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Panik von 1907

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A swarm on Wall Street attempts to withdraw deposits during the bank panic in October 1907.

The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis in the United States. The stock market fell nearly 50% from its peak in 1906, the economy was in recession, and there were numerous runs on banks and trust companies. Its primary cause was a retraction of loans by some banks that began in New York City and soon spread across the nation, leading to the closings of banks and businesses. The 1907 panic was the fourth panic in 34 years.

The panic was sparked after an attempt to corner the market in a copper company collapsed in October. The failure of the corner prompted runs on banks that had loaned money for the scheme. This spread to affiliated banks and trusts, leading to the downfall of the Knickerbocker Trust Company, New York's third largest trust company, a week later. From Knickerbocker, the contagion spread throughout New York City trusts and then across the country, as regional banks pulled deposits out of New York, and people everywhere pulled their deposits out of regional banks.

At the time the United States had no central bank to provide liquidity. The panic may have been worse if not for the intervention of New York's most famous banker J.P. Morgan, who convinced other bankers in the city to provide a backstop for the crisis. By November the contagion stopped, and the next year, Senator Nelson W. Aldrich became chairman of a commission to investigate the panic and propose future solutions. The commission reports led directly to the creation of the Federal Reserve System.

Economic conditions

The 1906 San Francisco earthquake badly damaged the U.S. economy, further exacerbating the vulnerability of the national banking system.

Ever since U.S. President Andrew Jackson had done away with the Second Bank of the United States, the U.S. had no central bank. With no central bank, the supply of money in New York City fluctuated due to the country's agriculture. Every autumn, money flowed out of New York City, to purchase the harvest of America's farmers. To attract money back to the city, interest rates would rise in the autumn. Foreign investors would thus send money to New York to take advantage of these rates.[1]

The U.S. economy had been particularly unstable since the April 1906 earthquake that devastated San Francisco, California. This prompted an even greater flood of money from New York to San Francisco to help with reconstruction. In September of 1906, the stock market in the United States reached a peak and began to decline.[2] Another stress on the money supply occurred in late 1906 when the Bank of England raised its interest rates, and thus more money than expected stayed in London.[3]

From September 1906 to March 1907 the stock market slid, gradually losing 7.7 percent of its value.[4] Then, from March 9 to March 26, stocks fell 9.8 percent further.[5] The economy stayed shaky through the summer. Several severe shocks hit the system: the stock of Union Pacific, among the most common stocks used as collateral, fell 50 points; in June an offering of New York City bonds failed; in July the copper market collapsed; and in August the Standard Oil Company was hit with a $29 million fine for antitrust violations.[6] In the first nine months of 1907, stocks were off a total of 24.4 percent.[7]

On July 27 the Commercial & Financial Chronicle wrote: "the market keeps unstable... no sooner are these signs of new life in evidence than something like a suggestion of a new outflow of gold to Paris sends a tremble all through the list, and the gain in values and hope is gone."[8] The fall season was always a vulnerable time for the banking system—combined with the roiled stock market, even a small shock could have grave repercussions.[9]

Panic

Timeline of panic
in New York City[10]
Oct. 15 Otto Heinze attempts to corner the stock of United Copper. The stock opens at $50 per share and rises to $59 before collapsing to $36 at the end of the day.
Oct. 16 United Copper stock falls further, closing the day at $10 per share. Otto Heinze's brokerage house, Gross & Kleeberg is forced to close doors. This is the date traditionally cited as when the corner failed.
Oct. 17 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.
Oct. 20 The New York Clearing House forces Augustus Heinze and Charles W. Morse to resign from all their banking interests.
Oct. 21 Charles T. 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 its clearing house.
Oct. 22 A bank run forces the Knickerbocker to suspend operations.
Oct. 23 J.P. Morgan persuades other trust company presidents to provide liquidity to the Trust Company of America, staving off its collapse.
Oct. 24 Morgan persuades bank presidents to provide liquidity to the New York Stock Exchange which nearly closes early. Treasury Secretary George Cortelyou agrees to deposit Federal money in New York banks.
Oct. 27 The City of New York tells Morgan associate George Perkins that if they cannot raise $20–30 million by November 1, the city will be insolvent.
Oct. 28 Morgan purchased $30 million in city bonds, averting bankruptcy for the city.
Nov. 2 Moore & Schley, a major brokerage house, nears collapse because its loans were backed by the Tennessee Coal, Iron & Railroad Company (TC&I), a stock whose value was questioned. A proposal is made for U.S. Steel to purchase TC&I.
Nov. 3 The Trust Company of America again nears collapse. Morgan arranges a $25 million loan from banks to save the Trust.
Nov. 4 President Theodore Roosevelt approves U.S. Steel's takeover of TC&I, despite anticompetitive concerns.
Nov. 5 Markets are closed for Election Day.
Nov. 6 U.S. Steel completes takeover of TC&I. Markets begin to recover. Runs at the Trust Company of America mostly stop.

