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February 1, 2003

Bulls, Bears and Financial History: Can traders, young people and others learn from the past?

By Gregory Bresiger

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  • Bulls, Bears and Financial History: Can traders, young people and others learn from the past?

Those who don't learn from history are doomed to repeat its harsh lessons. And those who don't comprehend the benefits of an institution, such as a free market, are likely to lose it.

Those sentiments were some of the factors in the founding of the Museum of American Financial History, which began the year after the crash of 1987. It was a crash that was caused in part because investors forget - or maybe never learned - about the history of markets.

"The public really doesn't understand the capital markets and that is very dangerous," said John E. Herzog, the chairman of the museum. He is also a former executive of one of most renowned trading firms in the history of Wall Street.

Indeed, many investors, and even some financial professionals, forget how quickly a market can turn disastrous and how only the determined action of key players can turn things around. Such were the actions of the banker J.P. Morgan during the Panic of 1907 and Federal Reserve Board Chairman Alan Greenspan in 1987.

The debates over crashes, and how and why markets tank, are some of the key topics at the museum, which is located in lower Manhattan on Broadway near the major exchanges in New York City. It is open Tuesday through Saturday from 10 a.m. to 4 p.m.

Market Mechanisms

The museum is an affiliate of the Smithsonian. This means that the Museum of Financial History will be able to draw on the Smithsonian's resources and collections. This is important for a museum that is billed by its founders as the only one for teaching the lessons of financial history.

"Our thinking was basically to help people gain knowledge and awareness of the American economic system," according to Bill Behrens, one of the founding trustees of the museum and vice chairman and head of brokerage at Northeast Securities. Behrens' worry is the same as so many others who believe in markets.

"Many, many people open their wallets and seem to have little understanding of those pieces of paper. They seem to understand so little about how and why markets function," he added.

But Herzog, who has been distressed by weak support from much of the financial services community, says the lack of knowledge extends beyond the general public. Herzog, whose family roots in the market go back to the early part of the 20th Century, bemoans the absence of historical knowledge of many in the securities business. Many professionals, he says, have superb skills in a specialized area, but have little or no general knowledge of markets.

"You have a professional who will analyze a specific stock or a market and will expect that a current bullish trend will continue forever. He has no historical perspective and therefore never sees the bubble coming," Herzog said.

Herzog's grandfather, Armin Herzog, was an ambitious immigrant. He conducted an informal sidewalk currency exchange at a time when New York City had millions of newcomers who needed to send money home. John Herzog's father, Robert, founded the fabled Herzog Heine Geduld. His father used to warn him about crashes: "Sonny, I've seen it all and it's going to happen again."