8/20/2011

Bankers Panic of 1907

A panic that eventually brought the New York Stock Exchange close to 50% from its peak the previous year occurred in 1907. The name Bankers Panic was given because of the numerous runs on trust companies making the whole banking system crash like dominos. Together with the weaknesses in the real economy, it created a harsh crisis for the United States. The crisis was triggered by the failed attempt to corner the market on stock of the United Copper Company. When the failure became public, banks that had lent money for the cornering scheme suffered runs. Fear spread to affiliated banks and trusts as Americans panicked and investors pulled their money out of stock market. Soon the downfall of the Knickerbocker Trust Company, at the time New York City's third largest trust bank, created massive loss of confidence in which almost every bank suffered a run. Famous J.P. Morgan took the matters into his hands, and together with other leading bankers of the era managed to avert nationwide consequences. Read more about the Bankers Panic here.





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