1907 — The Panic That Built the Fed
When Wall Street’s meltdown taught America to invent financial duct tape.
By BananaKing for HistoryGoneBananas — where capitalism’s bad days become great stories.
On October 23, 1907, the New York Stock Exchange nearly died of embarrassment.
Stocks crashed, depositors panicked, and the word “trust” — as in “trust companies” — suddenly felt ironic.
A failed attempt to corner the copper market had triggered a run on banks.
Within days, financial contagion spread through New York like a rumor in a crowded bar: loud, fast, and entirely human.
The Domino Effect
At the center of the chaos was the Knickerbocker Trust Company — once one of New York’s most respected institutions, now a liquidity bonfire.
When Knickerbocker failed, depositors at other trusts followed suit.
People lined up for hours to withdraw savings that no longer existed, turning “bank run” into a literal activity.
There was no central bank. No lender of last resort.
Just J.P. Morgan — a man so rich and grumpy he could singlehandedly stabilize capitalism by shouting at it.
The Night the Money Men Locked the Door
Morgan convened New York’s top bankers in his library, locked them in, and refused to let them leave until they agreed to bail out the system.
By candlelight, they hashed out emergency loans, swapped assets, and begged the press for calm.
It was the financial equivalent of plugging leaks with gold and guilt.
By the end of the week, panic receded — not because the problem was fixed, but because enough people believed it might be.
From Chaos to Centralization
The Panic of 1907 exposed what America’s booming economy lacked: an adult in the room.
In its wake came the National Monetary Commission and, eventually, the Federal Reserve (1913).
Morgan’s private rescue had saved the markets, but it also proved no single banker should have that much power again — at least in theory.
The irony, of course, is that the Fed inherited Morgan’s job description, just with better stationery.
The Lesson We Keep Forgetting
Every financial system is built on confidence — the collective hallucination that the numbers mean something real.
When confidence cracks, the system stares into the abyss and starts drafting legislation.
1907 wasn’t the last time this happened. It was just the time we decided to institutionalize the panic.
Takeaway
Every crash is an education.
Regulation begins where denial ends.
Capitalism’s motto: “Never waste a crisis.”