The Panic of 1907 was a financial crisis that occurred in the United States in late 1907 and continued into 1908. The panic was precipitated by a series of bank runs throughout the country, culminating with the failure of New York’s Knickerbocker Trust Company on October 22, 1907. This event set off an economic recession which affected many countries around the world, including the United States.
The primary cause of this financial meltdown was overspeculation in stocks and real estate markets leading to massive levels of debt held by banks and other lenders. In addition, there were also rumors that some large banks were insolvent as well as concerns about possible frauds at major corporations such as U.S Steel Corporation and International Harvester Company caused further damage to investor confidence during this period. Moreover, there were widespread allegations that J P Morgan had manipulated stock prices for his own benefit causing more public mistrust towards Wall Street investors and financiers during this time period.
In response to these events Congress passed several pieces legislation related to banking regulation including the Aldrich-Vreeland Act which allowed national banks to issue emergency currency backed by government securities; The Sheppard-Towner Maternity Act which provided federal funds for maternity care; And finally The Federal Reserve Act which created a central banking system known today as “the Fed”. These actions helped ease liquidity concerns among investors while providing stability within both domestic and international capital markets.
Ultimately however it would take time before trust could be restored between consumers, businesses, bankers and financiers after experiencing such dramatic losses due to speculation gone wrong during this dark period in American economic history known as The Panic of 1907.
