Stock market crash 1908

Stock market crash 1908

Author: Ejwnlsdk Date: 15.07.2017

Panic occurred, as this was during a time of economic recession , and there were numerous runs on banks and trust companies.

The panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors , exacerbated by unregulated side bets at bucket shops.

When this bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company —New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.

The panic might have deepened if not for the intervention of financier J.

Morgan , [3] who pledged large sums of his own money, and convinced other New York bankers to do the same, to shore up the banking system. This highlighted the impotence of the nation's Independent Treasury system, which managed the nation's money supply , yet was unable to inject liquidity back into the market.

By November, the financial contagion had largely ended, only to be replaced by a further crisis. Steel Corporation —a move approved by anti-monopolist president Theodore Roosevelt. The following year, Senator Nelson W. Aldrich , father-in-law of John D. President Andrew Jackson allowed the charter of the Second Bank of the United States to expire in , the U.

Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back— interest rates were raised. Foreign investors then sent their money to New York to take advantage of the higher rates. The April earthquake that devastated San Francisco contributed to the market instability, prompting an even greater flood of money from New York to San Francisco to aid reconstruction.

By late September, stocks had recovered about half of their losses. The Hepburn Act , which gave the Interstate Commerce Commission ICC the power to set maximum railroad rates, became law in July A number of shocks hit the system: The panic began with a stock manipulation scheme to corner the market in F. Augustus Heinze 's United Copper Company. Heinze had made a fortune as a copper magnate in Butte, Montana.

In he moved to New York City, where he formed a close relationship with notorious Wall Street banker Charles W. Morse had once successfully cornered New York City's ice market , and together with Heinze gained control of many banks—the pair served on at least six national banks , ten state banks , five trust companies and four insurance firms.

Augustus' brother, Otto, devised the scheme to corner United Copper, believing that the Heinze family already controlled a majority of the company.

He also believed that a significant number of the Heinze's shares had been borrowed , and sold short , by speculators betting that the stock price would drop, and that they could thus repurchase the borrowed shares cheaply, pocketing the difference.

Otto proposed a short squeeze , whereby the Heinzes would aggressively purchase as many remaining shares as possible, and then force the short sellers to pay for their borrowed shares. The aggressive purchasing would drive up the share price, and, being unable to find shares elsewhere, the short sellers would have no option but to turn to the Heinzes, who could then name their price.

To finance the scheme, Otto, Augustus and Charles Morse met with Charles T. Barney , president of the city's third-largest trust, the Knickerbocker Trust Company. Barney had provided financing for previous Morse schemes. Morse, however, cautioned Otto that he needed much more money than he had to attempt the squeeze and Barney declined to provide funding.

Otto had misread the market, and the share price of United Copper began to collapse. Otto Heinze was ruined. The stock of United Copper was traded outside the hall of the New York Stock Exchange , literally an outdoor market "on the curb" this curb market would later become the American Stock Exchange.

After the crash, The Wall Street Journal reported, "Never has there been such wild scenes on the Curb, so say the oldest veterans of the outside market". On Thursday, October 17, the New York Stock Exchange suspended Otto's trading privileges. As a result of United Copper's collapse, the State Savings Bank of Butte Montana owned by F.

Augustus Heinze announced its insolvency. The Montana bank had held United Copper stock as collateral against some of its lending and had been a correspondent bank for the Mercantile National Bank in New York City, of which F.

Augustus Heinze was then president. Augustus Heinze's association with the corner and the insolvent State Savings Bank proved too much for the board of the Mercantile to accept.

Although they forced him to resign before lunch time, [22] by then it was too late. As news of the collapse spread, depositors rushed en masse to withdraw money from the Mercantile National Bank.

The Mercantile had enough capital to withstand a few days of withdrawals, but depositors began to pull cash from the banks of the Heinzes' associate Charles W. Runs occurred at Morse's National Bank of North America and the New Amsterdam National. Afraid of the impact the tainted reputations of Augustus Heinze and Morse could have on the banking system, the New York Clearing House a consortium of the city's banks forced Morse and Heinze to resign all banking interests.

Funds were withdrawn from Heinze-associated banks, only to be deposited with other banks in the city. A week later many regional stock exchanges throughout the nation were closing or limiting trading. For example, the Pittsburgh city's stock exchange closed for three months starting on October 23, One of the most respected was Charles T.

Barney , whose late father-in-law William Collins Whitney was a famous financier. Barney's Knickerbocker Trust Company was the third-largest trust in New York. Because of past association with Charles W. Augustus Heinze, on Monday, October 21, the board of the Knickerbocker asked that Barney resign depositors may have first begun to pull deposits from the Knickerbocker on October 18, prompting the concern.

The Financial Panic of Running from History | History | Smithsonian

Morgan was a dominant factor, announced it would not serve as clearing house for the Knickerbocker. On October 22, the Knickerbocker faced a classic bank run. From the bank's opening, the crowd grew. As The New York Times reported, "as fast as a depositor went out of the place ten people and more came asking for their money [and the police] were asked to send some men to keep order".

