The Panic of 1907, 2nd Edition

Chapter 2A Shock to the System

General affairs here are about as bad as they can be.

—J. P. “Jack” Morgan Jr., August 8, 1907

The earthquake and fire that destroyed 80 percent of San Francisco, starting on April 18, 1906, was unprecedented in U.S. history.¹ The quake was massive, with an estimated magnitude of 7.9.² In the wake of the temblor itself, broken gas mains fueled huge fires throughout the city. Disruptions to municipal water lines prevented fire suppression, and San Francisco’s mostly wood‐framed architecture only fed the fires. The conflagration eventually engulfed the city, leveling over four square miles, such that most historical accounts speak of both the earthquake and the fire as the source of the city’s destruction. San Francisco’s damages were reported to range from $350 to $500 million,³ equal to 1.2 to 1.7 percent of the U.S. gross national product in 1906.⁴

The strains from the catastrophe in California rippled quickly through the global financial system. At the time, San Francisco was the financial center of the West and home to the western branch of the U.S. Mint, so anything that disrupted business in San Francisco threatened the entire western region economically.

On the New York and London stock exchanges, news of the quake led to an immediate sell‐off in stocks and a significant drop in share prices. Economists Kerry Odell and Marc Weidenmier have estimated that the disaster led directly or indirectly to about a $1 billion decline (nearly 12.5 ...