Bank Panics After the Civil War

8 Items to Learn About Banks and Bailouts #3

Here's a short glance at some, but not all, of the banking panics that struck our nation after the Civil War, but before the Great Depression.

Panic of 1873 - A period of rampant growth after the Civil War, with little in the way of government regulation. Abuses were common and ignored by the government. One of the nation's largest banking firms, Jay Cooke and Company would declare bankruptcy due to losses on the underwriting of the railroad industry. The series of events even included the New York Stock Exchange closing for 10 days. The usual consequences played out with banks closing, many mortgages ending up in foreclosure and a drying up of credit. As usual, this led to rampant unemployment. The economy would not recover until 1878. Perhaps the most important outcome of the early stages of the so-called "Long Depression" was the unrest that would pit labor against banking and business interests. (Source, Source, Source)

Panic of 1893 -The Philadelphia and Reading railroads would collapse due to overbuilding. Eventually, the Union-Pacific, Northern-Pacific and Santa Fe railroads would find themselves in bankruptcy. We were in yet another depression caused by the railroad industry and the banking industry's support of the railroads. The government, led by President Grover Cleveland, did not believe that the government had a role to play in the business cycle. As a result, poor Americans were ignored and began to feel that they were at the mercy of giant business interests. This was the backdrop to the beginning of the Progressive movement. (Source, Source)

Panic of 1907 - In 1907, numerous businesses went bankrupt, including some Wall Street brokerages. When Knickerboxer Trust and Westinghouse Electric failed that October, the panic began. Stock prices would plummet, losing 50% of their value over the previous year. The usual conditions were felt from bank closings to unemployment. J.P. Morgan would lead an effort to move capital from stronger institutions to weaker institutions. This effort would alleviate many of the effects of the panic and would help bring the period to a close. Arising out of this panic were a series of banking reforms that would lead to the creation of the Federal Reserve System. (Source, Source)