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. [1]
One of the key players was E. H. 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." [2] One of the causes of this stock market crash was Harriman's effort to gain control of Northern Pacific Railway by buying up its stock.
The panic began when the stock market crashed during the afternoon of May 8, 1901. [3] Investors did not see it coming, but by 1:00 pm, the decline in the market was beginning to show. First came the gradual decline in Chicago, Burlington and Quincy Railroad (CB&Q) 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 who had once held on tightly to their stocks were selling out of panic. Others caught on and an overwhelming cry of "Sell! Sell! Sell!" was heard throughout the floor of the New York Stock Exchange. [4]
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 & Co. was still doing business. [5]
Affected stocks included St. Paul, Union Pacific, Missouri Pacific, Amalgamated Copper, Sugar, Atchison, and United States Steel. However, not all stocks declined: Northern Pacific saw a net advance of 16+1⁄2 points. [6]
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 CB&Q. [7] This company was shortly shut down under the Sherman Antitrust Act of 1890. [8]
The New York Stock Exchange is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is the largest stock exchange in the world by market capitalization, exceeding $25 trillion in July 2024. The NYSE is owned by Intercontinental Exchange, an American holding company that it also lists. Previously, it was part of NYSE Euronext (NYX), which was formed by the NYSE's 2007 merger with Euronext. According to a Gallup poll conducted in 2022, approximately 58% of American adults reported having money invested in the stock market, either through individual stocks, mutual funds, or retirement accounts.
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic system to process financial transactions.
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The Northern Pacific Railway was an important transcontinental railroad that operated across the northern tier of the western United States, from Minnesota to the Pacific Northwest. It was approved and chartered in 1864 by the 38th Congress of the United States in the national / federal capital of Washington, D.C., during the last years of the American Civil War (1861-1865), and given nearly 40 million acres of adjacent land grants, which it used to raise additional money in Europe, for construction funding.
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Northern Securities Co. v. United States, 193 U.S. 197 (1904), was a case heard by the U.S. Supreme Court in 1903. The Court ruled 5-4 against the stockholders of the Great Northern and Northern Pacific railroad companies, which had essentially formed a monopoly and to dissolve the Northern Securities Company.
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The following events occurred in May 1901: