Okla-homey
9/18/2008, 06:01 AM
September 18, 1873: Robber barons cause panic
http://img518.imageshack.us/img518/4291/panic51pnsr2nzrlcc9.jpg
135 years ago today, the "Panic of 1873" was one of the worst financial crises in the nation's history. It stretched on for five years, closing banks and deflating the markets, as well as damaging people's faith in the future of the nation.
The depression began on September 18 with the surprise collapse of Jay Cooke and Co., one of the country's most reputable brokerage houses. Jay Cooke's downfall, due mainly to an ill-fated decision to fund a second transcontinental railroad line and overinvestment in what turned out to be worthless railroad stocks, was less a smoking gun than a highly visible symptom of America's fiscal instability. Here's how it happened.
At the end of the Civil War, there was a boom in railroad construction, with 35,000 miles of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk.
The greedy RR owners and their brokerage house shills ceasely flogged investment in the railroads as a safe investment by insuring returns and promising there was "nowhere to go but up." Despite these claims, there simply wasn't sufficient market demand to make all these railroads profitable and the large infusion of cash from speculators caused abnormal growth in the industry making matters worse.
http://img518.imageshack.us/img518/7706/paniccsl0869lyh8.jpg
Contemporary cartoon depicting railroad investment driven Wall Street bust
In September 1873, Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke's firm, like many others, was invested heavily in the railroads. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing. But on this day in 1873, the firm realized it had become overextended, had blown its reserves and declared bankruptcy.
http://img518.imageshack.us/img518/8093/run463pxpanicof1873bankgg0.jpg
Run on the banks caused failures
After twelve years of unchecked expansion, the economy was bloated from inflation and excess speculation and when the Panic hit, it had devastating results. Along with Jay Cooke, thirty-seven banks and two brokerage houses closed their doors on this day. This may not sound like much to modern ears, but the banks that failed held about a third of the deposits in the United States leaving the unlucky depositers penniless.
http://img518.imageshack.us/img518/631/62628952fa5.png
Terror and panic was investor and depositors emotion de jour
In the ensuing days, the losses increased and the NYSE was forced to shut down for ten days. With the situation growing dire, the Secretary of the Treasury decided to infuse the economy with $26 million in paper money. Despite the government's efforts, the Panic did not subside, and the economy continued its slump through the end of the decade.
fast forward to today:
http://www.ft.com/cms/s/0/8058d308-84d3-11dd-b148-0000779fd18c.html?nclick_check=1
http://img518.imageshack.us/img518/4291/panic51pnsr2nzrlcc9.jpg
135 years ago today, the "Panic of 1873" was one of the worst financial crises in the nation's history. It stretched on for five years, closing banks and deflating the markets, as well as damaging people's faith in the future of the nation.
The depression began on September 18 with the surprise collapse of Jay Cooke and Co., one of the country's most reputable brokerage houses. Jay Cooke's downfall, due mainly to an ill-fated decision to fund a second transcontinental railroad line and overinvestment in what turned out to be worthless railroad stocks, was less a smoking gun than a highly visible symptom of America's fiscal instability. Here's how it happened.
At the end of the Civil War, there was a boom in railroad construction, with 35,000 miles of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk.
The greedy RR owners and their brokerage house shills ceasely flogged investment in the railroads as a safe investment by insuring returns and promising there was "nowhere to go but up." Despite these claims, there simply wasn't sufficient market demand to make all these railroads profitable and the large infusion of cash from speculators caused abnormal growth in the industry making matters worse.
http://img518.imageshack.us/img518/7706/paniccsl0869lyh8.jpg
Contemporary cartoon depicting railroad investment driven Wall Street bust
In September 1873, Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke's firm, like many others, was invested heavily in the railroads. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing. But on this day in 1873, the firm realized it had become overextended, had blown its reserves and declared bankruptcy.
http://img518.imageshack.us/img518/8093/run463pxpanicof1873bankgg0.jpg
Run on the banks caused failures
After twelve years of unchecked expansion, the economy was bloated from inflation and excess speculation and when the Panic hit, it had devastating results. Along with Jay Cooke, thirty-seven banks and two brokerage houses closed their doors on this day. This may not sound like much to modern ears, but the banks that failed held about a third of the deposits in the United States leaving the unlucky depositers penniless.
http://img518.imageshack.us/img518/631/62628952fa5.png
Terror and panic was investor and depositors emotion de jour
In the ensuing days, the losses increased and the NYSE was forced to shut down for ten days. With the situation growing dire, the Secretary of the Treasury decided to infuse the economy with $26 million in paper money. Despite the government's efforts, the Panic did not subside, and the economy continued its slump through the end of the decade.
fast forward to today:
http://www.ft.com/cms/s/0/8058d308-84d3-11dd-b148-0000779fd18c.html?nclick_check=1