Panic of 1901
Encyclopedia
The Panic of 1901 was the first stock market crash
on the New York Stock Exchange
, caused in part by struggles between E. H. Harriman
, Jacob Schiff
, and J. P. Morgan
/James J. Hill
for the financial control of the Northern Pacific Railway
. The stock cornering was orchestrated by James Stillman
and William Rockefeller
's First National City Bank financed with Standard Oil
money. After reaching a compromise, the moguls formed the Northern Securities Company
. As a result of the panic, thousands of small investors were ruined.
, who had allied himself with financier J.P. Morgan.
buying up its stock. The panic began when the market crashed during that afternoon in May. Investors did not see it coming so shortly before 1:00pm, the decline in the market was beginning to show. First came the gradual decline in Burlington
stock. It had been high all morning but suddenly a sharp weakness came about. Prices of stocks such as St. Paul, Missouri Pacific, and Union Pacific began to fall. Soon enough the whole market was drowning. Investors that had once held on tightly to their stocks were selling out of pure panic. Others caught on and an overwhelming cry of "Sell! Sell! Sell!" was heard throughout the floor of the New York Stock Exchange
. During the selling, a rumor spread among traders that Arthur Housman, broker for J.P. Morgan, had died. Housman, the head of A.A. Housman & Company, was brought to the floor of the New York Stock Exchange
to assure traders that J.P. Morgan was still doing business.
of 1890 (see Northern Securities Co. v. United States
).
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...
on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
, caused in part by struggles between E. H. Harriman
E. H. Harriman
Edward Henry Harriman was an American railroad executive.-Early years:Harriman was born in Hempstead, New York, the son of Orlando Harriman, an Episcopal clergyman, and Cornelia Neilson...
, Jacob Schiff
Jacob Schiff
Jacob Henry Schiff, born Jakob Heinrich Schiff was a German-born Jewish American banker and philanthropist, who helped finance, among many other things, the Japanese military efforts against Tsarist Russia in the Russo-Japanese War.From his base on Wall Street, he was the foremost Jewish leader...
, and J. P. Morgan
J. P. Morgan
John Pierpont Morgan was an American financier, banker and art collector who dominated corporate finance and industrial consolidation during his time. In 1892 Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric...
/James J. Hill
James J. Hill
James Jerome Hill , was a Canadian-American railroad executive. He was the chief executive officer of a family of lines headed by the Great Northern Railway, which served a substantial area of the Upper Midwest, the northern Great Plains, and Pacific Northwest...
for the financial control of the Northern Pacific Railway
Northern Pacific Railway
The Northern Pacific Railway was a railway that operated in the west along the Canadian border of the United States. Construction began in 1870 and the main line opened all the way from the Great Lakes to the Pacific when former president Ulysses S. Grant drove in the final "golden spike" in...
. The stock cornering was orchestrated by James Stillman
James Stillman
James Jewett Stillman was an American businessman who invested in land, banking, and railroads in New York, Texas, and Mexico.-Biography:...
and William Rockefeller
William Rockefeller
William Avery Rockefeller, Jr. , American financier, was a co-founder with his older brother John D. Rockefeller of the prominent United States Rockefeller family. He was the son of William Avery Rockefeller, Sr. and Eliza Rockefeller.-Youth, education:Rockefeller was born in Richford, New York,...
's First National City Bank financed with Standard Oil
Standard Oil
Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
money. After reaching a compromise, the moguls formed the Northern Securities Company
Northern Securities Company
The Northern Securities Company was an important United States railroad trust formed in 1902 by E. H. Harriman, James J. Hill, J.P. Morgan, J. D. Rockefeller, and their associates. The company controlled the Northern Pacific Railway, Great Northern Railway, Chicago, Burlington and Quincy Railroad,...
. As a result of the panic, thousands of small investors were ruined.
Key players
One of the key players in this was Edward Henry Harriman who "by 1898…was chairman of the executive committee of the Union Pacific and he ruled without dissent. But he speculated heavily with Union Pacific holdings, and his attempt to monopolize the Chicago rail market led to the Panic of 1901." Harriman's opponent in the struggle for Northern Pacific was James J. HillJames J. Hill
James Jerome Hill , was a Canadian-American railroad executive. He was the chief executive officer of a family of lines headed by the Great Northern Railway, which served a substantial area of the Upper Midwest, the northern Great Plains, and Pacific Northwest...
, who had allied himself with financier J.P. Morgan.
Causes
One of the causes of this stock market crash was Harriman's effort to gain control of Northern Pacific bybuying up its stock. The panic began when the market crashed during that afternoon in May. Investors did not see it coming so shortly before 1:00pm, the decline in the market was beginning to show. First came the gradual decline in Burlington
Chicago, Burlington and Quincy Railroad
The Chicago, Burlington and Quincy Railroad was a railroad that operated in the Midwestern United States. Commonly referred to as the Burlington or as the Q, the Burlington Route served a large area, including extensive trackage in the states of Colorado, Illinois, Iowa, Kentucky, Missouri,...
stock. It had been high all morning but suddenly a sharp weakness came about. Prices of stocks such as St. Paul, Missouri Pacific, and Union Pacific began to fall. Soon enough the whole market was drowning. Investors that had once held on tightly to their stocks were selling out of pure panic. Others caught on and an overwhelming cry of "Sell! Sell! Sell!" was heard throughout the floor of the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
. During the selling, a rumor spread among traders that Arthur Housman, broker for J.P. Morgan, had died. Housman, the head of A.A. Housman & Company, was brought to the floor of the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
to assure traders that J.P. Morgan was still doing business.
Effects
Affected stocks included St. Paul, Union Pacific, Missouri Pacific, Amalgamated Copper, Sugar, Atchison, and United States Steel. However, not all stocks finished the day out on a rough note. Northern Pacific had not only avoided a decline, but it had also seen a net advance of 16½ points.Results
As a result of this crash, Harriman and Hill joined forces to form a holding company, the Northern Securities Company, to control the Northern Pacific, the Great Northern, and the Burlington. [Wolff 2003] This company was shortly shut down under the Sherman Antitrust ActSherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
of 1890 (see Northern Securities Co. v. United States
Northern Securities Co. v. United States
Northern Securities Co. v. United States, 193 U.S. 197 , was an important ruling by the U.S. Supreme Court. The Court ruled 5 to 4 against the stockholders of the Great Northern and Northern Pacific railroad companies, who had essentially formed a monopoly, and to dissolve the Northern Securities...
).