The Panic Of 1907
The Panic of 1907
Microeconomics 201 Extra Credit
Mattias Sadeghi-Tari
The Panic of 1907 – also known as the 1907 Banker’s Panic – is the name of the financial crises that took place in the United States, starting in the middle of October and kept on going for about three weeks. It happened when the New York Stock Exchange fell almost 50 percent compared to the peak it had the previous year. Since this happened in a time of recession, panic was created, and there was numerous runs on banks and trust companies, meaning that a large number of customers at the same time withdraw their deposits from financial institutions. This was the result of the costumers believing that the institutions either were, or in the near future looking to become, insolvent.
Bit by bit the 1907 panic spread throughout the country, as most state and local banks, as well as businesses, were forced to declare bankruptcy. But what had triggered the panic? It all started in October of 1907 with the failed attempt to corner the market on stock of the United Copper Company. When this did not succeed, the banks that had contributed and lent money to the “cornering scheme” suffered runs, and eventually these spread to affiliated banks and trusts as well. A week later, this resulted in the downfall of the Knickerbocker Trust Company, which happened to be one of New York’s absolutely largest trusts. The collapse of the Knickerbocker lead to fear being spread throughout all of the city’s banks and trusts, and forced the regional banks to withdraw their reserves from the New York City banks. The panic extended across the entire nation, as massive numbers of citizens withdrew the deposits they had placed in their regional banks.
Even though this financial panic was huge, it might actually have gone even further, had it not been for the involvement of J. P. Morgan. Morgan was a financer who pledged large amounts of his own money, in addition to convincing other New York bankers to do the same, with
Microeconomics 201 Extra Credit
Mattias Sadeghi-Tari
The Panic of 1907 – also known as the 1907 Banker’s Panic – is the name of the financial crises that took place in the United States, starting in the middle of October and kept on going for about three weeks. It happened when the New York Stock Exchange fell almost 50 percent compared to the peak it had the previous year. Since this happened in a time of recession, panic was created, and there was numerous runs on banks and trust companies, meaning that a large number of customers at the same time withdraw their deposits from financial institutions. This was the result of the costumers believing that the institutions either were, or in the near future looking to become, insolvent.
Bit by bit the 1907 panic spread throughout the country, as most state and local banks, as well as businesses, were forced to declare bankruptcy. But what had triggered the panic? It all started in October of 1907 with the failed attempt to corner the market on stock of the United Copper Company. When this did not succeed, the banks that had contributed and lent money to the “cornering scheme” suffered runs, and eventually these spread to affiliated banks and trusts as well. A week later, this resulted in the downfall of the Knickerbocker Trust Company, which happened to be one of New York’s absolutely largest trusts. The collapse of the Knickerbocker lead to fear being spread throughout all of the city’s banks and trusts, and forced the regional banks to withdraw their reserves from the New York City banks. The panic extended across the entire nation, as massive numbers of citizens withdrew the deposits they had placed in their regional banks.
Even though this financial panic was huge, it might actually have gone even further, had it not been for the involvement of J. P. Morgan. Morgan was a financer who pledged large amounts of his own money, in addition to convincing other New York bankers to do the same, with