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Panic of 1907
The Panic of 1907
was a relatively serious economic downturn in the United States caused
by a New York credit crunch that spread across the nation and led to
the closings of banks and businesses. The severity of the downturn was
such that it prompted the United States Congress to form the
Federal Reserve System. It was the fourth Panic in 34 years.
One of the contributing
factors of the Panic involved F. Augustus Heinze. Heinze copied the
speculation tactics of Charles W. Morse, who had obtained control of
the
Bank of North America and other banks to float consolidations and
other schemes. In 1906, Heinze sold most of his mining shares for the
sum of $12 million. He then moved to New York, bought a bank and
became a director in a national financial chain. Banking industry
leaders, threatened by the developing trusts, staged a financial
attack on Heinze's Knickerbocker Trust. Their motive was to sway
public and congressional opinion against trusts.
In March 1907, the stock
market crashed because of over-expansion and poor speculation. Money
became extremely tight. A second crash occurred in October 1907, and
was precipitated when, using money borrowed from F. Augustus Heinze,
Heinze's brothers failed in their attempts to corner United Copper.
Heinze was forced to resign as bank president. On October 21, the
National Bank of Commerce refused to honour checks of Knickerbocker
Trust, causing a run on the Knickerbocker Trust. By the end of October
22, the National Bank of North America had failed and runs were
sparked on nearly every trust in New York.
To bring relief to the
situation, United States Secretary of the Treasury George B. Cortelyou
ponied up $35 million of Federal money to quell the storm. Complete
ruin of the national economy was averted when
J.P. Morgan stepped in to meet the crisis. Morgan organized a team
of bank and trust executives. The team redirected money between banks,
secured further international lines of credit, and bought plummeting
stocks of healthy corporations. Within a few weeks the panic passed,
with only minimal effects on the country.
By February 1908,
confidence in the economy was restored.
See also
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List of Recessions
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