Can we learn about future financial crises from those of the past? Our researchers consider economic models to compare the recession of 2008 to the panics of 1873 and 1884, the Barings Crisis of 1890, the subsequent panics of 1893 and 1896, the panic of 1907, and the real estate crash of 1921.
The trigger of the Panic of 1907 was speculators attempting to corner the copper market. While buying up shares of companies with copper holdings in Montana, they discovered that the shares they purchased had been used as collateral for other purchases. The two leading speculators had used funds they borrowed from the Knickerbocker Trust Company to pay for their shares. When it became known that Knickerbocker had provided their funding, the bank run ensued.
The ‘Panic of 1907’ caused nationwide bank failures, timber prices collapsed, mine operations ceased, railroads stopped running, a rash of bankruptcies occurred, and a dramatic loss of confidence and a nasty economic downturn sank in for the next year. The First National Bank, of White County, TN (pictured here) was one of the few banks in that state which was able to keep open through the Panic.