The Panic of 1907
The Panic of 1907 was also known as the “Bankers Panic” or the “Knickerbocker Crisis” was a financial crisis that took place over a three-week period from mid-October, when the NYSE fell almost 50% from its peak in 1906.
The panic caused a run on the banks that included a retraction of market liquidity by a number of New York City banks and Bucket Shops. Bucket Shops we’re unregulated businesses that allowed gambling based on the prices of stocks and commodities.
Otto Heinz known as one of the three Copper Kings in Butte, Montana moved to New York in 1997 and tries to make a killing in the copper market.
Heinze’s plan was to aggressively purchase the stock of his own New York based company United Copper so that the price would soar. Then, with prices high, and by controlling most of the stock, he would force the short sellers to repay the borrowed stock. The short sellers would have no option but to settle with Heinz for high prices.
Banks that had lent money to the investors suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbockers Trust Company that was New York City’s third largest trust.
The panic extended across the country as people withdrew deposits from their regional banks.
The panic became the 9th largest decline in U.S. stock market history.
The panic might have deepened if not for the intervention of financier J.P. Morgan who pledged large sums of his own money, and convinced other New York bankers to do the same
The following year, 1908, Senator Nelson Aldrich one of the Republican “Big 4” chaired a commission to investigate the crisis and propose future solutions, leading to the creation of the Federal Reserve System (The Fed) that was enacted December 23, 1913.
During the panic Roosevelt was hunting in Louisiana.