Directors and other officials of the Trust forced their way through the crowd, assuring them that everyone would be paid. Shortly after noon it was forced to suspend operations. As news spread, other banks and trust companies were reluctant to lend any money. By Thursday, October 24, a chain of failures littered the street: Twelfth Ward Bank, Empire City Savings Bank, Hamilton Bank of New York, First National Bank of Brooklyn, International Trust Company of New York, Williamsburg Trust Company of Brooklyn, Borough Bank of Brooklyn, Jenkins Trust Company of Brooklyn and the Union Trust Company of Providence.

When the chaos began to shake the confidence of New York's banks, the city's most famous banker was out of town. Morgan , the eponymous president of J. Morgan was not only the city's wealthiest and most well-connected banker, but he had experience with other similar financial crises—he had helped rescue the U. Treasury during the Panic of As news of the crisis gathered, Morgan returned to Wall Street from his convention late on the night of Saturday, October The following morning, the library of Morgan's brownstone at Madison Avenue and 36th St.

Morgan and his associates examined the books of the Knickerbocker Trust, and decided it was insolvent so did not intervene to stop the run. Its failure, however, triggered runs on even healthy trusts, prompting Morgan to take charge of the rescue operation. On the afternoon of Tuesday, October 22, the president of the Trust Company of America asked Morgan for assistance. That evening Morgan conferred with George F. Baker , the president of First National Bank, James Stillman of the National City Bank of New York the ancestor of Citibank , and the United States Secretary of the Treasury , George B.

Cortelyou said that he was ready to deposit government money in the banks to help shore up their deposits. After an overnight audit of the Trust Company of America showed the institution to be sound, on Wednesday afternoon Morgan declared, "This is the place to stop the trouble, then.

As a run began on the Trust Company of America, Morgan worked with Stillman and Baker to liquidate the company's assets to allow the bank to pay depositors. The bank survived to the close of business, but Morgan knew that additional money would be needed to keep it solvent through the following day.

To instill public confidence, Rockefeller phoned Melville Stone , the manager of the Associated Press , and told him that he would pledge half of his wealth to maintain America's credit. Despite the infusion of cash, the banks of New York were reluctant to make the short-term loans they typically provided to facilitate daily stock trades.

Prices on the exchange began to crash , owing to the lack of funds to finance purchases. Thursday, October 24, Ransom Thomas, the president of the New York Stock Exchange , rushed to Morgan's offices to tell him that he would have to close the exchange early.

Panic of - Wikipedia

Morgan was emphatic that an early close of the exchange would be catastrophic. Morgan summoned the presidents of the city's banks to his office.

stock market crash 1908

The money reached the market at 2: Morgan usually eschewed the press, but as he left his offices that night he made a statement to reporters: Friday, however, saw more panic on the exchange. In order for this money to keep the exchange open, Morgan decided the money could not be used for margin sales. The markets again narrowly made it to the closing bell. Morgan, Stillman, Baker and the other city bankers were unable to pool money indefinitely.

Treasury was low on funds. Public confidence needed to be restored, and on Friday evening the bankers formed two committees—one to persuade the clergy to calm their congregations on Sunday, and second to explain to the press the various aspects of the financial rescue package. Europe's most famous banker, Lord Rothschild , sent word of his "admiration and respect" for Morgan.

Unbeknownst to Wall Street, a new crisis was being averted in the background. The city tried to raise money through a standard bond issue, but failed to gather enough financing.

On Monday and again on Tuesday, New York Mayor George McClellan approached Morgan for assistance. Although calm was largely restored in New York by Saturday, November 2, yet another crisis loomed. A proposal was made that the U. The executives and board of U.

By then, John Pierpont Morgan was drawn into another situation. There was deep concern that the Trust Company of America and the Lincoln Trust might fail to open on Monday due to continuing runs by depositors.

On Saturday evening 40—50 bankers had gathered at the library to discuss the crisis, with the clearing-house bank presidents in the East room and the trust company executives in the West room. The trust company executives understood they would not receive further help from Morgan; they would have to finance any bailout of the two struggling trust companies.

As discussion ensued, the bankers realized that Morgan had locked them in the library and pocketed the key to force a solution, [51] the sort of strong-arm tactic he had been known to use in the past.

The trust presidents were still reluctant to act, but Morgan informed them that if they did not it would lead to a complete collapse of the banking system. Through his considerable influence, at about 4: On Sunday afternoon and into the evening, Morgan, Perkins, Baker and Stillman, along with U.

Steel's Gary and Henry Clay Frick , worked at the library to finalize the deal for U. But one obstacle remained: Roosevelt's secretary refused to see them, but Frick and Gary convinced James Rudolph Garfield , the Secretary of the Interior , to bypass the secretary and arrange a meeting with the president. With less than an hour before the Stock Exchange opened, Roosevelt and Secretary of State Elihu Root began to review the proposed takeover and appreciate the crash likely to ensue if the merger was not approved.

