Michael Burry, a hedge fund manager known for predicting the 2008 financial crisis, has drawn parallels between today’s banking crisis and the panic of 1907. He noted that three weeks after JP Morgan took a position, the panic was resolved and markets bottomed out. “A stand was made this past weekend,” said the famous investor.
Michael Burry on bank failures, the panic of 1907, markets bottoming out
Famed investor and founder of the investment firm Scion Asset Management, Michael Burry, compared the current financial turmoil, following the collapse of several banks, to the panic of 1907. Burry is best known for being the first investor to foresee and benefit from the US subprime mortgage crisis that occurred between 2007 and 2010. His profile is featured in “The Big Short,” a book by Michael Lewis about the mortgage crisis, which was made into a movie starring Christian Bale.
Investor “Big Short” tweeted on Wednesday:
In October 1907, the Knickerbocker Trust failed due to risky bets, causing panic. Two others soon failed and it spread. When a run began on a healthy Trust, JP Morgan took a position. 3 weeks later, the panic was resolved and the markets bottomed out. A stand was made this past weekend.
The Knickerbocker Trust Company was one of the largest trust companies in the US. Its bankruptcy in October 1907 sparked a financial panic and led to a loss of confidence in the entire banking system.
The panic ended after JP Morgan arranged to bail out 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 December 23, 1913.
Burry’s tweet came after the failure of several major US banks, including Silicon Valley Bank and Signature Bank. The first was shut down by regulators last Friday and the second 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 at both banks “to have access to All your money”. In addition, the Federal Reserve Board said it will “make additional funds available to eligible depository institutions to help ensure 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 didn’t exist in 1907, so the situation today is different.
In another tweet, Burry wrote: “This crisis could be resolved very quickly. I don’t see a real danger here.” Regarding the US economy, Burry previously warned of another rise in inflation and an extended multi-year recession in the US.
What do you think of Michael Burry’s comparison between the panic of 1907 and the current banking turmoil? Let us know in the comments section.
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