial crisis, has drawn parallels between the current banking turmoil and the Panic of 1907. He noted that three weeks after J.P. Morgan made a stand, the panic was resolved and the markets bottomed. “A stand was made this past weekend,” the famous investor pointed out.
Michael Burry on Bank Failures, Panic of 1907, Markets Bottoming
Famous investor and founder of investment firm Scion Asset Management, Michael Burry, has compared the current financial turmoil, following the collapse of multiple banks, to the Panic of 1907. Burry is best known for being the first investor to foresee and profit from the U.S. subprime mortgage crisis that occurred between 2007 and 2010. He is profiled in “The Big Short,” a book by Michael Lewis about the mortgage crisis, which was made into a movie starring Christian Bale.
The “Big Short” investor tweeted Wednesday:
In October 1907, Knickerbocker Trust failed due to risky bets, sparking a panic. Two others soon failed, and it spread. When a run began on a healthy Trust, J.P. Morgan made a stand. 3 weeks later the panic resolved & markets bottomed. A stand was made this past weekend.
Knickerbocker Trust Company was one of the largest trust companies in the U.S. Its failure in October 1907 triggered a financial panic and led to a loss of confidence in the entire banking system.
The panic came to an end after J.P. Morgan organized a bailout of several large banks and convinced other financiers to do the same. The bailout helped restore confidence in the banking system. The Federal Reserve System was subsequently created on Dec. 23, 1913.
Burry’s tweet came after several major banks in the U.S. failed, including Silicon Valley Bank and Signature Bank. The former was closed down by regulators last Friday and the latter by the New York State Department of Financial Services a couple of days later.
To stop bank runs and restore confidence in the banking system, the Treasury Department, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) announced measures to allow depositors of both banks to “have access to all of their money.” Moreover, the Federal Reserve Board said it will “make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.”
While some people on social media agreed with Burry, several pointed out that the Federal Reserve System did not exist in 1907 so the current situation is different.
In a different tweet, Burry wrote: “This crisis could resolve very quickly. I am not seeing true danger here.” Regarding the U.S. economy, Burry previously warned of another inflation spike and extended multi-year recession in the U.S.
What do you think about Michael Burry’s comparison between the Panic of 1907 and the current banking turmoil? Let us know in the comments section below.
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