Comparisons to the stock market crash of were tossed around last week as the Dow Jones industrial average had its worst week in at least 75 years. In trying to make sense of recent events, a historian at the College of William and Mary has argued the crisis is not unlike the Panic of , when rampant real estate speculation culminated in a credit crunch, and banking failures that led to broad panic in the stock markets.

That crash lasted more than four years. While the stock market collapse is widely perceived by economists to have played a role in the economic contraction , the stock market collapse in — much like the one now — came after a building boom created by easily obtainable mortgages and an ensuing banking crisis, said Prof. Scott Reynolds Nelson, whose piece in The Chronicle of Higher Education has been widely translated into Korean, Spanish, Italian and Russian and noted in our sister blog, Economix.

Since his article was published, Professor Nelson, who specializes in 19th-century history, has gotten many calls from Wall Street observers asking about how the crisis played out. He has even received an offer to write a financial column for the Motley Fool , which he found amusing. Before the panic, railroad and real estate speculation had been rampant [pdf] — and values had multiplied to unheard of heights. Credit was easy, and new financial instruments were created, including new types of railroad bonds whose values no one could be sure of.

American securities were traded worldwide and about two-thirds of those bonds were held overseas, according to Professor Nelson. As one historian, James Ford Rhodes, who lived through the period, observed. Prosperity was written all over the face of things. Manufacturers were busy workmen in demand.

Streets and shops were crowded and everywhere new buildings going up. Prices of commodities were in high, demand pretty good. Everybody seemed to be making money. Yet, there were already financial problems in Europe. The panic here started on a Thursday, Sept. The announcement hit Wall Street with the force of a thunderbolt from a clear sky. As the Times reported at the time:.

The brokers stood perfectly thunderstruck for a moment, and then there was a general run to notify the different houses of Wall Street of the failure. The brokers surged out of the Exchange, stumbling pell mell over one another in general confusion and reached their offices in race horse time. The members of the firms who were surprised by this announcement had no time to deliberate. The bear clique was already selling the market down in the Exchange, and prices were declining frightfully.

Investors started trading the next day, a Saturday, optimistic that the panic had subsided [pdf]. On Sunday morning, President Ulysses S. Grant and the treasury secretary, William A. Richardson, came to New York, spending the day in consultation with Cornelius Vanderbilt, Henry Clews and other prominent business men to cobble together a solution.

Businessmen, bankers and merchants flocked to the Fifth Avenue Hotel, beseeching President Grant to increase the currency by every means in his power, declaring that unless the government came to the rescue nothing could save the country from bankruptcy and ruin. Meanwhile, banking houses in cities outside New York also failed. With the credit markets frozen, at one point the overnight lending rate shot to a quarter of a percentage point, Professor Nelson said, which annualized is about percent.

The top national banks of New York formed a Clearing House Committee [pdf], pooling their cash and collateral into a common fund and issuing loan certificates against it that would operate like cash. This became the basis for the reconstruction of the credit markets. But it took about 40 days [pdf]. During the full course of the crisis, 73 members of the stock exchange and 5, mercantile companies [pdf] failed.

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Even though the Wall Street panic was over, the commercial crisis across the country was just beginning because of the lingering credit crunch. Even two months later in Richmond, Va. A number of railroads defaulted in the payment of the interest on their bonds and railroad construction dropped from 7, miles in to 1, in [pdf].

Businesses with good credit curtailed their purchases, while those with bad credit had no buying power. The closing of cotton and iron mills and other manufacturers threw hordes of laborers into unemployment, many of them former Civil War soldiers. Relief rolls grew rapidly in major cities, with 25 percent unemployment in New York City alone. The panic was not without political consequences.

The collapse of farm prices set the scene for an agrarian insurgency. This recession hit industrial workers particularly bad. A bitter antagonism emerged between workers and the leaders of banking and manufacturing, which led to labor unrest that continued through the following decades, resulting in some of the most violent strikes in American history. The financial crisis led Congress to pass a bill in that would allow for more printing of currency to spur inflation and reduce the real value of debts.

In a surprise move that was viewed by many as the most important event of his administration to that point, President Grant vetoed the bill. In early , Congress passed a bill, known as the Specie Resumption Act , which would back United States currency with gold. By pegging the dollar against hard currency, the act helped curb inflation, tame speculation and produce a stable dollar. It turned the Republican Party toward a stance of conservative fiscal policies. The American and world economy did recover — slowly, but it took more than four years of depression.

A New York Times magazine article assessed the panic, observing in a perhaps overly lyrical way:. However, as the sun always shines after rain, so conditions began to improve in , and by there was a better feeling throughout the nation.

Confidence returned slowly, but it did return, and the tide of prosperity rose steadily until its inspiration had penetrated every city and hamlet in the country. The fertile lands of the West and South brought forth bountiful harvests, and ocean commerce expanded under the stimulus of good crops.

