August 24, 1857: The Ohio Life Insurance and Trust Company fails. The banking institution was founded in 1830 and based in Cincinnati, Ohio. Their offices in New York City ceased operations on this day secondary to bad investments, especially in agricultural businesses. The Crimean War had taken over much of Europe’s ability to grow crops but as the war ended, American exports declined and prices of food dropped. Also implicated were bad business practices and the possibility of embezzlement by upper management. The telegraph made it possible for news of the closure to spread quickly and this combined with already dropping markets led to a panic. The company also held mortgages with other Ohio investment banks. The bank was left with $7 million in liabilities. While a run on the banks was averted, the Panic of 1857 followed.
The SS Central America sunk only a few days later, on September 9. She was carrying 477 passengers and 101 crew when she was caught in a hurricane off the coast of the Carolinas. The loss of life was tremendous as 425 people were killed when the ship went down. The rest were saved by a Norwegian ship in the area. Also lost with the ship was the cargo she was carrying, about $2 million in gold. Many banks in New York were awaiting the arrival of the gold aboard the ship and without it were unable to meet their liabilities. The years prior to the crash had been prosperous and many banks as well as merchants and farmers, had taken risks with investments. But as prices plummeted, their gains turned into losses and resulted in a panic that took the Civil War to ease.
Another contributing factor was the decision in Dred Scott v Sandford in March 1857. The ruling stated Scott was unable to use the court system because he was not a citizen due to his skin color. It also ruled the Missouri Compromise was unconstitutional. The trouble between the North and South heated up with the ruling. The railroads were also affected due to their speculation in lands out west and the drop in the market prices for those lands. In 1855, a bushel of grain sold for $2.19 and it fell to $0.80 by 1858. This meant farmers were less likely to purchase any more lands to grow devalued crops and many Midwest towns were economically at risk.
Because of the connectedness of the world’s major economies, the Panic of 1857 was the first world-wide economic crisis. In Britain, laws were passed to keep from having gold and silver reserves to back currencies and this helped spread the Panic there. In the US, President James Buchanan felt the root cause was the use of non-backed paper money and all bills greater than $20 were withdrawn. Government interventions in controlling currencies included specie payments. Tariffs were passed which lowered duty on imported items which was hoped would boost American industries. The agrarian South was not nearly as affected as the North, especially in the Great Lakes region. It did help to fuel tensions about slavery and it was the Civil War which eventually brought an end to the panic itself.
A bank is a place that will lend you money if you can prove that you don’t need it. – Bob Hope
It’s easy to make money. You put up the sign Bank and someone walks in and hands you his money. The façade is everything. – Christina Stead
We all need money, but there are degrees of desperation. – Anthony Burgess
Banks are an almost irresistible attraction for that element of our society which seeks unearned money. – J. Edgar Hoover
Also on this day: Pompeii Disappears – In AD 79, Mount Vesuvius erupted.
Waffling – In 1869, a waffle iron was patented.
George Crum – In 1853, George Crum invented potato chips.
Not a Black Hole – Yet – In 1690, Calcutta was founded.
Going Up in Flames – In 1814, the British set fire to much of Washington, DC.