One of the contributing factors of the Panic involved F. Augustus Heinze and his bank, Mercantile National Bank. Heinze copied the speculation tactics of Charles W. Morse, who had obtained control of the Bank of North America and other banks to float consolidations and other schemes. In 1906, Heinze sold his shares in Montana copper mines for $12 million. He then moved to New York, bought Mercantile National Bank and became a director in a national financial chain.

In March 1907, over-expansion and poor speculation led to a stock market crash. Money became extremely tight. A second crash occurred in October 1907. This time, the crash was directly precipitated by Heinze's brother, Otto, who had used money borrowed from his brother's bank in a failed attempt to corner United Copper. The failure caused the collapse of Heinze's bank, and investors at banks connected to Heinze's bank became panicked. The crisis worsened, and because of an association with Charles Morse, the ill association spread to Charles T. Barney's Knickerbocker Trust Company, the third largest trust in New York. In the wake of the crash, Heinze was forced to resign as bank president. On October 21, the National Bank of Commerce ceased to honor checks of Knickerbocker Trust, causing a run on the Knickerbocker Trust. By the end of October 22, the National Bank of North America had failed and runs were sparked on nearly every trust in New York.

To bring relief to the situation, United States Secretary of the Treasury George B. Cortelyou earmarked $35 million of Federal money to quell the storm. Complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. Morgan organized a team of bank and trust executives. The team redirected money between banks, secured further international lines of credit, and bought plummeting stocks of healthy corporations. Within a few weeks the panic passed.

Aftermath

Early in 1907, banker Jacob Schiff of Kuhn, Loeb & Co., in a speech to the New York Chamber of Commerce, warned that "unless we have a central bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history."

A 1910 editorial cartoon in Puck titled: "The Central Bank--Why should Uncle Sam establish one, when Uncle Pierpont is already on the job?"

Following the Panic of 1907, banking reform became a major issue in the United States. In May 1908, Congress passed the Aldrich–Vreeland Act which established the National Monetary Commission to investigate the panic and to propose legislation to regulate banking. Senator Nelson Aldrich (R-RI), the chairman of the National Monetary Commission, went to Europe for almost two years to study that continent's banking systems.

A meeting at Jekyll Island off the coast of Georgia in November 1910 may have hastened the creation of the Federal Reserve. Upon Aldrich's return, he brought together many of the country's leading financiers to the Jekyll Island Club to discuss monetary policy and the banking system, an event which some say was the impetus for the creation of the Federal Reserve.

On the evening of November 22 1910, Sen. Aldrich and A.P. Andrews (Assistant Secretary of the Treasury Department), Paul Warburg (a naturalized German representing Kuhn, Loeb & Co.), Frank A. Vanderlip (president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), left Hoboken, New Jersey on a train in view of a group of confused reporters, who wondered why these bankers, representing about one-sixth of the world's wealth, were gathering at this particular place and time and leaving together.

Forbes magazine founder B. C. Forbes wrote several years later:

Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written... The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York’s ubiquitous reporters had been foiled... Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry... Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.[11]

In 1912, the National Monetary Commission recommended the creation of a central bank. Congress passed the Federal Reserve Act in 1913, which mandated the creation of a central banking system to dampen the effects of future panics. The legislation was enacted on December 23, 1913, creating the Federal Reserve System.

Notes

Vorlage:Reflist

References

Vorlage:BankPanicUSA Vorlage:Stock market crashes

  1. ↑ Vorlage:Harvnb
  2. ↑ Vorlage:Harvnb
  3. ↑ Vorlage:Harvnb
  4. ↑ As measured by an index of all listed stocks, according to Vorlage:Harvnb
  5. ↑ Vorlage:Harvnb
  6. ↑ Vorlage:Harvnb
  7. ↑ Vorlage:Harvnb
  8. ↑ Vorlage:Harvnb
  9. ↑ Vorlage:Harvnb
  10. ↑ Distilled from Vorlage:Harvnb
  11. ↑ Vorlage:Harvnb
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