There are two fields I follow on a daily basis, the baseball and the business. Those two worlds got all tangled up and nicely intertwined in my reading life this past weekend. On Friday, there was a NYT interview with the Sage of Omaha, Warren Buffett, about one of his favorite topics, baseball.
"The most important thing in investing," Buffett said, "is what [Ted] Williams said was the most important thing in hitting" -- waiting for the right pitch. "What's nice about investing is you don't have to swing at pitches," Buffett said. "You can watch pitches come in one inch above or one inch below your navel, and you don't have to swing. No umpire is going to call you out. You can wait for the pitch you want."When I got home Friday, I started in on a terrific book by Cait Murphy, an assistant editor at Fortune magazine, who has also worked for The Economist and the Wall Street Journal. With her background in business journalism, the only logical topic for her first book is, of course, baseball. In particular, it's about the greatest single season in baseball history, 1908. It's entitled Crazy '08: How a Cast of Cranks, Rogues, Boneheads, and Magnates Created the Greatest Year in Baseball History. She does throw in a few asides, however, which she calls "time outs". One has to do with a famous murder, another with anarchists, and yet another with the economic panic of 1907.
The first rumblings of this [panic] came with a stock market slump in March. It accelerated with the collapse of a scheme to corner United Copper and became a crisis when New York Knickerbocker Trust failed shortly after the 1907 World Series (surely a coincidence). Reports that other financial institutions might follow suit fed uncertainty into the system, and the virus of dread began to spread. The causes of the panic might sound obscure, but the consequences were not. A committee tasked in 1908 with analyzing the events described what happened. "Two-thirds of the banks of the country [had] entered upon an internecine struggle to obtain cash, had ceased to extend credit to their customers, had suspended cash payments and were hoarding such money as they had. What was the result?... Thousands of men were thrown out of work, thousands of firms went into bankruptcy, the trade of the country came to a standstill, and all this happened simply because the credit system of the country ceased to operate." By October 22, disaster was imminent-and the government had no tools to avert it. The United States lacked a central bank to ensure there was enough money in circulation to keep credit moving, and there was no lender of last resort. The Treasury did pump money into the banking system, but to no avail. So J.P. Morgan stepped in. Probably the second-most disliked business man in America (after John D. Rockefeller), Morgan knew the financial system was in better shape than the reaction to events warranted; it really was a case of having nothing to fear but fear itself. The tide turned when he more or less locked the nation's top bankers in his library and wouldn't let them leave until they had worked out a solution. The worst was over by Thanksgiving, and Morgan enjoyed a brief period when instead of being loathed as a heartless money-grubber, he was hailed as an economic savior.It's a century later, and although we've strengthened our institutions formidably, we once again have some turmoil in the credit markets. One of the institutions created in the aftermath of the 1907 panic, the Federal Reserve, has been injecting cash into the financial system to bring interest rates down. I'm pretty darned sure the current turmoil isn't going to require locking the nation's top bankers in someone's library, but wouldn't you love to be a fly on the wall of that library, listening in on strategy sessions, if it did?