I do not believe that anyone could justly criticize me for saying that I would not feel like objecting to the purchase under those circumstances". The panic of occurred during a lengthy economic contraction —measured by the National Bureau of Economic Research as occurring between May and June Industrial production dropped further than after any previous bank run, while saw the second-highest volume of bankruptcies to that date.

Immigration dropped to , people in , from 1.

Henry Ford Changes the World,

Since the end of the Civil War , the United States had experienced panics of varying severity. Economists Charles Calomiris and Gary Gorton rate the worst panics as those leading to widespread bank suspensions—the panics of , , and , and a suspension in Widespread suspensions were forestalled through coordinated actions during both the and the panics. A bank crisis in , in which there was a perceived need for coordination, is also sometimes classified as a panic.

The frequency of crises and the severity of the panic added to concern about the outsized role of J. Morgan which led to renewed impetus toward a national debate on reform. A significant difference between the European and U. European states were able to extend the supply of money during periods of low cash reserves. The belief that the U. Aldrich convened a secret conference with a number of the nation's leading financiers at the Jekyll Island Club , off the coast of Georgia , to discuss monetary policy and the banking system in November Vanderlip James Stillman's successor as president of the National City Bank of New York , Henry P.

Davison senior partner of J. Morgan Company , Charles D. Norton president of the Morgan-dominated First National Bank of New York , and Benjamin Strong representing J. Morgan , produced a design for a "National Reserve Bank". The final report of the National Monetary Commission was published on January 11, For nearly two years legislators debated the proposal and it was not until December 23, , that Congress passed the Federal Reserve Act. President Woodrow Wilson signed the legislation immediately and the legislation was enacted on the same day, December 23, , creating the Federal Reserve System.

Although Morgan was briefly seen as a hero, widespread fears concerning plutocracy and concentrated wealth soon eroded this view.

stock market crash 1908

Morgan's bank had survived, but the trust companies that were a growing rival to traditional banks were badly damaged. Some analysts believed that the panic had been engineered to damage confidence in trust companies so that banks would benefit. The committee issued a scathing report on the banking trade, and found that the officers of J.

Although suffering ill health, J. Morgan testified before the Pujo Committee and faced several days of questioning from Samuel Untermyer. Untermyer and Morgan's famous exchange on the fundamentally psychological nature of banking—that it is an industry built on trust—is often quoted in business articles: Is not commercial credit based primarily upon money or property? The first thing is character. Before money or property?

Before money or anything else. Associates of Morgan blamed his continued physical decline on the hearings. In February he became very ill and died on March 31, —nine months before the "money trust" would be officially replaced as lender of last resort by the Federal Reserve. From Wikipedia, the free encyclopedia. Rockefeller , George B. Cortelyou , Lord Rothschild , and James Stillman some of the best-known names on Wall Street.

They tried to restore confidence in the economy. History of the Federal Reserve System. From Puck , May 8, The Advertiser Adelaide, SA: National Library of Australia.

Retrieved 22 November Braunstein, "The Role of Information Failures in the Financial Meltdown" Archived at the Wayback Machine. Western Argus Kalgoorlie, WA: Retrieved on September 22, A Parable From a Crisis of a Century Ago ". The Washington Post September 28, , p.

Retrieved on September 30, Banking panics in the United States. Recessions in the United States notable recessions in bold.

The Mississippi Bubble South Sea Bubble of Panic of Panic of — Panic of Panic of Panic of Panic of Panic of Black Friday Panic of Paris Bourse crash of Panic of Encilhamento Panic of Panic of Panic of Panic of Depression of —21 Wall Street Crash of Recession of —38 Brazilian markets crash —74 stock market crash Souk Al-Manakh stock market crash Japanese asset price bubble — Black Monday Rio de Janeiro Stock Exchange collapse Friday the 13th mini-crash s Japanese stock market crash Dot-com bubble — Asian financial crisis October 27, , mini-crash Russian financial crisis.

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Otto Heinze begins purchasing to corner the stock of United Copper. Heinze's corner fails spectacularly. This is the date traditionally cited as when the corner failed. The Exchange suspends Otto Heinze and Company. The State Savings Bank of Butte, Montana, owned by Augustus Heinze announces it is insolvent.

Augustus is forced to resign from Mercantile National Bank. Runs begin at Augustus' and his associate Charles W. The New York Clearing House forces Augustus and Morse to resign from all their banking interests. Barney is forced to resign from the Knickerbocker Trust Company because of his ties to Morse and Heinze. The National Bank of Commerce says it will no longer serve as clearing house.

A bank run forces the Knickerbocker to suspend operations. Morgan persuades other trust company presidents to provide liquidity to the Trust Company of America, staving off its collapse.

Treasury Secretary George Cortelyou agrees to deposit Federal money in New York banks. A proposal is made for U. President Theodore Roosevelt approves U. Markets are closed for Election Day no federal elections were actually held this year. Markets begin to recover. Destabilizing runs at the trust companies do not begin again. Wikimedia Commons has media related to Panic of

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