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ThePanic of 1884 was an economic panic during theDepression of 1882–1885.[1] It was unusual in that it struck at the end rather than the beginning of the recession. The panic created a credit shortage that led to a significant economic decline in the United States, turning a recession into a depression.[2]
In the late 19th century, thegold reserves of Europe were depleted and, as demand for it rose,[3] more than $150 million in gold was exported from the United States between 1882 and 1884.[2][4] The New York Citynational banks halted investments in the rest of theUnited States and called in outstanding loans.[1]
ThePanic of 1873 was also a factor in the Panic of 1884. The 1873 panic was caused by practices including speculative bonds and overextension of credit to fund the construction of infrastructure.[5][6] Part of the overextension of credit before 1873 was for railroads, particularly the Northern Pacific railroad, which was financed by Cooke & Co.[6] In addition, the failure of banks in 1873 undermined the confidence people had in them, increasing mistrust.[5]
The failure of several banks set off the panic of 1884.
Around 1880,Ferdinand Ward andUlysses “Buck” Grant Jr., son of former presidentUlysses S. Grant, joined to form Grant and Ward, a brokerage firm.[7][8] Ward made a series of bad investments but altered the books to make it appear that the firm was still making money.[8] He then raised money through aPonzi-style scheme by promising investors a 10% per month return on investment, but no money was invested. Payments came from new investors.[8] In addition to capital from investors, the firm was financed in part by James Fish's Marine National Bank.[9] The Marine National Bank had taken a $1.6 million loan from the city.[8] In April 1884, the city's comptroller reduced the city's deposits with the bank, causing the bank to fail and Ward's scheme to be exposed.[8]
In May 1884 the two firms, the Marine National and the brokerage firm Grant and Ward, crashed when their owners’ speculative investments lost value. The failure ofGrant and Ward[3] andMarine National Bank tipped off the Panic of 1884.[7] When the firms collapsed, it had a ripple effect acrossWall Street, causing other firms to fail.
Another cause of the panic and mistrust in 1884 was John Chester Eno's embezzlement of over $3 million from the Second National Bank.[10] The embezzlement was news around the country and he fled to Canada after the bank was almost out of money.[10] In light of the situation, large numbers of depositors ran to the bank to withdraw their deposits.[11] His father,Amos Eno, replaced the money Eno had stolen.[11]
The panic was mostly contained to banks in New York City.[12][13]
The Metropolitan National Bank closed after a rumor spread that the president was going to borrow money from the bank to use on railroad securities.[12] This claim was proven untrue later.[12] The institution had financial ties to the banks around it, which raised doubts to the banks it was linked with, after its closure.[12] This started to spread through Metropolitan's network to institutions located in New Jersey and Pennsylvania. But, it was quickly contained.[12]
TheNew York Clearing House thoroughly examined the Metropolitan and deemed it solvent.[12] The Clearing House advertised the solvency and loaned the bank $3 million so it could withstand the situation and not crash.[12] These actions reassured the public that their money was safe, and the panic came to an end.[12]
Some accounts blamed the New York Clearinghouse's decision to stop publishing bank-specific information along with other actions since it is viewed to have alleviated the need for a suspension of convertibility.[13] It is argued that this is evidenced in the way the panic was largely confined to New York.[13]
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