"History does not repeat itself," said Mark Twain, "it rhymes." Struggling to define the world financial crisis, many are now finding its rhyming couplet in the Great Depression of the 1930s.

This September, according to the Nexus database service, the words "depression" and "economy" were combined in 1,235 articles in major US newspapers. In September 2007, they were just 228 times.

A new USA Today/Gallup poll shows that one third of Americans think the world is on the verge of another cataclysmic global depression.

Wall Street last Monday had its second bigg-est crash since 24 October 1929 (Black Thursday). If this pitches the world economy headfirst into a 1930s-style depression, it will be painful beyond our imagining. To have an active memory of that time, you would have to be heading towards 90 years old. For the rest of us, no amount of reading The Grapes of Wrath or watching Cinderella Man can capture that economic wasteland. Output contracted by 25%. One in four were unemployed. Poverty, deprivation, soup kitchens, families divided, hopelessness were the order of the day.

Across Europe, the political extremism of Nazism, fascism and Stalinism prospered. In the United States a president, Franklin D Roosevelt, was elected who would remain in office for an unprecedented four consecutive terms. Those were extraordinary times.

Some lessons have clearly been learned. Whereas the 1930s Fed raised interest rates, which exacerbated the liquidity crisis caused by the crash, in 2008 it has aggressively cut rates and piled money into the system. A less encouraging parallel is the way in which rumours of banking failures have stoked the fires of crisis. Back then this was only resolved when, on the day after he became president, Roosevelt forced legislation through congress in 1933 to declare a mandatory four-day bank holiday so federal inspection of the books could take place. A third of America's banks never reopened. The government guaranteed deposits in the rest.

That marked a turning point in the economic crisis, although the effects would be long-lasting. Clarity had finally been achieved, but only in the fourth year after the original crash.

The Panic of 1907 offers a better example. That crisis saw the sudden failure of 25 US banks and 17 financial institutions. Share prices fell by half. New York City was nearly bankrupted. This occurred at a time when US economic growth had been roaring ahead at 7.3%, with industrial production having doubled in a relatively short period. As would be the case again in the Great Depression, the root of the 1907 crisis was lack of information. Working out which banks were in good shape and which were bluffing was next to impossible: in that environment rumour was king. Panic and chaos followed. Wall Street was paralysed. Credit crunched.

What saved the financial system in 1907 was decisive leadership and strong Cuban cigars. "Quelling a panic is a matter of creating transparency, mustering liquidity and restoring confidence," say Robert Bruner and Sean Carr, authors of The Panic of 1907. "That calls for a cool head and a keen mind."

The legendary banker JP Morgan had both. He summoned the nation's leading bankers to a summit at his magnificent New York
mansion.

There, plying them with Havanas and whisky, Morgan forced the bankers to open their books, so that each would know the true position of the other. With the game of bluff ended, he then extracted $23.6m from them in loans to pump into the financial system.

Morgan's decisive leadership achieved immediate transparency and liquidity. When the markets reopened, $19m was lent in just 20 minutes. The crisis had passed. It had lasted just eight weeks. Into the bargain, Morgan had created the prototype for the Fed.

Coming out to see reporters after the summit, Morgan told them, "If people keep their money in the banks, everything will be all right."

That's history rhyming right there.

Prof Richard Aldous

is head of History & Archives at UCD