Twelve years of unchecked expansion (1865-1873), the economy was bloated from inflation, an excess of speculation, and one man’s mistake combine for Panic. For 5 years after the 1873 panic, banks closed (37), brokerage houses shut their doors (2), markets deflated, American’s faith in the economy was nonexistent, and the nation seemed on the verge of collapse. It was one of the worst financial crises in America’s history.
The failure of the Philadelphia investment house of Jay Cooke & Co., who played a large role in financing the Union war effort by marketing federal bonds to farmers and workers, began when he decided to invest in just one more railroad. Between 1865-1873, Cooke’s firm financed 35,000 miles of new railroads track.
The Union Pacific was a success. The Northern Pacific was not.
Railroads overbuilt, setting the stage for disastrous competition for freight traffic. Investors speculated heavily in railroad securities, and in 1873, it all crashed.
Cooke’s failure drove panicked banks to demand payment of loans. Investors rushed to sell stocks in order to protect their capital.
“As stocks on the New York exchanges sunk lower, borrowers had no money with
which to pay their debts. Businessmen, many of whom had borrowed money to
expand their operations during boom times, released workers.”
It’s got to be difficult to be single handedly responsible for such a financial depression. Cooke was in bankruptcy, involved in Canadian corruption scandals, caused Prime Minister Sir John A. Macdonald to lose his office in the 1873 election, and yet still managed to turn everything around.
By 1880 he’d met all his obligations, invested in an Utah silver mine, and was wealthy once more. Ha. Must be nice. Forced to give up his Ogontz, PA estate in bankruptcy, he repurchased it and converted it into a school for girls. Actually, it seemed he really was a nice guy.