HKIMR Working Paper No.10/2012
56 Pages Posted: 19 Apr 2012
Date Written: April 18, 2012
The panic of 1857 is revisited with the benefit of hindsight provided by the panic of 2007-08, where a number of parallels are identified between the two panics. We present new evidence on causes of the failure of the financial institution that triggered the panic of 1857 and conduct a detailed analysis of railroad financial and accounting practices. New financial innovations are also studied — the railroad farm mortgage and farm mortgage-backed security — which had similarities to the modern sub-prime mortgage loan and MBS. Neglected risks and Knightian uncertainty appear to be fundamental reasons why investors continued to participate in a boom market that was also extremely fragile.
Suggested Citation: Suggested Citation
Riddiough, Timothy J. and Thompson, Howard E., Déjà Vu All Over Again: Agency, Uncertainty, Leverage and the Panic of 1857 (April 18, 2012). HKIMR Working Paper No.10/2012. Available at SSRN: https://ssrn.com/abstract=2042316 or http://dx.doi.org/10.2139/ssrn.2042316