The 1907 Financial Panic and the 2008 Financial Crisis

The panic of 1907 and the Great Recession of 2007-2009 has both been major economic events in the United States economic history. This paper compares and contrasts these two major events and enables us to understand importance of certain financial institutions and regulations during troubled times in the financial sector. In this paper, both panics of 1907 and 2007 are historically analyzed and compared.

Throughout its history, the United States has experienced a series of panics, or economic downturns. Some financial experts believe that the way the economy is set up in this country contributes to panics being cyclical. In other words, there is no way to avoid an eventual bump in the road when it comes to the economy. The Panic of 1893 was one of the biggest in the country’s history, with unemployment across the country reaching record highs and banks failing at an alarming rate. When compared to the Great Depression that occurred decades later, the legacy of the Panic of 1893 as one of the worst we have experienced holds.

After a while, many businesses went bankrupt, leaving business owners with bills that went unpaid. Luckily, after World War I ended, America had become one of the world’s leading creditors. By this time, Americans, with full confidence of being prosperous forever, were increasingly investing in stocks. Unexpectedly, in the days of 29 October 1929 the stock market had crashed. Banks that had invested heavily on stock market and real estate now had lost most of their money. There is only little money left in the country by now; the period of Great Depression had arrived

In 1907, the United States went through a financial crisis known as the 1907 Bankers Panic. Out of necessity, President Roosevelt and Congress devised a system that would aid the economic position. A small group of nationally known financial moguls and politicians gathered at Jekyll Island and created the outline that became the Aldrich Plan for the growth of the Federal Reserve System. Attending the Jekyll Island meeting with Aldrich were:

The Panic of 1873 was a financial crisis that began a depression in Europe and North America that lasted from 1873 until 1879. Throughout the 1870s there were ups and downs on a mass level in the economy from the stock market crashing. The stock market crashed from investors investing too much in the railroads with borrowed money after the Civil War and panicking once the bank Jay Cooke and Companies credit became close to worthless. Investors tried to get their money out of the market by trading their shares and going to the bank to get their money out, but there were mass amounts of investors wanting their money from the bank Jay Cooke and Company along with other banks; everyone could not get their money due to the

In the year 1907, trust companies including Knickerbocker Trust, Trust company of America and many other banks started to failed, many people withdrew their money but many of them had lost everything. Historians Jon R. Moen, Ellis W. Tallman and Tyler E. Bagwell had analyzed the importance of the panic of 1907, which had led the birth of the federal serve.

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

human interest.1 This tragic crisis is characterized by many historians as the worst economic disaster in American history. There are many opinions expressed by historians and economists regarding the reason for the disaster. In this paper, I will connect the activities of the financial events of the Great Depression era to those that have occurred into the Twenty-First Century and bring to light the common thread between them.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

The financial crisis that put our economy on a downhill rocky road is known as the Great Recession of 2008. The U.S. Governments resolution to one the biggest panics was revolved around multiple bailout and fiscal measures. The fight to pull our weakening economy out of a dark hole left the American people with hope of advancing what gets thrown their way. The many bailout programs implemented by the U.S. Government can only hold the economy together for so long until were up to our knees in debt.

Prior to the crisis in 1907, banks were considered full service financial institutions. In the year 1913, the Federal Reserve System was created by congress to help stabilize the financial market by acting as the lender of last resort to the banking institutions. Nonetheless the great depression still hit the economy between 1929 and 1933 which led to the stock market crash and market share value decrease by 80%. By the 1980s, the economy had stabilized again and there was increase in computer analysis, electronic information transfer, increased importance of global markets and deregulation of financial institutions.

In 2008 the United States experienced the worst financial crisis since the Great Depression in the 1930s, primarily because of the bursting of the U.S. housing bubble and increasing default rates on subprime mortgages which caused the price of house to increase once a high amount of loans were given out by banks to potential homeowners. Securitization played a big role in this because of how risky the regulations are and the giant corporate companies that are truly fluctuating and controlling the market. At the peak of the financial crisis new specialized mortgage lenders and securitizers came along unrestricted by government regulations which resulted in an extreme number of foreclosures and the stock market to plummet.

The stock market is what one would know as a collective group of buyers/sellers that trade stocks, also known as shares on a stock exchange. These securities are listed on the exchange itself and trade freely each and every day. On the exchange, stocks move hands day in and day out. Companies are able to get their stock listed on the exchange at any time that they want. There are other stocks, too...known as OTC stocks or over the counter stocks that go through a specific dealer. Larger companies tend to have their stocks listed on exchanges all throughout the world. Participants in the market can be anyone from your grandma, to retail investors, day traders, institutional investors, and so forth. One notable exchange is the NYSE; also known as The New York Stock Exchange. Moving forward, a stock market crash is when a decline of stock prices takes place throughout the stock market that results in a catastrophic loss of wealth via paper. The crashes are driven strictly by panic 9 times out of 10 a crash takes place. As a crash is happening, panic occurs; the panic keeps evolving and ends up like the snowball effect before you know it. A crash occurs when economic events take place. These events are always bad news... The behavior of traders follows, which leads to a crash when panic ensues. Crashes normally occur of a seven day period and may extend even further. Crashes happen in bear markets as the market is already weak to begin with. Once traders see a drop in prices,

The year was 1928 and the American economy was thriving like it had never been before. With Henry Ford’s sponsorship of the assembly line, the automobile industry was rising and vehicles were becoming more affordable. The end of World War I was also having a positive effect on the American economy. The events leading to the crash of ’29 were recognizable and now as economists look back some ask how did we as a nation not see this coming? The actual crash did not occur overnight, it lasted over the span of five days, days that America will never forget.

The 2008 financial crisis can be traced back to two factor, sub-prime mortgages and debt. Traditionally, it was considered difficult to get a mortgage if you had bad credit or did not have a steady form of income. Lenders did not want to take the risk that you might default on the loan. In the 2000s, investors in the U.S. and abroad looking for a low risk, high return investment started putting their money at the U.S. housing market. The thinking behind this was they could get a better return from the interest rates home owners paid on mortgages, than they could by investing in things like treasury bonds, which were paying extremely low interest. The global investors did not want to buy just individual mortgages. Instead, they bought