The excess of American exports was only one of the features of this golden period in our affairs, which broke all records. Stocks began their rise in spring of , and in , men of means awoke suddenly to the fact that railroads were of value as investments after all, and a marvelous buying of securities sprang up, which electrified the financial world and led to a boom in prices.

The article argued perhaps too simplistically that the panic ultimately helped to impose belt-tightening for consumers and businesses, a moderation that proved healthy for the post-panic economy: An optimist could perhaps argue that the current financial crisis will also cause consumers and businesses to change their habits.

Indeed, some changes are already happening: The last independent investment banks have agreed to live with more regulations as they become bank holding companies , and consumer debt dropped in August, the first time it has fallen in a decade. A historian would remind us: New Yorkers have my sympathy.

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They will have financial trouble for years. Wall street lay-offs are just beginning. No one has explained why we need all of these banks with home sales down, auto sales off thirty percent and no bubble to use to create CDOs. I must say that I agree with the comparison. However, it is very interesting that only one of your reference articles seems to give any notice of the man responsible for overseeing the stability of the banks.

I believe this is the current failure.

economic crisis , stock market crash in Vienna, , upset Stock Photo, Royalty Free Image: - Alamy

There has not been enough attention placed on what the Comptroller of the Currency is doing. Who has been conducting the bank examinations? What have the examiner reports said of the soundness of the banks?

John Jay Knox served as the Comptroller of the Currency from untill He was responsible for regulating the National Banking System. At a time when no central bank existed in the United States, Mr. Knox can be considered the Paul Volker and Alan Greenspan of his day.

In February , Congress passed the Coinage Act that led to the demonetization of silver and put the United States on the Gold Standard. His tenure as Comptroller of the Currency marks a period of how such a national currency administered through a national banking system lifted the United States to become the dominant financial power in the world.

Knox gave the analysis that they have frequently , , been brought on by overspeculation in real estate. This gives us a good idea of what will happen for years to come.

The credit crunch will wind it way through the economy for years. Housing prices still have to drop alot and individuals must reduce their debt. Thank you for this write up.

No one ever wants to see people go through this: But one thing that really needs to fundamentally change in this country is the excessive spending on borrowed money. It happens country-wide, in corporations, and especially with individuals. I think that times have been too good for too long — even the last recession was extremely mild.

We need to start financing ourselves as opposed to leaving a ton of debt to future generations. Even more frustrating is that neither presidential candidate will speak about these things, as they fear they will lose votes. In the most recent debate someone asked about what Americans will have to sacfrifice due to this crisis. It would have been really nice to hear either Obama or McCain say that the government needs to be more efficient in spending, but so does each and every American.

Everyone needs to do their part. We have lived long enough with a mentality of bigger is better and more, more more. As horrible as it sounds, maybe this crisis is what was needed to make people realize how much we have all taken for granted.

Thanks for the article. In other efforts of historical elasticity, shall we make another comparison when the market recovery from the debacle began in and coincided with the return of American northern occupation troops to their southern barracks? Or that that troop draw-down was then followed by a shift of military attention to more distant battlefields in an earlier so-called war on terror — the dismal and unfortunate Indian wars in the west?

What plastic lessons for today, if any, are we to take from that possible market-military connection? Similar to the housing paper distributed around the world in the current crisis, in the crash of valueless railroad paper was floated across the globe while no tracks were being laid. Noting that establishing a gold standard for currency helped sold the crisis, I am wondering why no one today is suggesting a similar fix?

Global financial dictatorship has been a long time coming. On October 2nd, congressman Brad Sherman said several members of Congress were warned martial law would be imposed if bailout legislation was not passed. According to investment analyst Puru Saxena speaking on this plan, flooding the financial system with over-printed currency will eventually lead to the total collapse of the dollar. The government takes half your paycheck.

It is going to get worse! Since these highflying CEOs got to pocket these extreme profits, then they should also personnally assume the losses as well!!! I read this article with great interest, while I was sipping my beer, and I noticed the label: At least something good came out of this. That would be a fascinating piece of history! New York Today is still going strong! Though no longer on City Room, New York Today continues to appear every weekday morning, offering a roundup of news and events for the city.

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We will continue to publish one item each weekday morning and a round-up in Monday's print edition. You can find the latest entries at nytimes. Send questions or suggestions by e-mail. Sections Home Search Skip to content. The New York Times window. City Room New York and the Panic of Subscribe Now Log In 0 Settings. Close search Site Search Navigation Search NYTimes. Clear this text input.

Lee October 14, 9: Investors running from Wall Street on Sept.

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Originally painted by Howard Pyle. Clearly, the partisan bickering and blame game is in error. That historian was more of a philosopher: I found this article interesting…. Recession ends with a war. Looking for New York Today? New York Today New York Today is still going strong! Lookin for Metropolitan Diary? Browse Posts by Borough Brooklyn The Bronx Manhattan Queens Staten Island.