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Panic Of 1907 Essay

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The Panic of 1907 was one of the first banking crisis of the 20th century. In comparison of other notorious crises in the economic history, it was fairly contained within the United States, and short in duration, however, no less severe: at the end of the crisis eventually led to a drop in commodity prices by 21 percent, the US stock market halved in value and unemployment rose from 2.8 percent to 8 percent. In the wider historic context, it lead to the creation of the Federal Reserve, as legislators and the public were no longer trusting players in the private sector to resolve on their own in times of crises.

Causes of the financial crisis
One of the causes leading up to the financial crisis was the diminishing trust in certain financial …show more content…

Events leading up to the crisis
The trigger of the crisis was the attempted cornering of United Copper by Augustus and Otto Heinze together with Charles Morse. They led a consortium of national and state banks as well as trust companies and insurances (Bruner, 2007). The scheme assumed that the Heinze family was already in possession of a majority of United Copper and not enough free float stock would be available in the event of a short squeeze. Otto Heinze started to buy up stocks but once they issued the call for their borrowed stares, the borrowers were able to find shares available shares to return.
Propagation of the crisis
As a result from the trade, Otto Heinze, Heinze’s brokerage firm Gross & Kleeberg as well as Savings Bank of Butte Montana, which held United Copper as collateral, went bankrupt. Other banks who were involved with the Heinze family and Charles Morse immediately became the target of bank runs of concerned depositors. Eventually the Knickerbocker Trust, New Yorks third biggest trust, lost trust of its depositors because of the close business relationship of its president Charles Barney with Augustus

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