The collapse of speculative trusts and the 1907 financial crisis
1. The Panic of 1907: Birth of the Central Bank FrameworkThe Panic of 1907 began with the collapse of speculative trust companies in New York and quickly escalated into a nationwide liquidity crisis. With no central bank to act as a lender of last resort, financial markets relied on private financiers such as J.P. Morgan to stabilize the system. Bank runs spread, credit contracted sharply, and industrial production fell by nearly 11 percent.The crisis exposed structural weaknesses:Lack of a central authority to provide emergency liquidityDisjointed banking network with minimal coordinationHeavy exposure to speculative venturesThe regulatory outcome was transformative. In 1913,…
