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 honor 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.