Forget '29: This is More Like the Crash of '73. <i>18</i>73, That Is.

Last Updated Oct 29, 2008 6:43 PM EDT

panic_of_1873_bank_run.jpg"Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period."

Sound familiar? It should. But it's not the crash of 'o8, or even '29, says Scott Reynolds Nelson, professor of history at the College of William and Mary, in a recent article in The Chronicle of Higher Education, but the crash of '73. Wait, '73? That's 1873. Writes Nelson:

When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now...

[The] crash came in 1873 and lasted more than four years. It looks much more like our current crisis...

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire... and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris...

But the economic fundamentals were shaky... As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank -- the interbank lending rate -- reached impossibly high rates. This banking crisis hit the United States in the fall of 1873.

Read the rest over at The Chronicle of Higher Education to see how it all ended »