The Panic Of 1873 -- A Better Model For The Crisis?

Our current episode has more in common with the 1870s depression which, as Nelson notes, was considerably worse. It was primarily caused by over-indebtedness in the commercial real estate sector, which mortgages were based on new forms of financing which were intermingled on the balance sheets of commercial banks with less rarefied assets that the banks added by making business loans. The era, as the poster to the left depicts, was one of broad based public participation in credit financed asset price inflation and speculation. When the commercial real estate market crashed, it took down the banks and caused the market for commercial credit to seize up, much as we are seeing today. Small businesses were hit especially hard. Unemployment spiked and a severe and lengthy depression ensued as financial markets throughout the world suffered, followed by international trade. The crisis emanated from Europe. It was the beginning of the end of Europe's dominance as the center of global economic power. Read on for the full story.