In October 1907, the New York financial world experienced a great shakeup and an extended run on several trust companies, exposing certain weaknesses in the banking system of the day. It was also a catalyst for the creation of the Federal Reserve System and other operational procedures and regulations of the banking system that we still use in the United States today.
One of the most prominent causes of the Panic of 1907 was the lack of regulations over trust companies, corporations that served as trustees for the financial assets of estates, individuals and businesses. Their freedom to trade in riskier ventures with extremely low reserves made the trust companies ticking time bombs.
Enter businessman F. Augustus Heinze. In the middle of a tight money market and a slowing economy, he attempted to corner the stock of United Copper Company and failed, causing the trust company to go bust. The absolute madness didn't break immediately, however. It wasn't until a few days later that trust companies around New York City began begging desperately for aid.
J.P. Morgan, along with James Stillman of National City Bank and George Baker of First National Bank, were among several financiers who attempted to bail out some of the trust companies being hit hardest by bank runs. The relief funds -- offered only to those institutions deemed sound enough -- helped avert a complete disaster, but the financial world of New York City would be shaken to the core by the end of the panic.
Related HowStuffWorks Articles
More Great Links
- Ayers, Edward et al. "American Passages: A History of the United States." Thomson Learning, Inc. 2003. (10/27/2009)
- "Brief Financial Notes Based on 1875-1907." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article16a.htm
- "Business Cycle Expansions and Contractions." The National Bureau of Economic Research. (10/27/2009) http://www.nber.org/cycles/cyclesmain.html
- FDIC Learning Bank. (10/27/2009) http://www.fdic.gov/about/learn/learning/index.html
- "Jay Cooke." Ohio History Central. (10/27/2009) http://www.ohiohistorycentral.org/entry.php?rec=81
- Noyes, Alexander Dana. "Forty years of American finance: a short financial history of the government." G.P. Putnam's Sons. 1909. (10/27/2009) http://books.google.com/books?id=7hkYAAAAMAAJ&printsec=frontcover&source=gbs_v2_summary_r&cad=0#v=onepage&q=&f=false
- "Panic." The Free Dictionary. (10/27/2009) http://encyclopedia2.thefreedictionary.com/panic
- "Panic of 1819." Ohio History Central. (10/27/2009) http://www.ohiohistorycentral.org/entry.php?rec=535
- "Panics, Part One: The Crash of 1819." CNN Money. Feb. 19, 2009. (10/27/2009) http://stanleybing.blogs.fortune.cnn.com/2009/02/19/panics-part-one-the-crash-of-1819/
- "People & Events: James J. Hill, 1838-1916." American Experience. (10/27/2009) http://www.pbs.org/wgbh/amex/streamliners/peopleevents/p_hill.html
- "People and Events: The Panic of 1873." American Experience. (10/27/2009) http://www.pbs.org/wgbh/amex/grant/peopleevents/e_panic.html
- Rothbard, Murray. "A History of Money and Banking in the United States: The Colonial Era to World War II." Ludwig von Mises Institute. 2002. (10/27/2009) http://mises.org/books/historyofmoney.pdf
- Rothbard, Murray. "The Panic of 1819: Reactions and Policies." Columbia University Press. 2002. (10/27/2009) http://mises.org/rothbard/panic1819.pdf
- "Six Year Depression 1837-1843." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article6a.htm
- Tallman, Ellis and Moen, Jon. "Lessons from the Panic of 1907." Economic Review. May/June 1990. (10/27/2009) http://www.frbatlanta.org/filelegacydocs/ern390_tallman.pdf
- "The Era of Good Feelings." Digital History. (10/27/2009) http://www.digitalhistory.uh.edu/database/article_display.cfm?HHID=574
- "The Panic and Depression of 1929." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article15a.htm
- "The Panic of 1837." Ohio History Central. (10/27/2009) http://www.ohiohistorycentral.org/entry.php?rec=536
- "The Panic of 1837." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article5a.htm
- "The Panic of 1873." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article9a.htm
- "The Panic of 1893." TheHistoryBox.com. (10/27/2009) http://thehistorybox.com/ny_city/panics/panics_article10a.htm
The 100-year anniversary of the end of World War I offers up a second chance to learn from our mistakes. HowStuffWorks looks at what we need to know.